Posted on: Wednesday, February 16, 2005

Minimize impact of weak dollar

By Rhonda Abrams

The dollar is falling! The dollar is falling!"

Please, don't call me Chicken Little. I'm not saying the sky is about to cave in, but you should be aware of something that will have an impact on your business: the U.S. dollar is falling.

In 2001, when I visited Australia, an Australian dollar cost about 51 cents. I stayed at upscale hotels, scuba-dived at posh resorts, and ate at trendy restaurants. Everything seemed really inexpensive. Today, however, an Australian dollar costs about 77 cents. Not quite the bargain. Europe is worse. In 2002, when the euro was introduced as the currency for most of the European Union, the dollar and euro traded about evenly. Now, it costs about $1.30 to buy one euro. As a result, everything in Europe costs 30 percent more when using U.S. dollars.

If you're not planning a trip to France, what's this got to do with you and your business?

Actually, a weaker dollar can have a significant impact on your bottom line. Let me simplify the economic effects of a weak dollar:

As the dollar gets weaker, it costs more to buy foreign goods, including oil. Thus, the price of everything the United States imports increases, as does the cost of shipping and energy. Because the dollar isn't as attractive as other currencies to foreign investors, and the United States depends on such investors, banks have to offer higher interest rates. Add the huge federal deficit (one of the reasons the dollar is weaker in the first place), and interest rates keep going up.

Now, here's the good news: American products become more competitively priced; our trade deficit will hopefully decline, helping bring down the deficit, and all that should be good for American businesses.

Whatever the long-term consequences, in the immediate future, it's clear that the dollar is going to be anemic. This means you should consider what steps you can take to minimize the effects of a weak dollar on your business. With some planning, you may actually be able to take advantage of a weak dollar. Here's how:

• Seek U.S. suppliers. If your inventory, materials, or services come from international suppliers, now's the time to start shopping American. Sure, when the dollar was stronger, foreign suppliers seemed cheap. But as their prices rise because of exchange rates, U.S. suppliers may be much more competitive.

• Seek American customers. Do you compete with international suppliers for American customers, especially American business customers? Now's the time to compete aggressively, as your prices may seem more attractive. Let's say you design and manufacture quality fashion accessories. Many potential customers — upscale boutiques — buy inventory from Europe. But the weak dollar means prices for imported goods are skyrocketing. Get out there and get a piece of that action.

• Seek international customers. America is on sale. U.S. products and services are now a bargain to many foreigners. If you've been considering exporting, especially to Europe, now's a good time to exhibit at a foreign trade show. If you're in a travel-related industry, reach out to international travelers. List your bed-and-breakfast on international travel Web sites, contact foreign travel agents to tell them about your guided tours.

• Seek low, fixed interest rates. The Federal Reserve has signaled that it intends to gradually raise interest rates. It's likely the prime rate will increase by at least one full percentage point in 2005. Start looking for long-term, fixed loans instead of variable rate loans.

Rhonda Abrams is the author of "Six-Week Start-Up" and "What Business Should I Start?" You can register for her free newsletter at www.planningshop.com.