Budgeting When the Shilling Moves: A Practical Approach

If you import stock or borrow in dollars, exchange rate movements can erase your margin. Here is how to build a budget that copes.

Many Ugandan businesses earn in shillings but pay for stock, equipment, software or loans in US dollars. When the exchange rate moves, costs change overnight. A budget that assumes one fixed rate for the whole year will not survive.

Identify your exposure

List every cost and every income line that is linked to a foreign currency, directly or through supplier pricing. Add them up. This is the portion of your budget that is at risk, and it is often larger than owners expect.

Budget with three scenarios

Prepare a base case using your best estimate of the rate, then a weaker-shilling and a stronger-shilling case. You do not need to predict the market. You need to know how your profit changes under each, and at what rate the business becomes loss-making.

Protect your margin

• Review selling prices regularly and build a clause into contracts that allows price adjustment when costs move
• Pay suppliers earlier when the rate is favourable, if cash allows
• Where possible, match currencies: dollar costs against dollar income, shilling debt against shilling income
• Ask your bank about forward contracts for larger, predictable payments

Keep a buffer

Hold a contingency line of a few percent of your foreign-currency costs. It is cheaper to carry a small buffer than to explain a shortfall to your lender.

Review monthly

Compare actual results with the budget every month and update the forecast. A budget is a working tool, not a document you file in January.

We help clients build flexible budgets and scenario models. Get in touch if you would like to review yours.