How To Start Forex Business In Nigeria
Shippers Guide is the learning page of MMS Plus newspaper. Here you learn the 5Ws and most important ‘H’ on various aspects of shipping. This week, we will take you through a detailed process of how to start money exchange business in Nigeria.
Starting a currency exchange is a great business venture. It has the potential to be a very successful and profitable business. The idea is to locate yourself where there are travelers and provide the much-needed service of exchanging one country’s currency for the other, charging the traveler or consumer a moderate fee for the transaction.
Getting into the currency exchange business is just like starting any other business. It involves having a good business plan and source of financing. There are some essential factors to consider when planning to start a currency exchange business.
The world of currency throws up many interesting and profit making employment opportunities.
With technology easing out the process of handling money internationally, geographical location seems to matter less and less. One convenient option is the money changing business. In today’s global market place, money exchange has a very crucial position.
It facilitates easy buying/selling of goods across borders. Also with the rise in international travel, the need to exchange money is growing. Therefore, the presence of an easy money exchanger is being felt increasingly.
The question that confronts us now is how do you capitalize on this opportunity?
What Is a Money Exchange Business?
A business of exchanging currency involves transfer of money from party A to party B in exchange of another currency of equal value. This is what the regular banks and travel companies like Thomas Cook do. However, there are some popular money exchange firms like of Western Union and PayPal.
This is significantly different from money transfer companies that are involved in international remittances. You have the option to set up store or conduct business solely online depending on your preferences and opportunities. The criterion for starting a money exchange business might vary from state to state.
However, the starting capital is not huge. You could kick it off with as basic facilities as a spare room, an additional computer and one internet connection. There are conditions at certain times about the necessity of having a minimum net worth and even providing a surety bond.
But, it does not have a limiting role. Rather the scope and the opportunity gets the required push backed by these conditions.
How to Start a Money Exchange Business?
The starting capital might not be huge for establishing a money exchange business. However, it is one which needs strict adherence to norms and regulations, especially give the huge amount of money involved.
Decide on a Location
The first and foremost, like all other businesses, involves deciding on a venue to set up your money exchange business. You should target a location keeping the customers in perspective. Some place that can accessed easily and is never too far from any corner of the town.
A place that has the potential to attract maximum clients, is the best. Also the presence of a potential competitor needs to carefully analyzed. Ensure that you are not competing with too many other money exchanges.
Having to compete with too many competitors, will have some serious problems sometimes:
It can rob you off the bargaining position.
At the same time in an effort to give a competitive quote it could even force you to at times compromise on your margins as well.
Need to Get License & Pay Fees
The money exchange business needs a series of licenses and regulations. Normally these norms vary from state to state. Not having the required license is considered to be a criminal violation. Each state has a separate licensing department.
Individuals interested in starting this business, need to apply for these departments. They have to get the required nod before proceeding any further. The other associated step is paying up the required fees in this aspect.
This again is a state regulation and dictated by the individual requirements of every state. Payment of these fees to the right authorities, prevents unfair trade practices and corruption possibilities. Also this helps you conduct your business in a peaceful manner without disturbances and interruptions resulting from sudden check and resultant penalty service.
The basic operating procedure involves obtaining a Registration of Money Services Business application and submitting it to the Financial Crimes Enforcement Network. P
Opening a Merchant Bank Account
With so much of money changing hands, presence of a bank account is almost the basic requirement. You need to create a merchant bank account in any bank of your choice.
This account helps you in accepting payment, forwarding advances and paying your customers as per the needs of your business and those you are doing business with. Also a bank account helps in convenient account keeping and the chances of unaccounted for payment are significantly cut down as a result of this.
Also with a merchant bank account, you can expand the horizons of your business quite easily. The bank enables simple transactions over the net regardless of the time and location. This helps you in providing prompt service to your clients and thereby enhancing your service efficiency.
Reporting of Taxes and Record Keeping
Business best practices are what help you in furthering and progressing your money exchange firm. In this respect paying of taxes on time is very important. The Internal Revenue Services department in US needs individuals engaged in money exchange business to report their earnings in dollar terms to the Govt.
All the reporting needs to be done in a fashion that the Govt gets an exact idea of the earnings outlook and the right amount of tax is levied on it. Effective tax paying also needs proper record keeping. Maintaining a proper tab of all the cash inflow and outflow will facilitate this for you.
This also limits the scope of potential money laundering and business malpractices. Whether you maintain a daily cash sheet or a monthly statement, it depends on your convenience and the regulations of your reporting state to a lot extent.
Also all fee receipts, bank statements and related records should be maintained for easy examination by Govt authorities whenever the need arises. Record keeping also helps in creating good will and credibility about your business.
Understanding the Process
Another key requisite to start of money exchange business is understanding the business process and its many myriad nitty-gritty. To avoid difficulties while operating it, you will benefit a lot by spending time understanding the basis before you take the plunge.
Money exchange needs you to be alert and agile to take advantage of the currency fluctuation and maximize your margins. Try to look around and create a niche that helps you to lock in maximum profit while still keeping your customers happy and giving them a favorable rate.
This will help you increase the recall factor for your firm. When your customers realize that they are getting a better rate, they will go the extra mile to get their money exchanged from you and also spread the word. Needless to mention that propaganda through word of mouth is the most effective ad tools.
Strategies to Further Your Business
Now we reach the next milestone. Once you have established your business, the next port of call is how to make it profitable and what kind of strategies should you employ to maximize your returns from it.
Like any other business, the ultimate motive is profit and the effort is to maximize is as best as possible without compromising on best practices.
Here is a look at what most money exchangers try to do to achieve that goal in a way that the business turns profitable as well as starts reaping benefits as early as possible.
Need to Have a Plan:
At the very behest it is better to draw a business plan and execute according to this. For example set the target of customers you plan to cater and fix overseas partners who will ease out cash flow in other countries.
This will also give you a realistic idea of the exact type of cross border payment requirement and how effectively you can use your resources towards that end.
A plan will also help you get a heads up upfront about any potential road block you might face and ways to recover.
This is another effective means to minimize cost, maximize your benefits and ensure prompt service, especially for small time money exchanges.
Spot payment means you are buying/selling currency at the spot rate or the current rate of exchange. Relatively smaller payments which are not very regular in nature benefit the most from these kinds of transactions.
This is also helpful if you need to exchange currency fast. However a prerequisite for this is a provider with low fees. Look for dealers with a comfortable spread between the sell and buy rate. That will benefit you the most.
Foreign Currency Account:
If you have a significantly high transaction in a specific foreign currency, one option for you could be a foreign currency account. Keeping cash ready in that currency will give you an edge while dealing with your clients and facilitate quick exchange service even at a short notice.
Another benefit is this kind of account also limits the need for multiple currency transfers. This can only mean more savings for you. Lesser transactions surely mean lesser amount of tax and payment of fees. You can also pass on the benefit of lower transaction costs to your customers.
Benefits of Hedging:
If you thought hedging was only for forex traders then you are seriously mistaken. Hedging your positions with a forward contract is one of the best ways to preserve your profits and avoiding the risks of sudden currency fluctuation. A forward contract is nothing but buying a set of currency at a pre-determined rate.
This is useful especially if the rates turn unfavorable. Given the limited resources of small businesses, this can help them get a leeway in terms of an insurance against sudden fluctuation in currency prices. Also it helps you to get an idea of future price trends and take positions accordingly.
Using Currency Option:
The currency option is another forex market tool that can be used effectively by money exchangers to enhance the bottom-line of their balance sheets. A currency option is another forward looking tool which sets the projected currency rate for a future date. The currency option is the record that you get.
The best part is the investor is under no obligation to exercise these options. If the currency rate turns favorable even before that, all you need to do is take the spot rate and forego the currency option.
Buying limit orders can be another great way to boost the returns from your money exchange business and also it is an effective way to manage your business. This is also futuristic in approach where you buy a specific currency when the rate hits a pre-determined target.
An account manager will assist you in buying limit order as an when the currency rate goes and hits the desired target price. The benefit of this is you get some amount of flexibility in terms of making payment as the rate is pre-decided but the actual payment happens later.
Internet has not just eased up the convenience factor in monetary transactions but it has also helped in cutting down cost of such transaction. Both cash management as well as payment visibility is enhanced many times through online transactions and at the same time all of it becomes hassle free.
Settlement of invoices with outstation and overseas client base as well as vendors also becomes relatively simple and easy to track without any additional expense incurred by either party. Interaction and payment procedures, especially in case of foreign vendors also become relatively simple via online method.
Look at Settlement in Local Currency:
The idea for any business is maximizing your profit and never lose track of this basic requirement.
Whenever you are settling bills, invoices and expense accounts with your overseas clients and vendors, go for a settlement procedure in the local currency.
Also making deals with vendors in their local currency will help you negotiate better for potential discounts and possible deals that would be otherwise have been impossible if you were making settlement in a standardized currency with a pre-decided rate.
Thus, the trick to running an effective money exchange business is making a strong plan and executing and implementing the business processes in accordance to that.
Effective and efficient currency exchange is a very lucrative business opportunity that can yield huge returns if executed with a strong profit motive and a constant eye on future trends to maximize once exposure in profitable ventures.
Also, do not bother about exchange rates too much. Play it by the ear and take on opportunity as it comes. At the same time always be alert about the events globally and how they could potentially impact your business.
This will not just help you boosting profit but also give you a considerable leverage in case the forex market sees some unfavorable developments.