Multi-currency finance for a founder-led company comes down to four decisions: which currency the business is measured in, which exchange rate the budget uses, how monthly results separate real performance from currency moves, and how much of the remaining exposure is worth protecting. Get those four right and euros, dollars and forints become a manageable line in the board pack instead of a monthly surprise.
Late October is when this matters most. Next year's budget is being built now, and the exchange rate you put in it decides whether your cost base, your margin and your runway are right in dollars or only right in euros. A budget without an explicit FX assumption still has one; it is just hidden in whatever rate someone typed into the spreadsheet in September.
Why do EU/US companies get caught out by currency?
Because revenue and costs rarely sit in the same currency. The typical patterns look like one of these:
- A US-facing SaaS company with a European team. Revenue in dollars, salaries in euros, forints, zloty or pounds.
- A European company that sells into the US. Costs in euros, a growing share of revenue in dollars, investors who may report in either.
- An e-commerce brand buying from Asia. Supplier invoices in dollars, sales in euros, stock paid for months before it is sold.
In each case a 10% move in EUR/USD changes margin without anyone doing anything differently. Over the last decade EUR/USD has traded roughly between 0.95 and 1.25, so a move of that size within a single budget year is not a stress case; it is the kind of swing worth planning for.
The second trap is reporting. If the board sees revenue growth in euros while half the revenue is invoiced in dollars, nobody can tell whether the sales team had a good quarter or the dollar did.
Which currency should the business be measured in?
Accounting standards answer part of this for you. Under IFRS (IAS 21) and US GAAP (ASC 830), each legal entity has a functional currency: the currency of the primary economic environment it operates in, usually the one that mainly drives its prices and its costs. The books of that entity are kept in that currency, and transactions in other currencies are converted into it.
That is not always the currency of the country the company is registered in. A Hungarian subsidiary that sells almost entirely in euros and pays its main suppliers in euros may have the euro as its functional currency, and several EU countries allow, under conditions, statutory books to be kept in a currency other than the local one. Check the local rules before you assume either way; the tax return and the statutory accounts will often still need local-currency figures.
Separately, the group has a presentation currency for the consolidated accounts and, in practice, the board pack: usually the dollar for a company raising from US investors, the euro when investors and lenders are European.
The practical rule for management reporting: pick one reporting currency for the board, the budget and the KPIs, and use it everywhere. Mixing a euro P&L with dollar ARR and a forint cash balance in the same pack is how people stop trusting the numbers.
How do you choose a budget exchange rate?
You need one rate per currency pair, fixed for the year, written on the first page of the budget. There are three common ways to pick it:
| Method | How it works | Good for | Watch out for |
|---|---|---|---|
| Spot rate at budget date | Use the rate on the day the budget is finalised | Simplicity, small exposures | One day's rate can be unrepresentative |
| Recent average | Average of the last one to three months | Smoothing out a volatile week | Still backward-looking |
| Forward rate | The bank's 12-month forward rate | Companies that hedge, or with large exposures | Forward rates reflect interest-rate differences, not a forecast of where the currency will go |
None of these is a forecast, and the budget should not pretend to be one. The purpose of a budget rate is to fix a yardstick, so that variances later in the year can be split cleanly into "the business did better or worse" and "the currency moved".
Two additions make the budget much more useful.
A sensitivity table. Show what the year looks like at the budget rate and at, say, 10% either side. Here is an illustrative example for a company invoicing $3.0M a year in dollars with a €2.2M euro cost base, reporting in dollars:
| EUR/USD (illustrative) | Revenue (USD) | Euro costs in USD | Contribution (USD) |
|---|---|---|---|
| 1.00 | $3.00M | $2.20M | $0.80M |
| 1.10 (budget) | $3.00M | $2.42M | $0.58M |
| 1.20 | $3.00M | $2.64M | $0.36M |
All numbers are illustrative, not a forecast. The point is the shape: a ten-cent move in the rate takes away or adds more than a third of contribution. If your runway depends on the left-hand column, the board should know that before approving the plan.
A runway line at the downside rate. If euro costs dominate and cash is held in dollars, the runway calculation should also be run at a weaker dollar. Runway that exists only at the budget rate is not runway you can rely on.
For the rest of the budget mechanics (calendar, owners, phasing) see the annual budgeting process. The FX rate is one line on its assumptions sheet, but it should be there explicitly.
How should monthly results separate performance from currency moves?
Report key lines at constant currency alongside actual reported figures. Constant currency means restating this period's results at the budget rate (or at the prior-year rate, for year-on-year growth), so the difference between the two figures is the currency effect and nothing else.
A simple monthly variance bridge for revenue looks like this:
- Budget revenue at the budget rate.
- Volume and price variance: actual revenue restated at the budget rate, minus budget. This is the performance the team is accountable for.
- FX variance: actual revenue at actual rates, minus actual revenue at the budget rate. This is the currency effect.
- Actual revenue as reported.
Do the same for the cost base. The commentary then writes itself: "Revenue was 4% ahead of budget at constant currency; a weaker dollar reduced reported revenue by 2%." The board learns two different things, and the sales team is neither blamed nor praised for the exchange rate. The general method is in variance analysis for startups.
For a company under $20M of revenue, a constant-currency view of revenue, gross margin, total operating costs and cash is enough.
What does clean multi-currency bookkeeping look like?
Most multi-currency pain is reconciliations that never quite agree. A few habits prevent most of it.
One rate source, written down. Pick one source of daily rates and use it consistently in the ledger. For euro-based companies the ECB's reference rates are a common choice; the ECB publishes them on working days around 16:00 CET and states that they are for information purposes. Most cloud ledgers pull daily rates automatically; check which source yours uses and that nobody overrides it.
Bank accounts in each major currency. Holding a dollar account for dollar receipts and dollar payments avoids converting twice. Each currency account is then reconciled in its own currency, which is far easier than chasing differences in a converted balance.
Know which balances are revalued. Under IAS 21 and ASC 830, monetary items in a foreign currency (cash, receivables, payables, loans) are retranslated at the closing rate at each period end, and the difference goes to the P&L as an FX gain or loss. Non-monetary items, such as prepaid expenses and fixed assets, stay at the historical rate. Revaluation should be a standard step in the close, not a year-end clean-up; it is one of the tasks in our five-day close calendar.
Separate realised from unrealised FX in the chart of accounts. Realised gains and losses arise when an invoice is actually paid at a different rate from the one it was booked at; unrealised ones come from period-end revaluation. Keeping them on separate accounts, below gross margin, stops currency noise from distorting operating results.
Watch intercompany balances. A US parent funding a European subsidiary creates an intercompany loan in one currency or the other, and someone carries the FX risk. Decide the currency deliberately, settle or document the balance regularly, and make sure both sides of the loan agree in the same currency every month. Unreconciled intercompany balances are the most common reason consolidations do not tie out. When the subsidiary is translated into the group's presentation currency, assets and liabilities go across at the closing rate and income and expenses at transaction rates (an average rate is a usual approximation), with the difference recorded in other comprehensive income, not the P&L.
VAT and sales tax in the right currency. In the EU, an invoice may be issued in any currency, but the VAT amount has to be stated in the national currency of the member state concerned, using a permitted conversion rate. Make sure your invoicing tool does this, or your VAT return and your ledger will disagree. In the US, sales tax is calculated and remitted in dollars.
Should a small company hedge currency risk?
Usually less than founders expect, and more deliberately than most do.
Start with natural hedges, which cost nothing:
- Match currencies. Pay costs in the currency you earn, where you can. Contractors and suppliers often accept invoicing in dollars or euros if asked.
- Hold cash in the currency of upcoming payments. If the next six months of euro payroll is known, keeping roughly that amount in euros removes most of the exposure. Convert the surplus, not everything.
- Price in the customer's currency deliberately. Selling in dollars to US customers is usually right commercially, but it should be a choice made with the cost base in mind, not an accident.
Then consider financial hedges for the exposure that remains:
- Forward contracts lock in a rate for a known future payment or receipt, such as a large supplier payment or several months of payroll. They have no upfront premium but commit you to the trade; if the underlying payment falls through, you still have to settle the contract.
- Options protect against an adverse move while keeping the upside, at the cost of a premium paid up front.
A sensible policy for a company under $20M of revenue fits on one page: what share of the next 6 to 12 months of net exposure is hedged, which instruments are allowed, who can approve a trade, and how results are reported. Hedge the exposure the company actually has, not a view on where the currency is going. A finance lead who is "taking a position" on EUR/USD is speculating with the runway.
If you do hedge, decide early whether you want hedge accounting under IFRS 9 or ASC 815. Without it, changes in the value of forward contracts go through the P&L each month and can make results look more volatile than the hedged business really is. The documentation has to be in place when the hedge starts.
FAQ
What exchange rate should I use in my budget?
Use one fixed rate per currency pair for the whole year, typically the spot rate or a one-to-three-month average at the time the budget is finalised, or the 12-month forward rate if you hedge. Show a sensitivity at 10% either side so the board sees what a currency move would do to margin and runway.
What is constant-currency reporting?
It restates current results at a fixed rate, usually the budget rate or last year's rate, so that growth and variances reflect business performance rather than exchange-rate moves. The difference between constant-currency and reported figures is the FX effect.
Do FX gains and losses belong in operating profit?
For management reporting, it is clearer to show them below operating results, split into realised and unrealised. That keeps gross margin and operating costs comparable from month to month. How they appear in the statutory accounts depends on your accounting framework and local rules.
When is it worth hedging currency risk with forwards?
When a known future payment or receipt in a foreign currency is large enough that an adverse move would hurt margin or runway, and natural hedges such as matching currencies and holding cash in the right currency do not cover it. Many small companies need only natural hedges and a clear policy.
Where to start
Before the budget is signed off, write down three things: the reporting currency, the budget rate for each currency pair, and the contribution and runway at 10% either side of that rate. Then check that the ledger uses one rate source and that FX gains and losses sit on their own accounts. That is a half-day of work, and it makes every board pack next year easier to read.
If you want an outside view of how your planning and reporting hold up, the free financial diagnostic takes five minutes. If you would rather work through the currency set-up and the budget assumptions together, get in touch.