It's Q4, which means finance teams across mid-market and high-growth businesses are deep in budget planning mode. Revenue models are being stress-tested. Hiring plans are being justified. Marketing ROI is being debated.
But there's one variable that could blow up your entire 2026 plan, and most CFOs aren't even measuring it properly: foreign exchange risk.
Here's the uncomfortable truth: if your business operates internationally - whether you're buying from overseas suppliers, selling to foreign customers, or both - your budget is probably already wrong. And you won't know by how much until Q2 or Q3 of next year, when it's too late to do anything about it.
The EUR/USD Wake-Up Call
Let me give you a real example from this year (2025).
In Q4 2024, as finance teams were building their 2025 budgets, EUR/USD was trading around 1.05. Every major bank forecast pointed to the same range. FX brokers repeated the consensus. So most European businesses with USD exposure locked that number into their planning models and moved on.
Fast forward to 2025: EUR/USD spent most of the year above 1.15.
That's not a minor variance. That's a 10% deterioration for European exporters selling into the US market.
What does 10% actually mean?
Let's make this concrete. Imagine a €100M European software company with 50% of revenue coming from US customers:
- Budgeted EUR/USD rate: 1.05
- Budgeted EUR revenue from USD sales: €47.6M
- Actual EUR/USD rate: 1.15
- Actual EUR revenue from USD sales: €43.5M
The gap: €4,100,000
That's not just an accounting line item labelled "FX gains & losses." That's your EBITDA target walking out the door. That's the buffer you built into your plan for unexpected costs. That's potentially the difference between hitting or missing your board commitments.
And this isn't a hypothetical. This is exactly what happened to businesses this year.
Why Smart CFOs Keep Making This Mistake
I've worked with hundreds of finance teams over the past two decades, from major corporates to fast-growing mid-market businesses. The FX planning blindspot isn't about incompetence - it's structural. Here's why it keeps happening:
1. Planning in a single currency creates false precision
Many businesses plan their entire budget in their home currency. That makes sense for simplicity, but it creates a dangerous illusion: you see one clean revenue number, one clean cost number, one clean margin.
What you don't see is that underneath those numbers, you might have:
- 30% of your revenue coming in USD
- 15% of your COGS denominated in EUR
- 10% of your costs in GBP
Each of those currency relationships is a moving part. When you collapse everything into one currency for planning, you lose visibility of how those parts interact—and which movements would hurt you most.
2. Relying on "expert forecasts" that aren't really expert
Here's a secret from my years running FX trading desks: nobody knows where currencies will be in 12 months. Not banks. Not economists. Not hedge funds.
Yet every Q4, FX brokers and bank research teams publish their annual forecasts with impressive decimal precision. EUR/USD will be 1.048. GBP/USD will be 1.273.
Finance teams treat these forecasts like facts and plug them into their models. But these are educated guesses at best, and they're often just anchored to wherever the spot rate is today - as the EUR/USD example perfectly illustrates.
3. "Set it and forget it" mentality
Even when CFOs pick an FX rate for their budget, they rarely take the next logical step: stress-test what happens if they're wrong.
What if EUR/USD moves 5% against you? What if it moves 10%? At what point does your margin target become unachievable? At what point do you need to raise prices or cut costs to compensate?
Most finance teams don't run these scenarios because they're focused on the base case. They want to land on "the number" and move forward. But currencies don't care about your base case.
4. Discovering the problem when it's too late
By the time most CFOs realise their FX assumptions were wrong, it's Q2 or Q3. The budget is set. Commitments have been made to the board. Hiring plans are underway.
At that point, your options are limited and painful:
- Revise your forecast downward (and explain why you missed)
- Squeeze costs elsewhere to compensate (and risk hurting growth)
- Accept the hit to margins (and hope it doesn't get worse)
The time to address FX risk isn't after it shows up in your actuals. It's now, during budget planning.
What To Do About It: 4 Actions for Your 2026 Budget
Alright, enough doom and gloom. Here's what you should actually do differently as you finalise your 2026 plan.
1. Run +/-10% FX scenarios as a bare minimum
Before you lock your budget, run it through two additional scenarios:
- Scenario A: Every currency you're exposed to moves 10% against you
- Scenario B: Every currency you're exposed to moves 10% in your favour
This takes maybe an hour in Excel or your FP&A tool, but it gives you critical insight:
- How much cushion do you actually have?
- Which currency relationships matter most?
- At what point do you blow through your margin targets?
If a 10% move would crater your plan, you need to either build in more buffer or consider hedging. If a 10% move barely registers, you might have more flexibility than you thought.
2. Use proper tools to quantify your actual exposure
Spreadsheets are fine for scenario analysis, but if you want to really understand your FX risk, you need better visibility into your exposure.
This is where platforms like HedgeFlows come in. By connecting your ERP or accounting system, you can:
- See your real-time currency exposure across AR, AP, and forecasted transactions
- Quantify exactly how much risk you're carrying in monetary terms
- Get automated alerts when exposures cross thresholds you've set
- Model different hedging strategies before committing to them
This isn't just about having fancier dashboards—it's about making FX risk visible and quantifiable so you can make informed decisions instead of flying blind.
3. Consider whether cashflow hedging makes sense for you
Here's the fundamental question: would you rather have certainty about your FX rates, or take your chances with the spot market?
For many mid-market businesses, the answer is certainty—especially when it comes to protecting budget rates.
Cashflow hedging means locking in FX rates for future transactions (like sales to foreign customers or purchases from overseas suppliers). You use forward contracts or options to guarantee the rate you'll get when those transactions settle.
The benefit isn't that you get a "better" rate - it's that you get the rate you planned for. You remove the FX variable from your budget and eliminate the risk of nasty surprises.
Is hedging right for every business? No. It depends on:
- How much of your budget is exposed to FX
- How volatile the relevant currencies are
- Your risk tolerance as a business
- Whether you have the operational capability to manage hedges
But if FX swings could meaningfully damage your ability to hit targets, hedging deserves serious consideration.
4. Implement a proper FX risk management policy
If you're regularly dealing with multi-currency operations and this FX blindspot keeps causing problems, it's time to formalise how you handle currency risk.
A solid FX risk management policy defines:
- What exposures do you measure (transactional, balance sheet, forecasted)
- What your risk tolerance is (how much volatility is acceptable)
- When and how you hedge (trigger points, hedge ratios, instruments)
- Who's responsible for what (decision rights, execution, reporting)
- How you monitor and report (dashboards, KPIs, board updates)
This might sound like "enterprise-level" stuff, but mid-market businesses absolutely benefit from having clear policies. It takes FX risk management from ad-hoc reactions to a systematic, repeatable process.
If you don't have in-house treasury expertise, work with specialists who can help you design and implement a policy that fits your business reality—not some over-engineered corporate template.
Stop Treating FX as an Accounting Problem. Start Treating It as a Strategy Problem.
Here's my challenge to you as you finalise your 2026 budget:
Stop treating foreign exchange as a line item that finance deals with after the fact.
Currency risk is a strategic issue that directly impacts your ability to deliver on the plan you're about to present to your board. It affects your competitiveness, your margins, and your ability to invest in growth.
The good news? You still have time to get this right. Q4 is exactly when you should be:
- Quantifying your FX exposure in your 2026 plan
- Running scenarios to understand your vulnerabilities
- Deciding whether hedging makes sense for your business
- Putting the right tools and policies in place
Your competitors who take FX risk seriously will have more predictable margins and fewer budget surprises. They'll be able to commit to aggressive growth plans because they've removed a major source of uncertainty.
You can be one of those businesses.
Want to see exactly how much FX risk is hiding in your budget?
HedgeFlows can show you your real exposure in minutes by connecting to your existing systems. Let's talk: hello@hedgeflows.com
Need help thinking through your hedging strategy?
Book a free consultation with our team: hedgeflows.com/contact
