Is your financial risk strategy up to date?
If the pandemic – and now the Ukraine war – have taught small and medium-sized business owners anything, it is the value of staying agile in changing circumstances. Regular assessment of financial risks, and your strategies to meet them, will help to mitigate their short and long term impact.
Financial risk might best be described as any potential future situation that could cause your business to lose money. A business will have more control over some risks than others, but that doesn’t mean risks outside a firm’s control, such as energy and fuel prices, can simply be ignored.
For example, if part of your business involves visiting customers, fuel costs might be contained by reorganising service areas to reduce travel time for each journey.
If you focus primarily on sales and profitability your business’s overall financial position could get overlooked. However, cash flow is critical; poor cash flow has led to many business failures.
- Prepare regular cash flow statements so that future liquidity issues can be identified early.
- Where there is a lot of uncertainty, this can be built into cash flow projections.
- If customers regularly pay late, you could consider applying a late payment fee.
Weekly – or even daily – cash flow monitoring could be appropriate given current economic conditions.
Risks are inevitable, but a business will be better prepared to deal with them if it has a financial risk strategy in place. Since it is impossible to see the future, businesses should do their best to be prepared for the unexpected; and the key to this is agility.
Think about your business as a series of moving parts, not static fixtures and ask questions such as: What else can this asset be used for? Does this expense scale down if revenue falls? Can we quickly scale up if an opportunity presents itself?