Being aware of the risks that face your firm has always been important. But given the volatility of the current market – not to mention the continuing impact of an economic outlook that can, at best, be described as ‘consistently inconsistent’ – it’s more vital than ever to protect your business from situations that could put you in a difficult or even unviable position.
What is business risk?
Business risk is broadly defined as the potential for losses of any kind within a firm. Internal issues such as staffing and operational problems can play their part, but economic, regulatory, environmental, and geopolitical factors can be equally as significant in determining the fate of your venture. Any damage to your reputation, your revenue, or your market share could spell disaster for your long-term profitability and overall success.
By actively mitigating your business against these kinds of risks, you can spot potential catastrophes before they happen, and put the right processes in place to keep your company on an even keel, even in challenging times.
Defining the different types of risk
As finance directors, our expertise can be invaluable in mitigating financial risks, and this will be our primary focus. We will look at how your cash flow could impact your operations and your ambitions, as well as consider any pertinent risks associated with compliance, debt, liquidity, and M&A activities.
We can also be a sounding board when it comes to mitigating operational risks (such as when to keep manufacturing in-house, and when to outsource); compliance risks; supply chain risks; IT risks; safety and security risks; and environmental, criminal, and geopolitical risks that can be largely out of your control, but need to be considered nonetheless.
What actions can you (and we) take to minimise risk?
Assessing risk
Generally, the first step in the risk mitigation process is to carry out a thorough risk assessment. Doing so will help you identify any immediate threats, categorise them by type, and assess how likely they are to impact your business, and to what extent.
If it turns out there are potential issues on the horizon, you can focus on finding ways to elongate the runway.
Avoiding risk
This is particularly important if you’re looking to expand into new markets or territories, take out a substantial loan to invest in new staff or equipment, or acquire or merge with another firm. You will need to consider whether significant risk can be reasonably avoided without impacting the growth potential of your business.
Reducing risk
Sometimes, risk is unavoidable – and in this case, you must look at investing in systems, processes, and technologies that will reduce your vulnerability. For example, to keep your customers happy and retain your market share, you will need to ensure your products or services are of the highest possible quality; and to keep your business running in the event of an attack or an outage, you will need to invest in a comprehensive data recovery plan.
Simultaneously cutting costs and improving profit margins will help, even if you are not in immediate trouble. Reducing risk is also about having response procedures in place that can be called upon at a moment’s notice. For example, you may want to develop a redundancy plan that can be actioned quickly to reduce your overheads if you ever find yourself with potentially catastrophic cash flow problems. Even if you never need to go down this road, knowing you have options will give you extra peace of mind and prevent you from making knee-jerk decisions that could hinder your business’s recovery instead of gain you valuable time that will help you keep things afloat.
Transferring risk
This often involves outsourcing higher-risk activities to third party providers with specialist expertise – for example, contracting an external IT company to take care of your software, hardware, data server, and cybersecurity requirements. A crucial part of transferring risk is also ensuring suitable insurance cover is in place.
How can your part-time finance director help you recognise and mitigate risk within your organisation?
Finance directors have two parts to play in business risk mitigation: crisis prevention and crisis management.
- Crisis prevention involves being aware of potential threats and taking steps to reduce their impact.
- Crisis management means coming into the business at a make-or-break moment and doing everything possible to improve the company’s circumstances with the resources and within the timeframe available.
The advantage of bringing a part-time finance director into your business sooner rather than later is we will be actively working to reduce and manage business risks from the moment we are appointed. Crisis prevention is always at the forefront of our minds, and we will educate to mitigate; in other words, we will integrate into your executive team and add value by presenting your directors with an overview of what’s happening now, and what could happen further down the track, along with suggested actions that will help you and them tackle immediate problems.
We will, of course, help you tackle financial risk (and understand what level of risk is acceptable) – but we can also be on hand to provide strategic advice. In laymen’s terms, we can help you see the wood from the trees in times when perhaps your judgement is clouded and you’re unsure which direction to take.
Our team have decades of experience in achieving successful turnarounds for businesses of varying sizes and in all kinds of situations. Whatever pressures you are facing, we will use our knowledge and expertise to help you clarify and justify your next move.