5 Tips to help SMEs better manage financial risk
The ability of SMEs to grow largely depends on their ability to invest money to develop their businesses, and this usually means gaining access to internal or external financial sources. It’s therefore important that businesses have a financial risk management plan in place.
Financial risk management is important for any business but it’s crucial for SMEs that generally operate with narrow margins and low financial reserves. Mitigating your risk and preparing for the unexpected is something business owners should understand and plan for.
Here are our five top tips for managing your business’s financial risk:
1. Keep accurate financial records
Hire a bookkeeper or accountant to make sure your finances are accurately recorded from the outset. Without knowing your break-even point, cash flow or profitability, you can’t make decisions confidently and may make risky financial decisions.
2. Find a mentor
For the SME owner, having a mentor who can help you answer the big questions – are you ready to scale your business, or can you invest in new staff or equipment – is a valuable resource for mitigating the risk of making big mistakes.
3. Project your cash flow
Cash is king. When you run out of money, your business dies. For this reason, your cash flow forecast is your greatest risk-management tool.
4. Prepare for the unexpected
What will you do if your revenue evaporates overnight? Do you have a safety net, such as an open line of credit or a fall-back fund, to carry you through challenging times?
5. Stay on top of debtors
Where will you be if your customers don’t pay? Designing and implementing a debt collection strategy for your business ensures that your accounts receivable stay under control and that you’re able to collect money owing to you.