When operating a small or medium-sized business, SME, risks need to be reduced to ensure survival and growth. Handling risks is not easy, however, identifying it and devising ways in which it can be managed may prove to be of benefit in the long run.
This is because, small and medium-sized business SMEs, do not always have extra cash flow. Therefore, losing track of the small funds might not only threaten the survival of the business but also hinder growth.
What Are The Risks?
Risks including, loss of investments or low sales turnover are some of the uncertainties that usually put a small business on the verge of collapse. This is because of the little cash flow that small businesses usually have.
Others include bad credit, delay in payments from customers or loans the business takes in order to finance its operational needs. These should be taken with care as the business should ensure they are planned and preparation made in case of any loss.
Cash flow constraints also restrict SMEs from bringing on board professional manpower to aid in the aversion of risks. Building partners, however, can be very instrumental in assisting small businesses to know how to handle and prevent risks. Below are some of the tips and tactics on how you can protect your business from risks and uncertainties.
Understand the Risks
Identification of the risk is key when reducing it. This involves calculating and projecting business goals as well as the effect of the risks in case they become a reality. Both systematic and un-systematic risks should be taken into consideration.
Systematic risks are risks which affect the entire industry which the business might not be in a position to handle. Non-systematic risks, however, are unique and can be handled through careful planning.
Calculation of risks also means understanding the levels or risks involved. This means a business should try to understand the worst scenario case and how it can be handled for each specific risk. Planning has to be taken therefore in order not to extend credit to risky customers when the business is at risk. Customers with bad credit should also be limited on credit and therefore put on cash purchase only.
Improve On Cash Flow Management
Cash flow management is one of the risks small and medium-sized businesses always face. Improving on this can not only prevent loss but also enable the business to identify gaps in which liquid assets and liabilities are lost and created.
Knowing your cash flow means calculating all monthly expenses, Short-term assets, and liabilities as well as all the operational cost that is required in running the business. When taking this into consideration, a business is able to identify how long it can survive on its budget, how it can pay off its short-term liabilities and how it can manage a positive working capital. These play a major role when the business is planning on both the long term and short term financial objectives.
Getting insurance against the specific risks your business faces may prove to be of better benefit than general insurance risks, When identifying risks insurance can play a major role in assisting the business to thrive and grow instead of facing extinction in case the risk arises.
Is it fire, theft or third party security? When a business takes general insurance, some of the risks are not covered. General insurance may also be very difficult to claim and may impose heavy premiums on the business. Checking the risks a business will not only cut the cost of insurance but also ensure continuity of business in case the unexpended happens. The business should also invest in good insurance plans that will cover its losses in a timely fashion.
Business should also be keen to ensure all the potential risks and not only specific ones. Ensuring a car, for example, potential risks such as theft and fire should be taken into consideration. This, however, does not state that other risks may not create a loss. Getting a risk covered should involve all the risks that are prone to occur and careful analysis being taken to consider what should and what should not be insured.
When averting risks, a small or medium-sized business SME, needs not only to understand the risk but also create a network of partners that can assist to fight off the same. Getting partners such as Momentum Credit, can assist a business to identify, manage the risk and get finance in times of need. This is driven by our ability to change according to the trend and the need for the financial world and our main aim which is to expand your possibilities.