Quick Guide to Managing Financial Risk in Business

by Daryl Seaton

in financial risk

30 Nov 2019

There are nearly 30 million entrepreneurs in the United States as of 2019.

Running a business can be one of the most lucrative endeavors you take part in. But, it’s not without its areas of concern.

All businesses pose some form of financial risk. Luckily, though, there are steps you can take to manage it.

Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know about taking control of your company’s financial risk.

What Exactly Is ‘Financial Risk?’

Specifically, financial risk refers to the risks involved in managing the company’s money. This includes making transactions, going into debt, and the possibility of suffering a loss financially.

General factors that influence a company’s level of risk include:

The instability of the industry’s market
Decisions made by parties outside of your control, such as suppliers or vendors
Legal issues
Internal factors

Put simply, there is a wide range of factors that could adversely impact your company’s financial situation. So, it’s important that you learn how to minimize your chances of encountering any issues.

So, How Do I Manage It?

While the term “financial risk management” is fairly straightforward, the next steps to take aren’t always obvious.

Let’s dive into how you can do so.

Identify Potential Risks and Their Causes

These are different in each industry. But, a little introspection goes a long way when determining how to protect your business.

If you’re dealing with a client who is notorious for paying late, you’ll need to find a method to resolve that situation. Similarly, if one of your brand ambassadors hasn’t been pulling their weight lately, it’s time to start planning.

Weigh The Impact They Could Have on Your Business

Some risks need more attention than others. For example, the risk of an employee underperforming during a client meeting should be relatively low (if not non-existent).

The risk of encountering legal issues in the cannabis industry, however, is much greater.

So, take the time to determine which risks require immediate attention and which ones can be handled when you encounter them.

Develop Strategies to Address Them

After you’ve identified areas of concern, it’s time to come up with a plan.

Once again, this will vary greatly from industry to industry. There could even be a large difference in strategies between two businesses that operate in the same field.

But, proper planning will significantly minimize any negative consequences your company experiences.

A great way to start is to take focus on the most significant risks your business faces and come up with multiple ‘what-if’ scenarios.

If x happens, how will you react? Or, if x goal isn’t met, are there any negative effects that could disrupt your business processes?

In general, the more thoroughly you plan, the less likely you are to encounter any setbacks.

Managing Financial Risk Can Seem Difficult

But it doesn’t have to be.

With the above information about your business’s financial risk in mind, you’ll be well on your way to managing your financial risk.

Want to learn more about how to maximize your investments? This article has plenty of useful information.