How Effective Financial Management Reduces Your Risks
Financial management is essential to all organizations. Risk is a potential threat that can never be eradicated. It must be managed and dealt with so that revenue loss is minimized. Of all the potential risks in business, financial risk has the largest impact on running a business.
There are many strategies one can employ to anticipate and even avoid financial risks by having a solid financial risk management plan:
1. Prioritize Risks And Threats
Evaluate how likely the threat is to occur and implement plans to counter the risks with the highest likelihood of occurring first.
2. Limit Your Liability
Being a sole proprietor means that you are personally liable for the company’s debts. Think about transforming into a corporation or Limited Liability Company.
3. Maintain Standards
Keep a strict eye on the quality of the goods or services you are providing. Continually test and analyze what you are putting out into the market and do not become complacent when things are going well.
4. Insure Your Business
Have your company assessed to determine what types of insurance you need. Remember life, disability, and professional insurance as well as your short-term insurance for the assets.
5. Control Your Growth
Do not succumb to the temptation of expanding or diversifying too quickly. When things are going well, your team may want to grow but exercise caution in this regard.
6. Be Strict With High-Risk Clients
Don’t be too polite to ask customers with bad credit to pay upfront until they have a proven track record of good payment. Implement a procedure whereby you can identify poor credit risks in advance.
Who Should Manage The Risk?
If you have the time and the staff, you can appoint employees to head your risk management team. This is only recommended if you have someone within the team who has extensive experience in this area and is an effective manager.
Investing in an external risk management team is a worthwhile investment. Such a team will have the expertise to map out all the risks to your specific business. The team will be able to establish strategies and implement them in a timely way, resulting in the prevention or mitigation of those threats.
Stay Focused
Risk management is an imperative step for your ongoing success. Take action and start mapping out your risk management plan sooner rather than later.
Get in touch with the specialists at Dimensional Concepts for information on all aspects of your financial management – from implementation of systems to data collection methods to internal controls.