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How to Manage Financial Risk for Your Business

How to Manage Financial Risk for Your Business

As a business owner, it’s your responsibility to ensure that your business is well fortified against heightened financial risk, but there are numerous elements which can jeopardize the standing of the business, such as poor record-keeping, the unbalanced distribution of supplier risk, and failing to keep up with trends. So how do you keep your business afloat? In this article, we strategically take you through financial management risks and how to best handle them for your business.

Effective Credit Control to Protect Against Bad Debt

An accumulation of bad debt can affect the financial health of a business, leading it to quickly spiral downwards as a result of poor payment practices. Bad debt is when a customer fails to pay for services delivered, later resulting in the debt to be written off, contributing to a loss of earnings for the business. By enforcing tight credit control measures, identifying a payment before it is due to be paid, and strategically chasing payments before they fall into the bad debt category, you can shield your business against high-risk clients and the possibility of bad debt.

Delays in payments could seriously stagger cash flow, affecting the financial ability of the business to invest, purchase stock, and maintain financial commitments, so it is important that you mitigate this financial risk.

Unlock Capital Through Invoice Factoring

If you require excess funds to invest in new projects, meet customer demand, and expand your product range, a finance facility, such as invoice factoring, may be the ideal solution. Invoice factoring is a form of invoice finance which releases funds tied up in invoices following the delivery of a service. This will lend against the value of the invoice, cutting out the waiting period for funds which could last days, weeks, or even months. This form of finance can unlock capital to help you secure more contracts, fulfill larger orders, and help the business grow without restrictions to capital.

Dependence on Core Clients To Stay Afloat

If you are a small to medium business, a common result of securing a high-value order or large-scale client is redirecting the majority of your manpower and capital to fulfill the sale. This is a high-risk tactic which could threaten the lifeline of your business if the client you’re trading with becomes insolvent, switches suppliers, or ceases trading. To spread the financial risk, widen your clientele list and ensure that you’re securing business from a variety of parties. If your largest deal falls through, you can cushion the blow rather than allowing it to destabilize your business.

Hire A Bookkeeper to Manage Your Financial Records

By maintaining financial records, you can identify pressure points, forecast if the business will run out of cash, and ensure that you are operating efficiently. By reviewing spending patterns, budget allocation and your tax strategy, a skilled bookkeeper can also help you maximize earnings. Failing to keep accurate records without a bookkeeper could mean missing warning signs indicating that your business is approaching high financial risk, which would require you to inject capital or carry out a cost-cutting exercise.

Trend Spot to Stay Ahead of The Curve

By forecasting changes in customer needs, you can prepare for any surges in demand, adapt your service offering to keep up with an upcoming trend, and consistently react to the current trading climate. Failure to do so could mean disconnecting with customers and leaving the door open for competitors to capitalize on your absence. As customer needs change, it’s vital to mirror their needs to ensure continuity of the business and to protect the financial interests of the business.

As a result of the Coronavirus pandemic, many businesses have adapted to heavily promoting safety measures implemented instore to help consumers feel confident in their return to physical shopping following the opening of malls. By implementing innovative measures to reduce contact during COVID-19, like limiting make-up testers to one per customer or installing safety guards at bank consultations, customers may be more inclined to use your services.

Invest in New Technology

Implementing industry-standard bookkeeping software and intelligent credit control systems can help you identify and manage the financial risks posed to your business. The benefit of using such software can mean analyzing your finances in real-time and automating processes which would typically be manual. By using software which offers insight into your business financials, you can stay one step ahead and mitigate risk factors.

The digitization of financial information can help you access data at any given time through a central platform and keep track of your business budget on the go. By establishing a risk management strategy with your financial advisor, accountant, or bookkeeper, you can keep financial risk at bay. Failing to protect your business during the COVID-19 pandemic could result in you having to explore efficient closure solutions, such as a fast-track Company Voluntary Arrangement or company liquidation.

As a form of protection against financial risk, businesses should build up emergency funds, in addition to investing in financial reporting technology and enforcing strict credit control measures. Managing financial risk effectively can avoid debt build-up, preventing your business from experiencing financial difficulty or failure.c


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by Keith Tully // Keith Tully is a partner at RBR Advisory; one of the UK's largest business recovery firms with over 70 offices nationwide. His personal specialties lie within taxes, company financing, business recovery options, business exiting strategies, and director support and consultancy.

Opinions expressed by contributors are their own.