by Rob Joseph, Director, BeaconCFO Plus
Risks Are a Part of Life for Your Business
Any problem that could occur on any given day—a legal issue, changes in the market, a natural or man-made disaster—is a risk to your business if it interrupts your daily operations.
While we tend to associate risk with uncertainty and fear, you’ve probably heard some variation of the phrase, “No reward comes without risk.” Risks can also be what propels your business forward. So how do you balance risk and reward? You need to start by knowing your company’s risks.
The most common types of risk fall into these categories:
- Operational: Anything to do with your staffing, recruiting, and IT systems
- Strategic/Market: Changes in the industry, new research, or major players merging
- Compliance: The rules and regulations specific to your industry
- Financial: Anything that impacts your cash flow, including business transactions
Once you identify the risks for your business, you can assess their potential impact and negative effects. This process—known as a financial risk assessment—allows you to consider what actions you would take should a risk suddenly become a tangible threat to your business:
Even as it may feel uncomfortable to acknowledge your company’s financial risks, the goal is positive: to protect your business and your cash flow. Ideally, your risk assessment would be tailored to your business and industry, but these are a few ideas to get started:
- Understand your main sources of revenue. Do any clients represent a large percentage of your revenue? These clients can be considered high risk, as losing them would have a significant impact on your business.
- Understand your cash flow and how it fluctuates. What has your company’s cash flow looked like over time? How does it look this year compared to last? If it grew, to what do you attribute that growth?
- Know your short- and long-term debts. What would impact your ability to pay your debts? How would a major shift in interest rates affect that payment plan?
Again, as you analyze each risk, you are assessing the likelihood of it occurring, how big of an impact it would have, the steps you would take if it did occur, and what you can do to prepare in advance or prevent it entirely. We recommend going through this process once a year at minimum.
Conduct a Financial Risk Assessment
Work With BeaconCFO Plus
Our virtual CFOs have decades of experience across multiple industries and are well-positioned to help your business conduct a thorough financial risk assessment. When you take the time to work through this process with an outsourced CFO, you are investing in the future of your business. Financial risk assessments help you:
- Understand what is working for your business and what isn’t
- Lay the groundwork for better decision making
- Have a strategic plan
- Set your business up for growth
- Be more prepared for new opportunities
If your business would benefit from the services of a skilled and experienced CFO to help you navigate a current financial challenge or assess your financial risks, please reach out to our team for an initial consultation. We’re happy to provide more details about our outsourced CFO services and the advantages for your business.