Managing Risks

There are a variety of risks associated to running a business. Some are out of our control such as acts of God. Others are closer to home and come in the guise of new customers placing large orders. On one hand a new order may well bring the prospect of much needed cash injection. On the other hand a new customer also brings associated financial risks of none payment. It is a catch 22 situation that many medium to small enterprises face.




Should you ask new customers for references, should you conduct a credit check, should you look at their accounts at Companies House or should you check out individual directors – the answer is most definitely yes to all of them. No – you are not being suspicious; you are simply taking steps to protect your business from bad debt,



On a positive note the recession has made business owners aware of the risks associated to receiving large orders from firms which then go out of business for one reason or another. Being left with a bespoke order that cannot be sold or has little use to anyone else is very much a real risk that faces small to medium size enterprises. Additionally unwittingly being part of a chain of bad debt is another risk that many businesses face.



So What Can Be Done?



First and foremost all new customers should be credit checked.

Intermittently the financial status of existing customers should be checked (they too could be having difficulty collecting payments).

Ask for at least three references.

Set an upper credit limit for all customers.

Strategies to reduce trading risks



Do not be shy about asking for cash on delivery or an advance payment. The benefits of having a strategy in place far outweighs the option of leaving payment to chance. Having sound terms and conditions that are legally enforceable will offer your business a variety of choices in the event of a business closing down. Do not forget to include a clause pertaining to the retention of goods in the event of a business going bust.



Preventing Financial Mishaps



The only way to prevent financial mishaps is to have accurate financial information. Computerised accounts and online banking services have made it much easier to keep track a firm’s financial position in real time rather than months in arrears. It is good practice to keep track of the detail relating to individual products, projects or customers. In so doing you will be able to measure the return from a specific job or customer and be able to track whether or not a particular transaction is making a net profit or a loss. In times of scarcity there is a danger of reducing costs just to retain business. As such the business coming in does not yield sufficient profits to sustain the business.



It is fundamental to have a good risk management strategy in place. Taking the time to think about all the risks that face your business and then ways to mitigate them will place your business on a stronger footing.



As previously observed, the most serious threats to a business may be closer than you think