Managing financial risk: What every growing SME needs to know

In the wake of the global pandemic, and with continued market turbulence across many industries, business risk is quite understandably one of the biggest challenges that SME business owners report they’re facing at the moment.

In fact, in a recent survey of SMEs conducted by YRH Finance Team, more than a third (39.3%) of business owners felt that understanding their business risks – including when they are likely to materialise and how they can reduce them – was a key concern.

But what can you do to mitigate business risk?  Visibility is key to identifying, quantifying and then being able to manage any risks your business faces.

So you absolutely need to be on top of your numbers.

Accessing meaningful management information

The best way for SME owners to assess and manage their risk is to take a good look at the metrics in their business. To do this, you’ll need to be looking at four core types of management information: sales forecast, profit & loss report, profit & loss forecast and cash flow forecast.

Having this information to hand throughout each month (not just at the end of your reporting year) enables you to take action when it’s needed, rather than months too late…

Because to mitigate the risk you’re potentially facing, you have to know how your business is performing right now – and preferably in real-time.

Interpreting the numbers

Think of the numbers that make up your essential management information as an early warning system. They contain all the information that you need to be able to spot any problems or potential risks and enable you to make the best decisions about the future of your business and take any corrective action necessary.

But remember business risk can materialise in many different forms. It’s not actually enough just to know your numbers, to find the real insight you’ll need to scratch beneath the surface. What do the numbers actually mean for your business? How do they affect your different business functions? What will the impact be if you make any changes?

To move to this deeper level of insight and understanding and to generate the thinking that will enable you to make changes in your business that reduce risk and help increase profitability, you’ll need to access specialist finance skills – which is where a Financial Controller comes in.

Accessing specialist finance skills

It can be easy to think that ‘Accounts’ is all the same, but Financial Controllers are specialists and focus specifically on producing the numbers that matter most and interpreting what those numbers actually mean for the business.

A good Financial Controller will present this information in a meaningful way – allowing you to see at a glance where the potential pitfalls are and what risks may lie ahead. It’s the closest you’ll get to having a crystal ball and will help you make informed decisions to aid your business growth.

If you are looking to take ‘proper financial control’ of your growing business then we strongly recommend taking professional advice.  Don’t try to deal with the essential aspect of your business alone – you need specific skills and knowledge to get things right!

Advice on taking financial control of your business from Yorkshire Powerhouse

Have you any questions?

Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know: