SME Risk Management – How Can Your Accountant Help?
Johan Barros, Manager, Accountancy Europe
|Small and medium size enterprises (SMEs) play a vital role in the economy and in people’s daily lives. But they face daily pressures including managing cashflows, accessing finance and dealing with the challenges surrounding global megatrends which include technology, sustainability, and globalized supply chains. For SMEs, managing risks have never been more challenging.
Accountants can play a role in risk management and mitigation for SMEs. This is because most small businesses count on accountants to provide professional advice and value regular meetings with them. Depending on the nature of the risks that the SME faces, the accountant can inform, assist with implementing and monitoring business controls. They can also put their clients in touch with the rights experts (IT or certified risk management professionals).
What is risk management?
The Federation of European Risk Management Associations (FERMA) defines risk management as “managing the threats and opportunities to organizations within acceptable limits”[1].
Risk management consists, in general, of five steps: identifying risks, analyzing risks, selecting techniques for risk mitigation, implementing the selected strategy and controlling its effectiveness regularly. These steps together ensure that effective risk management is fully implemented.
Why does risk management matter for SMEs?
Risk management is often thought of being solely for larger and more complex businesses. However, it is increasingly relevant for smaller companies as:
- new risks are emerging from global megatrends including digitalization, climate change and global supply chain integration
- managing risks can foster SMEs’ growth
- SMEs must think about risk management processes as they are likely to be required from larger partners in supply chains
- risk management can foster access to insurance
Our new publication series SME risk management: how can your accountant help?, will explore mitigating different risks such as cashflow and insolvency, fraud and corruption, family business succession and cyber. Our first paper looks into why risk management is increasingly important for SMEs and pinpoints the role SME accountants (whose practices are often small businesses themselves) can play in managing not only the ‘conventional’ but also ‘emerging’ risks.
Risk management does not mean avoiding all risks. It is about taking the appropriate risk for the appropriate return. All risks should be assessed and strategies put in place to manage them. While traditionally this task has been carried out by SME owners, this can often-times be unknown territory in an increasingly interconnected economy. Accountants can contribute to alleviating this burden.
Creating a risk management culture
Risk management should be a core part of business planning. It is therefore essential that SME employees too are fully aware of their role in risk management processes.
Creating such an organizational risk management culture requires dealing with the common bias that because something has never happened before it never will – or that because something has worked in the past, it always will. Proper implementation, monitoring and refinement of the management process will not be effective without this culture shift.
How can accountants contribute?
A wide array of professionals is needed to enhance the SME risk management ecosystem. Our publication series explores the profession’s role in that ecosystem. Accountants are the first point of contact for business advice for many SMEs. They can identify and assess key risks but also introduce ‘first-line of defense’ measures which includes advising and training on internal controls.
Some SME owners may feel that talking about their business risks is an admission of failure, but we believe the only mistake is the failure to deal with those risks.
SME risk management: how can your accountant help? is now available. Look out for our upcoming papers of this series and contact Johan Barros at johan@accountancyeurope.eu for more information.