Pr ofessional Management Matters

Professional Management

Matters

MICHAEL McMANUS CFO Outsource

MANAGING YOUR BUSINESS RISK – ARE YOU SWIMMING NAKED?

‘You only find out who is swimming naked when the tide goes out.’ Warren Buffet was referring to risk management in the stock market when he made this quote, but it applies equally to small business. Risk management isn’t just something for big business to consider and if you don’t consider your business risk than you may be left exposed. Put a risk management framework and strategy in place for this new financial year, allowing you and your stakeholders to better manage your business.

Here’s some hints to help get started with your risk assessment.

Step 1 – Start with five categories to set your risk framework:

Strat egic Risk – your business strategy becomes less effective i.e technological changes, new competitors

Compliance Risk – failing to comply with all laws and regulations applying to your business

Operation al Risk – an unexpected failure in your company’s day to day systems, operations or processes

Financial Risk – the risk of a sudden financial loss

Reputatio nal Risk – damage to the business’s reputation due to lawsuits, product recalls, poor customer reviews or negative publicity.

Step 2 – List all the risks you can think of for each of the categories listed above. Here are some examples.

RISK ASSESSMENT QUESTIONAIRE

What would you do if your largest customer left or became insolvent? Can you access critical IT infrastructure in case of hardware or internet failure? Do you have a business continuity plan in case of inability to access your business premises due to natural disaster? Is your business model reliant on government policy that is subject to change? What would be the impact on your business of a rapid appreciation or depreciation in the value of the Australian dollar? Key Person risk – what would happen if you or a key staff member was unable to work for extended periods of time Do you have internal controls in place to prevent employee fraud and theft? Are you competing against large, well capitalized competitors? If so, what are their plans with relation to your location? Do have processes in place to control the key processes within your business? What would happen if one of these failed?

Step 3 – Rate the likelihood (almost certain, likely, possible, unlikely or rare) and consequence (catastrophic, major, moderate, minor, insignificant) of each risk occurring. For example if your largest customer left, probably unlikely, but the consequence is catastrophic. This would flag this scenario as high-risk and you should put some attention into your business strategy to mitigate this risk. Step 4 – An assessment of your current business risks will highlight your appetite for risk going forward.

ABOUT THE AUTHOR Michael is the managing director of CFO Outsource, a new business offering outsourced Chief Financial Officer services to growing businesses. CPA and MBA qualified, Michael draws on his experience working as a CFO in the corporate world to bring real world financial management expertise to the Sunshine Coast’s small and medium businesses.

WHAT IS YOUR RISK APPETITE? our experienced cfo’s can help develop your risk management plan

At CFO Outsource we deliver real solutions for your business by:  Providing accurate, reliable and timely financial information  Implementing best practice financial management  Showing you how to take control and access cash flow  Reducing your finance and accounting staff worries  Driving growth and earnings predictability

Tamara Cross: 0413 774 511 | Michael McManus: 0424 290 968 info@cfooutsource.com.au K1 Building 17/16 Innovation Parkway, Birtinya www.cfooutsource.com.au