Risk Management for Australian SMEs: Circumventing Disaster through Proper Planning
September 29, 2015
There’s no denying the importance of SMEs in Australia’s growing economy. In a study conducted by the Australian Bureau of Statistics, it was discovered that as of mid-2014, 97% of the country’s business landscape was comprised of small ventures. The SME Association of Australia also claims that SMEs employ up to 70% of the country’s workforce. With the majority of local enterprises being SMEs, one would assume that young entrepreneurs have found a clear-cut strategy to lasting in the business landscape. But the sad reality is that many SMEs face insolvency within the first few years of business operation. The truth is that out of the 294,210 businesses that opened in 2011, only half were still operating by mid-2014. The vast majority of these ventures succumbed due to poor business planning and decision-making. This is where risk management comes in. Many of these businesses could have been saved, had their owners employed proper risk management procedures. There are many ways you can avoid being a part of that statistic. All businesses, regardless of size, will face a myriad of risks that, if left unaddressed, can threaten the very existence of these ventures. SMEs are particularly vulnerable to these risks due to the limitations of their organisational structures and resources. Some of the common risks are the varying prices of raw materials, fluctuating interest rates, the costs that come with business growth, over dependence on supply chains, internet security risks, and the loss of knowledge that comes with employee attrition. While most of these risks are ‘external’ by nature, you can still circumvent their negative impact on your business through proper planning and risk management.
Evaluate the business landscape
There’s no better way to check for business risks than to delve into the business landscape. Conduct research to see how your business will fare in the next year or so. Look into the ventures of your main competitors. How are their products doing? Are they selling? What are their operating hours? Where are they located? Check every aspect of a competitor’s enterprise to gauge the potential profitability of your own business. Competitive research is also a good way to learn from the strengths and weaknesses of rival companies. With the information you’ve gathered, you’ll have a better understanding of how to position your products and how to improve your services. To conduct competitive research, do a bit of social listening. Track the movement and the progress of your competitors through their websites. Find out customer feedback through the comments section on their company social media pages.
Give an honest assessment of the state of your business
One way you can identify future business risks is through the careful analysis of your organisation’s strengths and weaknesses. More than being optimistic or pessimistic about the state of your company’s affairs, be honest. Consider performing a Strengths, Weaknesses Opportunities, Threats (SWOT) analysis to determine the areas where potential problems may arise. If one of your main concerns has to do with generating small business funding, put it under the weakness section of the SWOT matrix. This will remind you to find alternative sources of funding, whether it be through small business loans or through other fundraising ventures.
Come up with a solid business plan
Business plans and financial projections can help plot out the direction your company should take. From mapping out marketing strategies to determining your financial needs, this plan sums up your vision for your organisation. In risk management, business plans come into play as a way for you to come up with alternative solutions to possible problems. Take for example, supply chain risks. As your business expands, so too should your product line or services. This is where the problem comes in. When you become too dependent on your current suppliers, the minute they raise prices, you have no choice but to keep buying from them. Not having a list of alternative suppliers can mean the possibility of trade debt. To avoid insolvency due to unsecured debt arrears, consider coming up with a stronger and more thorough procurement strategy.
List down your risks and action plan
Once you have your SWOT analysis, competitive research, and business plan on hand, you can easily list down all perceivable risks to your business. Faced with a list of potential problems, the only thing left to do is to come up with ways to minimise or completely remove these risks. For example, in a business that deals with chemicals, employees are faced with health hazards. You can either choose to assume these risks and take on the financial problems that come with them, or you can employ stricter health measures to avoid these problems altogether. If you’re in the food business, you can also choose to lessen your responsibilities by hiring a delivery service. While shifting responsibilities don’t necessarily mean shifting liabilities, your contract with the delivery service can include penalties to their company for late deliveries.
Prepare a financial cushion for emergency situations
Poor cash flow has led to the demise of many SMEs. By setting aside a certain percentage of your organisation’s profits, you can be financially prepared to take on lean business months and future losses. During the infancy of your business or project, having alternative sources of income is highly recommended. Use what you’re earning from other ventures to add to your young business. Remember, the financial cushion that you’re building now can be the lifeline of your business in the future. Most of the time, the problems faced by SMEs are due to the lack of funds. Today, there are different ways SMEs can get funding either through banks and alternative lending companies. Check out all your available options and see which one will provide you the financial assistance you need with a repayment system that works for your business.
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