Thinking of expanding your business in 2016, or looking for new funding? Then making sure your risk profile is up-to-date is a crucial first step.
A risk profile is an overview of a company’s strengths and weaknesses, including its appetite for risk-taking and the types of threats it faces, so understanding your own business risk profile is essential for growth.
The good news is that there are 10 simple steps every small-to-medium-sized enterprise (SME) can take to ensure their profile is as healthy as possible.
1. Acknowledge its importance
Recognise that your risk profile affects every aspect of your business, from the availability of funding to accessing credit lines, as well as your reputation with suppliers, customers and investors.
2. Health-check your business
Do you review your business, and update your accounts regularly? If not, you’re missing out on valuable insights. Your management accounts hold vital information about how you’re performing as a business and will reveal what’s going well, and what needs action.
3. Review your credit rating
Do you know how your credit profile compares with competitors? Get your credit report from established credit reference agencies, such as Experian. Analysing the key score factors tell you how to boost your credit score and reduce your risk rating.
4. Prevent late payments
Late payments are the downfall of many healthy businesses, but you can take action – credit check new customers and suppliers prior to agreeing terms (and refuse credit if their score is poor). Make sure you’re 100% clear what payment conditions you’re signing up for, and thoroughly check debtors’ terms of trade. Offering incentives for early payment or using cash transfer services with minimal transaction fees/speedier processing times will also help both your cash flow and your risk profile.
5. Delegate the accounting
Handing day-to-day accounting tasks over to a finance professional lets you focus on the big picture. You’ll have more time to plan, identify key performance indicators (KPIs) in your data, and ensure projections are on track – meaning no nasty surprises at the end of the financial year.
6. Exploit hi-tech shortcuts
Many cloud accounting packages, such as Xero, FreeAgent and Sage, offer useful dashboards and business analysis bolt-ons which let business owners check financial performance at-a-glance, without trawling through acres of spreadsheets.
7. Review, review, review!
Regular evaluation of your business will keep you focused on your ongoing strategy. But it needn’t be a detailed analysis of every department or product. Even a 10-minute review – with a key team member or business partners – will help you stay on track, and highlight areas that need attention.
8. Spot the warning signs
Effective accounts reviews can help you identify potential trouble ahead. Keep a close eye on your profit and loss ratios (a ratio of 2:1 is a profitable business) and identify where you might need to flex expenses and maximise efficiencies.
9. Make the time to stay on track
Lack of time is a common issue cited by business owners who don’t review or update their accounts regularly – but long-term, it can save your business time and money.
10. Focus on the results!
While reviewing, set clear targets, and make sure you have an action plan that focuses on achieving these goal and feed in to your wider business plans.
Written by Emma Dungey of Verus 360