Financial risk management includes a range of activities directed at ensuring that an individual or organisation prevents financial ruin or damage. By taking preventative measures or by managing damage that may already have been done, individuals or companies are able to find ways to protect their finances.
For Meredith, who owns a small business, one way of implementing financial risk management is by making sure that she monitors the way in which her customers pay for her products. Her confectionary business would go under if all she ever did was allow people to pay her on credit. A measure she has to take is to take only cash payments upfront, allowing her to maintain healthy cash flow in her business.
What are the essentials of financial risk management?
Continue to innovate
As a business owner, you will want to ensure that you keep finding ways to keep ahead of the changing landscape when it comes to operating a business. By continuing to innovate, you will more likely be able to manage changes to business finances, as a result of market changes.
Save more
One of the easiest ways to manage finances is by saving. Actively putting money away puts you in a better position to achieve financial freedom. If you’re running a business, this means that you will be more likely to be able to withstand any financial changes that may occur when least expected.
Pay debts quickly
Paying debt off takes away the opportunity to save more. Financial risk management means that you prioritise doing this, as a way of enabling you to have finances to use for other important business functions.
Understanding the essentials of financial risk management puts you in a greater position to be prepared for sudden changes. More ways to do this:
- Stay up-to-date with industry trends
- Request cash payments upfront
- Decrease expenses
- Evaluate performance regularly