Businesses have to face numerous financial risks in the course of conducting their commercial operations. Their owners are aware that almost all of these threats have the potential to ruin them. They need to take necessary control measures to counter these risks to their businesses. Otherwise, they could end up having to file an application for bankruptcy and liquidating their personal assets.
Michael Saltzstein – What are three types of financial risks businesses face and how to tackle them?
Michael Saltzstein is an esteemed business leader from America who specializes in offering risk management solutions. He has years of valuable experience and knowledge in many diverse areas. These include strategic planning, settling multi-line insurance claims, financial structures, and enterprise initiatives. His clientele consists of many small businesses and large corporate enterprises. He provides each of these customers with pragmatic and result-oriented solutions when it comes to business growth and development.
He says financial risks are always a cause of concern for all business owners. These threats generally arise when they fail to fulfill their obligations to their trading partners and lenders. As a result, they end up facing severe cashflow problems. He goes on to point out that all financial risks fall under the following three broad categories:
- Credit risks
These risks occur when business owners consistently default on their loan repayments. They then become liable to interest changes at higher rates and late payments. This puts immense pressure on their finances, and lenders may even threaten to repossess their assets.
- Liquidity risks
Business owners incur liquidity risks when they fail to convert short-term assets into cash on time. This makes it difficult for them to pay off their current liabilities and debts promptly. As a result, they find it difficult to obtain credit from their suppliers.
- Operational risks
Operational risks arise when business owners conduct their commercial operations in the market. These potential threats take the form of employee frauds, lawsuits, retrenchment issues, or general mismanagement. As a consequence, the business owners lose money because they have to make more payouts than necessary.
How can businesses minimize or mitigate financial risks?
Business owners need to consider implementing the following six suitable solutions for mitigating financial risks-
- Diversifying into or exploiting additional revenue streams to generate greater business income;
- Take steps to ensure their customers repay their dues promptly or by resorting to invoice financing;
- Apply for commercial loans only when the need arises and never default on the repayments;
- Create an emergency fund by setting aside a portion of yearly after-tax profits;
- Taking out an insurance policy at reasonable premiums to deal with unforeseen financial risks;
- Introducing and implementing internal control measures to discourage employees from misappropriating business funds.
In the opinion of Michael Saltzstein, operating businesses successfully can be both rewarding and challenging for their owners.They must anticipate all forms of financial risks and take steps to mitigate them. In doing so, they can create emergency funds, resort to invoice-financing, or diversify their revenue streams. Many of them may take suitable insurance policies or commercial loans to protect themselves from the risks of financial threats.
