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Understand The Financial Risks In Your Business

Do you fully understand the financial risks in your business?

Financial Risk comes in many diverse forms and predicting scenarios which may cause your business to lose money, can help protect your long-term profitability and viability.

Whilst businesses in the food and beverage industry will all have different exposure points, it’s fair to say that common risk areas exist, allowing you to anticipate and manage your risk appropriately. Some risks will sit internally within your business and can be more tightly controlled, others are outside your sphere of influence, but still require close consideration within your Enterprise Risk Plan.

Maintaining a robust risk framework, with clearly defined processes, can protect or buffer against some of the risks a business is facing, especially considering the more unpredictable economic environment we face today.

The 3 Ways of Understanding Diverse Types of Financial Risk

  1. Market Risk – Financial modelling will help you to keep a check on market volatility, fluctuating exchange rates and changes in raw material costs.
  2. Credit Risk – A well-established treasury management system can help to categorise your risk and select the appropriate level of mitigation strategy.
  3. Liquidity Risk – Stay on top of your short-term financial demands and cash flow to successfully run your operations.

The Approach to Minimising Your Financial Risk

Identification of Treasury Risks – the process of acknowledging and defining all sources of risk effecting commercial performance. The identification of risk should capture all risks faced by Treasury, which means market, economic and operational risks are managed in a holistic, integrated framework.

Management of Treasury Risks – the process of ensuring risk exposures remain aligned with the business’ overall risk appetite and commercial objectives. The management of risk should protect and enhance earnings, which means it is the most direct source of potential value creation in Treasury.

Measurement of Treasury Risks – the process of determining the notional size of a risk source and quantifying its potential impact on commercial objectives and financial performance. The measurement of risk should quantify the impact of identified risks, which means risk management decisions are performed in line with the business’ risk appetite and commercial objectives.

Monitoring of Treasury Risks – the process of consistent risk oversight based on clearly defined stakeholder responsibilities. The monitoring of risk should maintain proactive oversight, which means stakeholders are rapidly alerted to developing risks and empowered to execute risk management actions.

By its very nature, risk is uncertain. Regular assessment of your key risk areas provides you with the opportunity to gain competitive advantage, to identify probable future events which may positively or negatively influence your objectives. Risk management provides significant opportunity for profit, if you know where to look for it!

If you’d like to assess your financial risk or understand how to protect your business, talk to one of our team.