Business Risk Management
Abstract
Propelled by the discovery that existing research and literature on risk management in businesses misses the attention on SMEs (Small and Medium Sized Enterprises), this research paper intends to suggest means for the SMEs to manage financial risks both internally as well as externally for the betterment of the industry. This follows the finding that SMEs, just like large companies, face business risks and they need to learn ways to mitigate them.
Key Words: Small and Medium Sized Enterprises, risk management and financial analysis
Just like the large companies, Small and Medium Sized Enterprises are faced with everyday risks in the process of conducting their business. In most cases, an SME will face financial distress as well as bankruptcy when encountered with business risks. Research in the past has had its focus on large companies. While the SMEs have been neglected, they make up a good portion of the global economy. It is almost impossible to adopt the practices of large companies in to the Small and Medium Sized Enterprises. This is due to the differences and variations in resources and characteristics in a number of fields in management and technological structures. The specialty of knowledge within the large companies is very different from the Small and Medium Sized Enterprises. Therefore, it is essential for this research paper to come up with a precedence for future research that encompasses suggestions and proposals in the efforts to mitigate business risks in SMEs.
Basic objectives
According to Clark (37), there is no way for a business or any economic activity to separate itself from risk. Risk is part and parcel of the business since every entrepreneurial action or business decision is linked to risk. No matter the size of the business, the main task in the efforts to realize profits is to mitigate risks in real business environments with several market imperfections. This will help the business to secure its continuity and to add value to other systems in the business. Despite having this knowledge, risk management continues to be a challenge for most of the Small and Medium Sized Enterprises. In contrast to a number of the larger corporations, the SMEs usually lack the right resources in relation to databases, manpower and knowledge specialty to perform structured and standardized risk management. the result of the above findings is that a number of Small and Medium Sized Enterprises fail to perform efficient analysis in order to identify the risks facing their businesses. This issue is exacerbated further by the lack of past literature on the necessary methods for the management or mitigation of risks (Clark 33). In light of the above, the rational for this research is to cover the study gap that exists in the research of methods to mitigate business risks with regards to Small and Medium Sized Enterprises. In order to facilitate this main objective, the paper will use the following study question:
How can Small and Medium Sized Enterprises manage internal financial risks?Critical Review of Literature
Risk Management in Small and Medium Sized Enterprises
There are subtle differences as well as more pronounced differences between Small and Medium Sized Enterprises and larger companies. The main difference between the two is size. Size here encompasses headcounts, turnovers and balance sheet sums. These are the main aspects used to distinguish the two (Mackenzie and Parker, 22). Other differences between Small and Medium Sized Enterprises and large companies are seen in managerial structures. Other differences include knowledge specialty financial markets and procurement positions. According to Mackenzie and Parker (26), while the SMEs have been neglected, they make up a good portion of the global economy. All these factors are essential in making everyday decisions. A Small and Medium Sized Enterprise will operate and make decisions differently from the large corporations due to the factors mentioned in size, knowledge specialty financial markets and procurement positions.
Deficits in Literature
Despite having the main and small differences highlighted earlier, SMEs and larger Corporations have received different attention levels from global researchers and education circles. SMEs have been neglected in this field. Mackenzie and Parker (24), highlights that most researches on management of risks focus on large companies. There are limited publications on Small and Medium Sized Enterprises.
Essential Aspects of Financial Risk Management in SMEs
Management of risks for SMEs must take the size and characteristics of the Small and Medium Sized Enterprise into consideration. These may add p to be risk factors for an establishment or business. The management, organization as well as structure of such strategies are different from those of larger companies. Therefore, it is not easy to transfer the methods used to mitigate risks in large companies in to the Small and Medium Sized Enterprises. The management of the entire business is an important aspect as well as a general risk factor. Due to lack of necessary resource expertise in technology, IT or other aspects of the business, SMEs must be more careful than the larger companies in the efforts tom mitigate risks (Thun, Druke, and Hoenig, 5519).
Methodology
The methodology and analytical methods that will be used to carry out this research proposal will rely on secondary data as well as primary data. Due to the lack of enough literature, the study will issue out surveys to 10 different Small and Medium Sized Enterprises and compare the results with 10 larger corporations. The focus of these surveys will be on the functioning of the risk mitigating functions. the paper will look at how different companies at different levels mitigate risks. Naturally, the paper will quantitative as well as qualitative data. The ability to manage significant risk especially those internal to the firm rely on factors that are found within the firm. The paper has found out that there is significant gap in the research for Small and Medium Sized Enterprises. Therefore, this will present a significant challenge when using the primary data collected from the 10 different SMEs to match them with other researchers found on the topic.
Conclusion
Existing research and literature on risk management in businesses misses the attention on Small and Medium Sized Enterprises. This research paper intends to suggest means for the SMEs to manage financial risks both internally as well as externally for the betterment of the industry. to attain this, the paper will use 10 different Small and Medium Sized Enterprises and compare the results with 10 larger corporations. Ultimately, Small and Medium Sized Enterprises are faced with everyday risks in the process of conducting their business. This paper will look at these problems and suggest solutions to the issues that cause risks to the company.
Works Cited
Clark, Andrew. "Smaller-Sized Risk Management." Canadian Underwriter 78.9 (2011): 38-42.
Mackenzie, Matthew, and David Parker. "Risks And Quality: An Australian Case."Management
Services 58.2 (2014): 20-26.
Thun, Jorn-Henrik, Martin Druke, and Daniel Hoenig. "Managing Uncertainty - An Empirical
Analysis Of Supply Chain Risk Management In Small And Medium-Sized Enterprises." International Journal Of Production Research 49.18 (2011): 5511-5525
