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Risk matters - June 2017

30 May 2017

The International Institute of Risk and Safety Management (IIRSM) explains why effective risk management is essential for SMEs.

SMALL AND medium sized businesses are booming, numerically at least. At the start of last year, there were a record 5.5 million private sector businesses in the UK, employing nearly 16 million people. Yet a breakdown of these figures shows many of these businesses may have been created from post-austerity necessity rather than creative ambition. 

While the number of new SMEs employing staff grew by 14,000, there were six times as many operating as sole traders. With average wages falling behind inflation and the rise of zero-hour employment, it’s not surprising that many people are discovering their inner entrepreneur and starting out on their own. 

It’s a courageous decision as running an SME has never been an easy option. Between 45 to 55 percent of new businesses fail in their first five years and many struggle to grow. For every BrewDog craft brewery attracting £100m from private equity backers, there are thousands of small shopkeepers, one-or-two man trades and tiny tech start-ups making small, incremental profits or just about breaking even.

Brexit complications

And Brexit throws up new complications as despite 43% of small business owners voting to leave the European Union, nearly a quarter of them now think the subsequent devaluation of the pound has hindered their business. In addition, 57% are primarily concerned about the impact of withdrawal on foreign currency and exchange rates. 

Time-poor and in the face of so many risks, it can be easy for small business owners to lose sight of their advantages. While they don’t have the resources of larger corporates, SMEs are not hindered by involved chains of sign-off and complicated internal bureaucracy. Small may not be easy, but it can be faster and more responsive.

Putting this advantage into practice, however, can seem like an uphill struggle for a small business owner juggling VAT, suppliers and marketing, while actually doing the day job with limited time and finite resources.

Yet the difference between SMEs that succeed and those that don’t is being equipped to know what’s coming and having the tools to manage it. Whether it’s failing to adapt to evolving customer needs, overlooking new export markets or skimping on supplier due diligence, most failure is the result of not knowing how to anticipate, identify and manage risk.

Mastering the basics of practical risk management allows SMEs to deal with threats and grasp opportunities as an intrinsic part of running their businesses, rather than as a box ticking exercise or inconvenient afterthought. Knowing what’s around the corner allows small business owners to plan strategically, using the best tools to maximise opportunities and see off threats.

Improving productivity

We all know the UK has a productivity problem. Since 2008, UK productivity has stalled and is at least 6% lower than other G8 economies. What is often less well-publicised is that SMEs could have a major role in solving this problem. A joint report by Goldman Sachs, the Enterprise Research Centre and the British Business Bank identified a critical but underexplored factor to improving UK productivity – the ambition of SME owners to grow. 

Just 28% of British firms innovate, even less than Serbia. The report concludes that education for the UK’s small business owners has a vital role to play in realising this pool of untapped productivity.

By mastering the techniques and tools to manage the risks and opportunities, SME owners could add enormous value to their businesses, local communities as well as boosting UK growth.

For further help on this topic, book your place on the IIRSM introduction to managing risk course. This intensive and engaging course uses life case studies, analytical tools, video and role play to highlight the complexities and interconnectedness of different types of risks. It explains the importance of identifying and managing these at both the strategic and operational level to improve efficiencies, decision-making processes and achieve strategic objectives. 

For more information on IIRSM, visit www.iirsm.org