Whatever the size of your accounting practice, a well prepared and thought out risk management strategy will serve to protect your business against any unforeseen threats.
Having a healthy risk management culture helps you anticipate any threats to your firm and secure your business’ long-term survival
Below is a list of risks to consider and some key risk mitigation strategies to ensure the long-term survival and success of your accounting firm.
Types of Risks To Consider as an Accountant
There are several diverse risks to consider as an accountant. Before diving into specialised risk management strategies, it is important to know the types of risks associated with running a firm. Below are a few risks to consider.
|The risk of a default on a debt from a borrower failing to make required payments;
|The possibility of experiencing loss due to the overall performance of financial markets;
|Probability of loss with a long or short trading position due to price changes;
|The risk that your firm may not be able to make short term financial commitments;|
|The threat of an event, such as a takeover, accident, or natural disaster impacting your business’ financial position;
|The risk that regulatory changes may negatively impact your business.
Strategies for Effective Risk Management
Start With a Simple SWOT Analysis
A SWOT analysis (strengths, Weaknesses, Opportunities, Threats) is a basic, but effective, way to mitigate risks. Evaluate what weaknesses and threats there are to your firm. These are essentially your risks. Identifying them is not enough though. You will also have to come up formal actionable strategies to mitigate those risks.
Prepare and Maintain Appropriate Documentation
Before conducting business with any client, make sure your terms of engagement are accurate and detailed. If your documentation does not accurately reflect the services you provide, you may find yourself in a difficult situation.
Internal audits and review documents are a good example of the kind of the kind of documentation you should keep updated and being using regularly.
It is highly recommended you seek legal advice when adding any disclaimers on your official documents. These disclaimers can help if legal proceedings are brought against your firm for whatever reason.
Avoid Working Outside Your Professional Capacity
Make sure the services you provide are within your skill base. If you do not feel confident, you are putting your reputation and your business on the line. It is also worth mentioning that referring work to other business, or even competition, you have a good relationship with can be a healthy and productive way to drum up business, if they are willing to do the same.
Review Your Client List Regularly
Do not feel obliged to conduct business with everyone that walks through the door. Consider the integrity of the people you partner with for business. Poor business dealings or any legal issues may put your business at jeopardy.
Know Your Employees
Conduct rigorous background testing and undertake a detailed hiring process. Conduct relevant police and safety checks to ensure you know whom you are working with.
Set Up Formal Risk Management Processes
The more your client portfolio grows, the more risk you will be exposed to. As time goes by, your risk profile will change. Maintaining up to date risk management strategies is crucial.
At a certain point, it is important to consider formalised risk management processes. These may include having formal policies and plans drafted, integrating risk management into business processes, or developing risk assessment documents to evaluate, monitor and report any risks.
Quality control processes will also help your business manage day-to-day operations within your firm.
Maintain a Vigilant Risk Management Culture
Having formalised risk management processes is a big step in the right direction towards securing your business. However, risk management requires a shift in attitude and culture in your workplace.
Focus on improving upon risk management processes. The danger of being complacent with risk management is that your firm could suffer from ‘risk blindness’.
Creating a positive risk management culture is important in this respect. Employees should feel comfortable openly raising risk management concerns. They should also have open communication channels to share any concerns.
Have Appropriate Business Insurance
Lastly, make sure that your business is properly insured. There is no better way to safeguard your business against threats than to invest in quality accounting insurance.
Particularly in the field of accounting, having high quality professional indemnity insurance may save your business in future.
Setting up well thought out risk management processes and purchasing relevant professional indemnity insurance is a valuable investment in your firm’s long-term security and survival.
For more information about specialist accounting business insurance and risk management services, contact Abacus Australia. Abacus was founded by accountant for accountants, to provide specialist professional indemnity insurance for accountants.