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7 risks small businesses need to consider

Shutterstock_481198423Except for an expanding waistline, what could be risky about ice cream? Ask the small business owners overseeing an ice cream shop on the boardwalk that caters to summertime beach crowds. They’re a small, family-run business and their main revenue is generated in the months of June, July and August. The income from those months must sustain them through the slower months. What happens if they aren’t prepared for an event that affects their shop? Will their business survive? That’s where you come in.

Risk, schmisk?

Risk is a relative term to your clients. Some risks are minor and easily handled in the moment; for example, an employee fails to show up to work. Other risks pose an existential threat to the business, such as an accident, natural disaster or fire.

Helping clients understand the importance of planning proactively to mitigate risks is one of the most important parts of being a trusted adviser. Many business owners can rely on intuition or folk wisdom when considering the events that could hurt their business (“We haven’t had a flood in these parts since aught-six!”) Learning the reality of long odds can be a painful experience, though. And the more complex the business, the more things can go wrong. Talk to your clients about the many things they should consider when preparing their business for an adverse event, and you won’t just be their trusted adviser, you could be their hero.

7 risks small business clients need to think about

  1. Being a part of a larger franchise – could your location suffer an unwanted spill-over from bad press at another location, or the parent company?
  2. Succession planning – if the sole owner/operator became disabled, sick or died, who would take over? Would that person know what needs to happen and when?
  3. Growing too fast – what happens if your business grows faster than anticipated? Could you serve all your clients and still manage other areas of the business? Can your cash flow keep up with your needs?
  4. Supply chain disruption – what if KFC in the UK found itself in the middle of a chicken shortage? Are you prepared if your supply doesn’t arrive and you have nothing to sell?
  5. Employee engagement – what happens if your employees are dissatisfied and post about it on social media, or are lured to a competitor?
  6. Regulations/legislation – what will happen to your business if the law changes and it impacts what and how you sell?
  7. Corporate social responsibility – what are you doing to build community engagement and take responsibility for any impact your business might have on the environment?

Next steps

Work with your client to identify the many things that could unexpectedly hurt their business, and draw up a solid, actionable plan to mitigate for the risks you’ve identified. A risk plan is a living document and should be reviewed and updated regularly, especially as the business grows. Be sure to check in regularly with your client to assess whether changes are needed. Your vigilance will earn you their respect and keep them coming back for your trusted guidance and knowledge.

The COSO Enterprise Risk Management - Framework and Compendium Bundle and the new COSO Enterprise Risk Management certificate program are two examples of how you can help serve your clients and help unlock the complexity of risk. The world of enterprise risk constantly evolves as new risks emerge every day; so, now’s the time to take control of your risk management strategy.

We are also happy to announce that as part of a renewed collaboration with the U.S. Small Business Administration, the AICPA recently signed an agreement that will help us to provide CPAs with more tools for their small business clients. For more information, visit the AICPA’s U.S. Small Business Administration Resource Center.

Chuck Landes, CPA, Vice President, Professional Standards and Services. Chuck Landes is Vice President of Professional Standards and Services at the AICPA. In this capacity, he oversees the technical activities of the Auditing Standards Board, Accounting and Review Services Committee, Accounting Standards Executive Committee and the PCPS Technical Issues Committee.

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