Top 5 Financial Risk Management Tactics for Small Businesses

Growing your business requires taking some risks, but in order to maintain a steady and healthy rate of growth, you need to practice sound financial risk management tactics. Every business is different, and planning for the long-term financial health and stability of your company means first identifying the combination of specific risks you’ll be exposed to. While the precise nature of the risks you’re planning for may vary, the basic tactics you can use to manage those risks are the same regardless of the size of your business or the industry you operate in.

financial risk management

Planning and Cash Flow Awareness

Good financial risk management starts with a comprehensive business plan that lays out the details of your operation in full. Even just the act of putting your business plan in writing can help you see more clearly where you will be exposed to risk, which then makes it possible to protect yourself.

Another big part of this planning is making sure you manage your cash flow appropriately. Cash flow issues will creep up on you quickly if you don’t stay on top of them, but there are steps you can take to ensure this type of problem doesn’t cripple your business. For instance, you can request that your vendors give you between 60 and 90 days to pay an invoice, and you should always strive to have three to six months-worth of cash on hand to keep things running smoothly even if you lose a large client.


Protection through the Creation of Separate Entities

As your business grows, your risk exposures can change as well. Expanding your operations in a way that exposes you to new risks may warrant the creation of a separate business entity to make the task of financial risk management more clear-cut and efficient. This arrangement also allows you flexibility to take the risk of expanding without putting in jeopardy all that you’ve already built.


Contractual Considerations

Entering into contracts is essential to doing business in any industry, but part of your financial risk management plan must always involve making sure that all contracts you sign onto provide you with adequate protections. For instance, you need the ability to void the contract under certain situations that could be detrimental to the financial health of your business, and you also need to include indemnity protection to ensure that you won’t be held financially responsible for errors made by another party to the contract.


Acquiring Coverage through Captive Insurance Solutions

An important part of financial risk management involves acquiring the proper insurance protections to cover the specific risks your business is exposed to. One of the best ways to do this, particularly if you find plans from standard insurance companies to be too expensive or not the right fit, is through a captive insurance structure.

There are a variety of options in this regard, including single-parent captives, group captives and risk retention groups. The right choice for your business will depend on a number of factors including your size and the industry you operate in, but the benefits of captive insurance in terms of financial risk management are extensive due to the flexibility they provide, their potential for revenue production, and more.


Regularly Reassess and Readjust Insurance Coverage

Acquiring captive insurance allows you to, among other things, tailor your coverage to match the needs of your business. As your company grows and expands, however, those needs can change. That’s why it’s important to regularly reassess your situation and adjust your coverage appropriately. The right captive insurance structure will give you the flexibility to do this in a way that simply isn’t possible through the traditional insurance market, allowing you to obtain the best possible protection without spending any more than necessary.


Help from Financial Risk Management Professionals

Protecting your business’s financial future over the long-term is a top priority, and that’s why the professionals at Venture Captive Management are here to do all we can to assist you in achieving all of your financial goals. We have extensive experience helping businesses of all sizes find the right captive insurance coverage, and we’d love to do the same for you.


To learn more about how we can work with you to maximize your financial risk management and help your business grow, call us today at 770.246.8535.