It’s estimated that 20% of small businesses will fail in their first year, and 60% will fail by year three. Running your own small business isn’t easy! At Accounting Clarkes, we’ve worked with organisations of all sizes for over 40 years and helped them to ride out the highs and the lows (and everything in between!)
In this month’s blog, we’d like to get you thinking about business risk and how well you’re protected. Knowing where the biggest risks lie and putting in the right protection won’t necessarily prevent difficult situations from occurring, but you’ll be in a strong position to mitigate the risk and move forward.
Let’s take a look at some of the biggest risks to small businesses.
Unmanaged cashflow
As accountants, we will naturally start with finances. It’s not uncommon for business owners to glance at sales reports and believe that the business is financially sound. They may have a general idea of their costs, but quite frankly, they don’t delve into the detail… until a problem arises. Putting aside the wider economic changes, if a business isn’t clear on when revenue is coming in and costs are going out, the unexpected can pose a huge risk to the solvency of the business. A string of late payers or being ill-prepared for upcoming bills (especially tax) can very quickly cause you and your business significant problems.
Preparing cashflow forecasts, profit and loss reports, and scenario planning can easily be done at the click of a button if you use accountancy software. You then just need to carve out time to understand thoroughly what the numbers are telling you. Better than that – use your accountant if you’re unsure. Ask them questions about your understanding. They could even save you time preparing the reports for you!
Cyber threats
Around 38% of micro and small businesses in the UK reported experiencing a cyber attack in the last 12 months, according to the UK Government’s Cyber Security Breaches Survey. This year, the Government is due to publish the Cyber Security and Resilience Bill, to help protect UK cyber defences.
Small businesses are at a greater risk of a cyber attack because they aren’t as well prepared as larger organisations, and cybercriminals target them specifically. Many don’t know how to fully protect themselves. For some, it’s viewed as an additional cost. A cyber attack can cause a lot of damage. There’s the immediate business disruption, of course, but longer term, the reputational damage to clients and suppliers can be significant.
We aren’t cyber security professionals but we recommend every small business owner engage with a reputable IT services provider and address their cyber security as a matter of urgency.
Regulatory risk
Compliance is critical for any business. The consequences, like with cyber threats, aren’t just the immediate financial cost – reputational damage can do more harm in the long term, and potentially be the reason the business comes to a close. Even when business finances are strained, failure to comply with regulatory requirements is no excuse.
As accountants, we can support you with the regulatory duties of being a company director and ensure you comply with tax regulations to avoid unnecessary penalties. We can also support you with payroll and ensure that your employees are paid in line with minimum wage rates (which are due to increase in April).
Though we can’t comment on industry-specific regulatory bodies, we imagine many of you will be using customer data to market to them. You should familiarise yourself with the Data Protection Act (GDPR) to ensure you are protecting the data you have acquired and use it in the right way.
Working with the wrong people
Hopefully, your business won’t encounter this risk too often, but it does happen. Whether it’s an employee, supplier or customer, working with the wrong person can have a huge impact on your business and pose a big risk. Employees can disrupt the working environment and have an impact on other members of staff. HR advice and employment tribunals can also be costly.
Clients who are late payers will undoubtedly impact your cashflow. If you’ve prepared for such a scenario, you can potentially minimise the impact until payment is made or you seek legal action for what’s due. Sometimes, it’s not that a client doesn’t pay – they might not be the right fit for your business and as a result, you have a difficult relationship to manage.
Due diligence is key here. Put in the effort to fully vet future people you work with, and this risk will be minimised.
Reduce your risk by working with a qualified accountant
Managing risk is an important skill when running a business. We help our clients to assess risk and to make informed decisions based on their financial data. We’re proud of the relationships we build with our clients – they know they can turn to us for advice and support whenever they need it.
If you’d like to explore how Accounting Clarkes can help your business achieve its goals in 2025 and beyond, call us on 01252 612484. We’ll invite you to a discovery call so we can get to know you, and just as importantly, you can get to know us.
