Just as the worst of the COVID-19 pandemic was passing, we hit a supply chain crisis. As the situation began to settle, Russia invaded Ukraine, upending the global economy. Drought-caused crop shortages, inflation, and possibly a recession are now on the horizon. These are significant challenges for large corporations, let alone small and medium-sized enterprises, or SMEs. So, how can you best handle financial risk as an SME owner?
1. Understand Your Risks
Every SME faces risks that are unique to them. Understanding what risks are the likeliest to affect your business is key. There are five basic financial risks of which SMEs must be aware: credit risk, legal risk, liquidity risk, market risk, and operational risk. It’s important to understand each risk and to work with the right professionals.
2. Be Proactive
We can reasonably expect consumers to spend less over the next six months, if not longer. In light of this, SMEs can be more proactive. Take some time to identify any potential risks that your SME may face and plan steps to mitigate them. Being proactive includes keeping a healthy cash reserve. A healthy cash reserve allows SMEs to continue operating normally even when there is a temporary imbalance between outflows and inflows. If at all possible, put some investments on hold or reduce spending now to build up an emergency fund.
3. Reevaluate Your Business Relationships
It may be beneficial to reevaluate your current business relationships when taking stock of your SME. Do your current vendors provide you with the most cost-effective options? Are you spending a reasonable amount on storage? Do you have the ability to renegotiate your transportation contracts?
4. Set up Benchmarks
It is also critical to understand where you want to be and when you want to be there. If you don't set detailed goals, it can be difficult to know if your SME is doing well. You may already have goals for your SME, but given the current economic climate, you may want to revise them.
5. Use the Resources at Your Disposal
Maybe some of your current business relationships aren’t the right ones to help you weather inflation, supply chain issues, and a possible recession. But maybe you can establish new, more beneficial relationships. For example, Export Portal has helped countless SMEs figure out their importing, exporting, and other business practices.
Learn More with EXIMA
At EXIMA, we believe in making international trade easy and ensuring you have all the tools you need to trade confidently. That includes helping our users learn everything they need to know about global trade. Join the export/import association today!