Five Risk Management Issues for SMEs

Read this article in the September Edition of Business Review Australia

The executive tasked with risk management in an SME has an unenviable task. There are wide ranges of issues you need to consider from a risk management perspective, and in most SMEs you’ll have a range of other tasks to perform as well. This article sets out the key legal issues to look out for in the risk management process.

1. Commercial & Contract

One of the biggest risk management issues faced by SMEs lies in the legal contracts the business has entered into, whether orally or in writing. As a new CFO or risk manager looking to implement an effective risk management process, an important yet painful task will be to complete a through legal due diligence review of all the businesses’ contracts. Obviously you’ll need to work with a lawyer to complete such a review, but you can minimise the cost of this by only asking for a high-level review to be conducted.

Upon the completion of such a review it’s a great idea to put in place a framework to ensure all future contracts are entered into set manner. Using a standard template Confidentiality Agreement, for instance, when negotiating commercial deals, is a simple and effective way of managing the risk of your businesses commercial secrets being misappropriated.

2. Regulatory & Compliance

The regulatory and compliance obligations of a business largely depend on the industry in which the business operates, as well as its size. A business operating in the financial services industry, for instance, will be heavily regulated. As the relevant risk management professional within your organisation, you will be obliged to comply with a host of regulations and rulings issued by organisations such as the Australian Investments and Securities Commission (ASIC) or the Australian Securities Exchange (ASX).

If your business operates in a less regulated industry, but deals with consumers, you will be required to comply with all relevant consumer rights legislation such as the Australian Consumer Law and enforced by organisations such as the Australian Competition and Consumer Commission (ACCC).

When completing your risk analysis, drawing up a matrix diagram of the regulations your business works under is an easy way of visualising your obligations.

3. Human Resources

One of the biggest risk management issues facing SMEs relates to the workforce. Human resource issues regularly cause severe problems for the management of SMEs. When completing your risk management analysis the first step is to ensure that each employee has signed a legal, valid and binding Employment Contract. You then need to work out which, if any, of your employees are governed by a Fair Work Australia Award. Make sure that those employees that should be covered by the award are being paid the appropriate rates.

It’s also vital that you ensure the business provides a good quality Employee Handbook to all employees; outlining expectations and requirements around areas such as Bullying and Discrimination, Workplace Health and Safety, Workplace Surveillance and Disputes.

Minimising risks relating to Human Resources is crucial, as the cost of terminating an employee or entering into a protracted dispute is high.

4. Environmental

Risk management in relation to environmental issues is very relevant to businesses operating in the industrial and rural sectors. There are pieces of government legislation that your business needs to adhere to, but these are quite specific to individual industries. It can be a good idea to work with an environmental consultant to complete a thorough audit of your operations.

5. Financial

Finally, the financial obligations of a business, in particular towards the Australian Tax Office (ATO), creditors and suppliers, should be considered both when performing a risk management review and in the course of everyday business. Businesses often get into trouble both from a cash flow perspective, and occasionally a profitability perspective, by ignoring their taxation liabilities.

To Conclude

Risk management in an SME is an important job, but is rarely assigned to a full-time risk manager. It’s important that you cover off the five key issues mentioned in this article; if needs be working with an expert can be a good idea.

About the Author

Lachlan McKnight is the CEO of www.legalvision.com.au, which provides online legal services, including customised legal document and fixed-fee online lawyers.