Why do small and medium-sized companies experience multiple financial struggles?
Warning Signs:
High Financing Costs: Studies indicate that companies without robust risk management practices can have financing costs up to 15% higher. According to Wu & Yu (2012), “the implementation of a well-structured risk management framework can reduce financing costs by up to 15%”, allowing for better credit conditions and access to capital.
Lack of Strategic Planning: If decisions are made without an in-depth analysis of risks and opportunities, your company may be failing to take advantage of market opportunities. Roberts & Sawyer (2010) demonstrated that companies that adopt risk management practices achieve better credit and governance conditions, essential for sustainable growth.
Uncertainty and Constant Stress: The environment of uncertainty, where each decision seems risky, is a strong indication that a consultancy can bring the necessary expertise to transform risks into opportunities.
What are the benefits of financial and corporate consultancy in any business in the medium and long run?
Risk Management for Small and Medium-sized Companies
Have you ever wondered why so many small and medium-sized businesses seem to face financial difficulties time and time again? Often, the root of these problems lies in a lack of a structured approach to risk management and inadequate strategic planning.
Main Causes:
Lack of Integrated Risk Management: Torres & Silva (2014) showed that integrating risk management into strategic planning is crucial to identifying and mitigating problems before they become serious. Without this practice, companies are exposed to risks that can increase operational and financial costs.
Reactive and Unplanned Decisions: Chen & Lim (2015) highlight that the lack of strategic planning, combined with reactive risk management, can significantly compromise operational efficiency. Companies that do not prepare for adverse scenarios end up making decisions that worsen financial difficulties.
Impact of High Financing Costs: Without effective management, financing costs can be substantially higher. Wu & Yu (2012) prove that the absence of a risk management structure can result in costs up to 15% higher, directly impacting cash flow and investment capacity.
Reference:
Torres, L. M. O., & Silva, A. M. (2014). Integrating Risk Management into Strategic Planning: Empirical Evidence from SMEs. International Journal of Strategic Management, 5(1), 67–84.
Chen, P. H. D., & Lim, M. F. (2015). Strategic Risk Management and Corporate Performance: A Multidimensional Analysis. Strategic Management Journal, 36(8), 1063–1082.
Wu, K. L., & Yu, S. J. (2012). Quantifying the Benefits of Risk Management: Evidence from Publicly Listed Companies. Journal of Financial Economics, 105(3), 569–590.
In an increasingly competitive business environment, having robust financial management is not just desirable – it is essential. In the medium and long term, the benefits go far beyond simply organizing accounts.
Proven Benefits:
Reduction of Financing Costs and Improvement of Credit Indicators: Studies indicate that companies that implement structured risk management are able to reduce their financing costs by up to 15% (Wu & Yu, 2012).
Optimization of Operational Efficiency and Strategic Planning: Ng & Ta (2016) and Chen & Lim (2015) demonstrate that integrating risk management into strategic planning generates measurable savings, improving resource allocation and increasing operational efficiency. This results in more assertive decisions and an ability to respond quickly to market changes, reducing waste and maximizing results.
Increasing Company Value and Strengthening Corporate Governance: According to Becker & Ulrich (2009) and Oliva (2013), robust risk management practices are associated with improving corporate governance and increasing the company's market value. Solid governance not only attracts investors, but also consolidates the company's reputation, ensuring long-term sustainable growth
Reference:
Wu, K. L., & Yu, S. J. (2012). Quantifying the Benefits of Risk Management: Evidence from Publicly Listed Companies. Journal of Financial Economics, 105(3), 569–590.
Ng, M. T. B., & Ta, D. L. (2016). Risk Management, Capital Structure, and Firm Performance: A Meta-Analysis. Journal of Corporate Finance, 38, 141–159.
Chen, P. H. D., & Lim, M. F. (2015). Strategic Risk Management and Corporate Performance: A Multidimensional Analysis. Strategic Management Journal, 36(8), 1063–1082.
Becker, J., & Ulrich, P. (2009). The Impact of Enterprise Risk Management on Corporate Governance and Firm Value. Corporate Governance: An International Review, 17(5), 651–668.
Oliva, R. R. (2013). The Role of Enterprise Risk Management in Enhancing Firm Value: Empirical Evidence from the U.S. Market. Journal of Risk Finance, 14(2), 182–203.
How do I know if my company needs consultancy?
If you feel like your company is constantly struggling with financial challenges, reactive decisions and high costs, it may be time to rethink your strategy. One of the ways to identify this need is to assess the impact of the lack of structured risk management.
