From fluctuations in the economy and competition in the market, to unforeseen events and changes to regulations, in a business landscape that’s continually evolving, risk remains a constant threat. Always present – even if not immediately identifiable – the omnipresent force that is risk, can have a deeply profound impact on the longevity and performance of a company, making it essential not to overlook the importance of risk management.
For CPA firms providing tax outsourcing services, risk management is so much more than just an integral requirement of compliance. In fact, it’s an essential strategy for all companies, and here’s why:
It helps protect your assets
When proper risk management strategies are implemented, physical assets, financial resources, intellectual property and even a company’s reputation, can be protected. This helps business’s guarantee continuity and show resilience, even in the face of extreme adversity.
It enhances decision-making
Providing those responsible for making important decisions for the company, with a clearer picture of what the potential risks may be, risk management leads to improved allocation of resources and more effective strategic planning.
It gives companies a competitive advantage
For any business giving priority to risk management, outperforming their competitors becomes far more achievable. When companies are able to effectively anticipate, identify and mitigate risks, viable opportunities to grow and be more profitable, can be seized upon, and changes to the condition of the market can be better adapted to.
It ensures regulatory compliance
The accounting industry is subject to a whole host of complicated and continually evolving regulatory frameworks, but with proper risk management, compliance is made easier, and fines, court battles and damage to a company’s reputation, can all be avoided.
It encourages stakeholder confidence
If a CPA firm is able to demonstrate that is has a strong commitment to risk management, customers, business partners and investors will be far more likely to engage with it, since it instils confidence and can help foster long-term relationships.
What are some key components of an effective risk management strategy?
To ensure that your CPA firm has a strong framework in place for risk management, here are some components to give consideration to:
1. Risk identification
Every company should identify potential internal and external risks and categorize them appropriately, in a process that will involve making a complete detailed assessment of market dynamics, the business environment, and internal operations.
2. Risk assessment
Once potential risks have been identified, their probability and impact must be assessed with the help of a scoring system or risk matrix, which can help risks be prioritized according their significance.
3. Risk mitigation
All identified risks must have a strategy formulated to mitigate them, or reduce them, and this can include such things as securing insurance, implementing robust controls, making more diverse investments, or changes to your operations.
4. Risk monitoring
As risks evolve, they must be constantly monitored and reassessed with regular reviews of performance indicators and risk registers.
5. Crisis response plan
Should a risk materialize, it’s important to have a comprehensive crisis management plan in place, in which steps that should be taken, are clearly outlined.
6. Training and communication
All employees must be up-to-date and informed with regard to all risk management practices, and should a risk emerge, they must know exactly which channels of communication to use for reporting it.
Managing risks for those companies offering outsourced bookkeeping for CPAs, is imperative if they’re to remain functional and profitable. And, in a world that is increasingly uncertain, a dynamic and proactive approach to risk management isn’t just called for; it’s demanded.
