Are you the kind of leader who relies on gut instinct and has a confidence that risk equals reward? This is a strategy that sometimes pays off but there are precautions you can take to ensure all your hard work isn’t undone. Here, Euler Hermes experts give their advice for minimising your risks…

When you’re an SME owner, the challenge is always to balance risk against reward. There are those who may be over-diligent and fail to take that leap of faith, while there are many entrepreneurs who chase opportunities without considering the potential pitfalls.

Going for growth is a positive way to run a business, but experienced leaders will always tell you that it pays to keep an eye on the aspects of your organisation that could go wrong.

Paul Anderson, assistant head of risk underwriting at Euler Hermes, the world’s leading provider of trade credit insurance and a company of Allianz, argues that failing to plan for a shock is common among businesses that have seen success in the past: “It’s a mistake to assume ongoing success,” he explains. “Just because you have done okay in the past doesn’t guarantee it will continue to be so in future. For example, the bigger you get, the more you will appear on competitors’ radar, which is a risk in itself.”

An increasingly competitive environment is just one factor that SMEs are up against, but there are plenty of others. Cash flow, for instance, is key. Late or non-payments can become a big problem, with estimates suggesting that more than half of UK SMEs are owed money from late payers, amounting to more than £250 billion outstanding (Source: The Credit Protection Association).

Money trouble accounts for a large number of business failures, but you can reduce the risk with robust cash-flow forecasting. Look at your customer profile, calculate average payment times and identify late payers – will their outstanding debt put you in hot water if you have a large VAT bill to pay?

But credit controls can’t protect against so-called ‘black swan’ events – those that are unpredictable but have a huge impact on businesses. “A big reason why companies suffer from bad debt isn’t because they have poor credit control procedures but because we are seeing huge companies going bust,” says Jack Kent, team manager South at Euler Hermes.

“Carillion had £850 million [owing from] unsecured creditors when it collapsed and only £40 million of the total was credit insured. When big companies become insolvent this has a knock-on effect all the way down the supplier chain to small businesses feeding in. We see quite a lot of companies suffering and, sadly, by the time they start to look for solutions such as insuring against bad debt, it’s generally too late.”


One increasingly important area to focus on is technology; with firms moving onto cloud-based IT platforms, project management tools and financial software, a growing number fall prey to cyber criminals. While 93 % of small businesses have some cyber security in place, 66 % have fallen foul of cyber crime in the past two years (Source: The Institute of Directors).

Yet almost half of UK SMEs plan to spend less than £1,000 on cyber defences in the next 12 months (Source: Computer Weekly). Attacks can happen anywhere, including via email, payroll or HR, so conducting a security assessment and procuring proper online protections are vital safeguards.

Another area of risk, perhaps surprisingly, is your people. Relying heavily on one or a handful of key individuals is something that’s hard to avoid in a small business. But you need to be prepared if someone falls ill or jumps ship – do you have an adequate plan B to make up for the loss of skills, knowledge and expertise?

With UK and Ireland unemployment rates at historical lows it’s tough to find the best recruits, so a sudden loss of key people could be a serious challenge to your business. Investing in training and asking employees to shadow key staff and deputise are two ways to reduce the threat.

“There are risks associated with growing at pace, so the people you bring in are crucial,” says Paul Anderson. “Over the years, I’ve seen small businesses grow from a sole trader into a limited company, but the owner-manager is still trying to do everything. They haven’t brought in new managers or delegated responsibility.”

A SWOT analysis (strengths, weaknesses, opportunities and threats) will reveal your position in the market and the challenges you face. Consider your competitors, business model, data, people, suppliers and location. Do any of these areas throw up warning signals for you?

By identifying the main threats and acting on them, you can go a long way to securing your business’ future. Taking out adequate cover, including trade credit insurance, adds another layer of security to neutralise financial risks to your business.

Victoria Keeling, direct and bank distribution underwriting manager at Euler Hermes, sums up the practical approach: “It just comes back to knowing the market, knowing where your obstacles and risks are and trying to prevent them via training and sharing information.”

Companies that take precautions like these can look forward to a bright future. Are you prepared for anything?