What Does a CFO Do? Pt. 10, Risk Management and Governance
In our continuing series detailing the CFO’s role in a small business, we conclude with the tenth installment on “Risk Management and Governance.” To some, risk management sounds nebulous. To others, it implies a conservative approach to business. Yet it does not have to be either. Risk management can be handled within a structured framework, even for small business, which can be utilized to assess potential risks according to your tolerance.
Wikipedia defines “risk management” as the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
More specifically, risk management can be broken down into a few areas. For one, determining the necessary and appropriate insurance coverages is a good place to start. Your CFO should help you weigh costs with potential risks. On a similar note, the CFO should oversee all human resources policies. By doing so, the CFO should be able to minimize potential liabilities.
Furthermore, the CFO should manage the legal affairs of your company, and provide litigation support in a manner that minimizes potential liability. For some companies, interactions and coordination with attorneys can be an arduous task. Your CFO should help keep these costs to a minimum, and know when it’s the right time to get the lawyers on the phone. It helps tremendously to have a CFO that has a strong legal background in your industry.
Another area of great risk are your creditors and debtors. Assessing credit and counter-party risk is critical to ensuring that you don’t rack up an unnecessary amount of bad debt write-offs and losses. Which of your suppliers could be in trouble, and what could the impact be on your business? If a supplier shuts down, what will be the impact? What are the company’s internal credit risks? Is the company heading in a direction where it could become unbankable?
All of these areas should be at the forefront of your CFO’s responsibilities, to insure that your organization is effectively managing risk in a proactive manner.
Thanks for following along for this series on “What Does a CFO Do?” If you have any questions on any of the items discussed, feel free to contact us any time.
If you missed the previous posts, here they are:
- Part 1 Introduction, click here.
- Part 2 on Cash Management, click here.
- Part 3 on Financial Reporting, click here.
- Part 4 on Accounting, click here.
- Part 5 on IT Development, click here.
- Part 6 on Strategic and Financial Planning, click here.
- Part 7 on Stakeholder Relations, click here.
- Part 8 on Human Resources, click here.
- Part 9 on Pricing and Cost Analysis, click here.
About Gateway CFO Solutions, LLC:
Based in St. Louis, Gateway CFO Solutions helps small businesses grow profits and revenues, and bring peace of mind to their company’s financial picture through part-time CFO services. Many small business owners are without a trusted advisor for the financial side of their business, and they have seemingly few resources to turn to for expert guidance. We provide that guidance and act as a trusted, strategic advisor for our clients. We provide both broad, global planning and “roll up the sleeves” technical services.
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