Foreign exchange risk, liquidity risk, interest rate risk… companies need a good strategy to avoid them. In addition, the economic crisis is affecting forecasts and risks are increasing. As a result, they have to adopt new strategies and a new management approach. They may also need to find new collaborations. So how do you manage financial risks?
Set up a new strategy for regular monitoring
The installation of a regular monitoring strategy is imperative. It is even the best way to anticipate risks in time and to act accordingly.
Indeed, risks must be controlled at all levels of the hierarchy and at all decisive points in the sales chain. It is a question of anticipation first, but also of evaluation at every level and as soon as necessary. This also implies that all investors must be credible, as well as buyers.
The type of monitoring obviously depends on the type of risk. For a liquidity risk, for example, it will be necessary to focus on the person of the investors and meet the needs of the market. If it is an interest rate risk, it is best to monitor market developments and negotiate with borrowing institutions.
In any case, monitoring should enable the management to constantly monitor market imbalances or to win back the market and its partners. It will then be easier to adapt projects and investments to current needs and demands.
Ask the experts for advice
The experts can give detailed and specific advice on each case. They have the capacity to analyse the situation fairly and clearly. You should seek advice from a specialist in your field to better manage risks. This implies that you should also comply with any conditions.
You can turn to your banker or investor. The latter have the ability to analyse things more objectively, as your reasoning is falsified by personal opinions. They will be able to bring a new view of things, in the same context, and conclude to a better solution. They can also provide information about similar cases, which helps in the search for a solution.
Loan cases are cited as an example. External assistance may be needed to analyse the costs of debt or to define the objectives of a particular fund. The important thing is to rely on external advice to circumvent an imminent emergency situation where the risk would become real. The purpose of seeking external assistance is simple: to have better visibility in order to better prevent risks.
Seek solutions before the risk occurs
For specialists, unexpected events always have a solution. And when the risk is imminent, it’s the only way out.
In this context, many speak of opportunity linked to risk. They do not seek to secure financial risks, but to make a profit. They are looking for profits even in a crisis situation. There are short-term solutions such as private loans or private funds, for example. But the best thing is to use a long-term solution.
In the case of a debt risk, the solution might be to hedge foreign exchange with contracts or to cover all debts. That would be fine, unless the overdraft risk occurs after that. The same goes for the risk of cash shortages. The company must plan solutions to pay its debts on time. This means that the solutions must be anticipated as much as the risks.