RSS feedsWhat response would you get if you assembled the partners of almost any independent practice and asked them to identify the top ten risks faced by their firms and what strategies they have to manage them? They will undoubtedly identify a number of problems relating to client work and regulation, but what else is there that could threaten their business’s viability with the economy in its present state?
Business risks fall broadly into four categories; strategic, operational, financial and hazard. Hazard may seem the most obvious as every firm will have insurance and comply with health and safety legislation, but what will actually happen if the offices burn to the ground? Are plans in place to find alternative accommodation and get the business up and running again quickly? Are IT systems and records safeguarded or backed up offsite? A good risk management strategy looks beyond the potential problem and has a continuity plan.
There are several key questions that need to be addressed. Have the partners identified the firm’s ‘top ten’ list of threats? Is sufficient time allocated to reviewing these threats on a regular basis? Is there sufficient follow-through after risk identification? Do any of the partners have risk management experience? Is there a fully resourced system of risk management in place? Is there clear communication on risks with appropriate personnel at all levels of the firm?
Strategic risk is one of the most serious for an accountancy practice. In a competitive marketplace, where clients demand a complex array of services, firms cannot afford to stand still. They must develop new skills and offer added value. Such development requires investment along with a very clear picture of the business, its marketplace and future direction. It also requires management and communication that inspires everyone in the practice and drives the business forward. Where such planning and leadership is lacking, implementation is, at best, uneven. At worst the existence of the business is under threat and the increased merger activity in the independent sector bears witness to the number of firms that are struggling to keep up.
Accountancy firms operate in a highly regulated environment which requires constant monitoring.
Where this relates to audit and assurance the majority are very well aware of the risks they are running. Any neglect of quality controls means a firm may find their PI insurance is inadequate.
For firms too small to employ a dedicated HR professional there is a whole range of other issues encompassing hiring, firing and management of staff. Incompetent or disruptive staff can have a detrimental effect on client relationships and cause internal problems. Furthermore, discrimination or discipline can result in expensive lawsuits.
Economic downturn brings risk of another kind – losing clients and a
shrinking client bank. Firms should already have identified their ‘at risk’
clients – those in property and retail that are most likely to suffer over the
coming months – and be working with them to develop strategies for survival.
Phil Shohet is a director at Kato Consultancy
