How to conduct a year-end risk assessment
How to conduct a year-end risk assessment
Auditors assess their clients’ risk factors when planning for next year’s financial statement audit. Likewise, proactive managers assess risks at year end. A so-called “SWOT” analysis can help frame that assessment.
Typically presented as a matrix, this analysis of strengths, weaknesses, opportunities and threats provides a logical framework for understanding how a business runs. It tells what you’re doing right (and wrong) and predicts what outside forces could impact cash flow in a positive (or negative) manner.
Internal factors
SWOT analysis starts by identifying strengths and weaknesses from the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies or competitive advantages. Examples might include a strong brand image, a loyal customer base or exceptional customer service.
It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider:
- Purchasing life insurance policies on key people,
- Initiating noncompete or buy-sell agreements, or
- Implementing a formal succession plan designed to transition management to the next generation.