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How to Minimize and Manage Business Risk

Understanding how to detect and mitigate business risks can be challenging. This article outlines risks like internal fraud, embezzlement, and cybercrime.

Starting a business can be a risky endeavor. Even businesses that endure the startup years, however, continue to face many different kinds of risk. Understanding how to detect and mitigate these risks can greatly enhance the success of a business.


One of these business risks is failing to be prepared in good times and bad. People talk about planning for an economic downturn, but it’s also important to be prepared for economic expansion. Many businesses are at risk of falling behind their competitors because they haven’t prepared for the natural ebbs and flows in the economy.


The challenge is that many owners haven’t planned for how they will re-ramp up their human and financial capital and obtain debt in order to grow in an expanding economy. It’s important to think about how you will take advantage of the new opportunities before you. If you’re not prepared, you could end up watching as your competitors move ahead and your business stagnates or, worse, declines.


Other Common Business Risks


In addition to not being prepared for an improving economy, there are several other business risks that are common today. One of the biggest is internal fraud and embezzlement. According to the 2018 Report to the Nations, a bi-annual fraud study conducted by the Association of Certified Fraud Examiners (ACFE), the median loss at organizations victimized by fraud is $130,000.


The best way to guard against fraud is to implement sound internal controls. The most effective internal control is to spread out or segregate duties among more than one financial employee. For example, reconciliation responsibilities should be segregated between employees who create and sign checks and those who originate and approve electronic transfers.


Owners should talk to their bank about treasury management products that can help combat fraud. These include Positive Pay and ACH Positive Pay, which act as fraud prevention systems for check and electronic fraud by alerting businesses to potentially fraudulent transactions. Lockbox is another helpful fraud prevention tool — this service enables businesses to accept payments directly at their bank rather than at their business location.


Cybercrime is another significant risk for businesses today. In the 2018 U.S. State of Cybercrime Survey, 66% of organizations said they are more concerned about cybersecurity than they were in 2017. Cybercrime security starts with recognizing the biggest threats, which include hacking by cybercriminals into corporate bank accounts in order to infect corporate computers and IT systems with malware. Cyberthieves also use phishing scams to generate fake emails supposedly from the CFO requesting that finance employees send urgent wire transfers without using the proper validation processes.


Business email compromise is another sophisticated scam that targets employees with access to company finances. Using their knowledge of an organization, cyber criminals trick employees into making wire transfers to bank accounts thought to belong to trusted partners. However, the money ends up in accounts controlled by the criminals. It may sound simple, but the level of sophistication is unprecedented.


Businesses can go a long way toward reducing cybercrime by simply educating employees about cybercrime prevention. For example, employees should be instructed to never reply to suspicious looking emails with any kind of account access information, and to never click on links in suspicious looking emails. Instead, they should forward these suspicious emails to the Cybersecurity and Infrastructure Security Agency, the nation’s risk advisor, at [email protected] for further investigation.


Finance employees should also treat every email request with payment instructions as potentially fraudulent until verified. To verify, contact the individual who initiated the request via phone using a number from within your company’s database. Be sure to confirm the accuracy of the ABA and account number with the requester.


Be Proactive in Risk Mitigation


Owners should be proactive in getting their banker, CPA and other advisory team members involved in their risk management efforts. Leverage their experience in helping other businesses deal with similar risks. They will be able to dig in and ask questions that may help uncover risks you weren’t even aware of, and then plan effective risk mitigation strategies.


Please contact Cadence Bank if you would like to discuss risk mitigation in more detail.




This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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