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FINANCIAL RISK MANAGEMENT IN SME
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Motivated by the finding that existing literature and research on risk management misses the focus on small and medium sized enterprises (SME), the aim of this thesis was to propose a mean for SME to manage their internal financial risks.
Similar to large companies, SME do also face business risks, which in worst case can cause financial distress and lead to bankruptcy. However, although SME are a major part of the German - and also international - economy, research mainly focused on risk management in large corporations. Due to differences in characteristics and resources, in various fields ranging from management over structure and IT systems to specialty of knowledge, large corporations’ practices cannot easily be adapted to SME. Therefore the aim was to suggest a possible mean for the risk identification, analysis and monitoring, which can be applied by SME to manage their internal financial risks.
For this purpose the financial analysis, which has been used in research to identify indicators for firm bankruptcy, was chosen. An overview was developed, which allows identify risks and negative developments in the main critical areas of internal financial risks to SME, namely liquidity, financing and solvency. The identification, analysis and monitoring is based on a set of financial ratios, which have been proven efficient for risk identification in various researches. To enable a classification of the risk situation, the company data is compared to data of two groups. On the one hand data of bankrupt companies marking the critical area, and on the other hand that of successful companies as a positive benchmark. In comparison to those two groups, the actual risk situation of a SME can be analysed and critical aspects from financing, liquidity or solvency can be identified. Especially when using plan data in the overview, critical developments can be observed at an early stage. At this point further research could identify ways and standardized structures for the SME to go deeper into analysing the sources of the identified risks as well as to handle them. For this, as for the whole process, the characteristics of SME have to be taken into account, too.
Therefore the suggested overview is a first and comprehensive mean for analysing and monitoring the overall financial risk situation of SME. It is designed to fulfil their needs as it takes their characteristics into account and can be the base for further research in the field of SME risk management.