SME risk management: insolvency

February 1, 2021

Published: Accountancy Europe

About 200,000 companies go bankrupt every year in Europe, resulting in 1.7 million job losses. The ongoing COVID-19 crisis and economic downturn has exceptionally worsened the situation, putting an unprecedently heavy strain on Europe’s small and medium-sized businesses (SMEs). And the worst may yet be ahead, as governments will eventually end their current COVID support measures.

Financial distress and insolvency are recurrent risks for small businesses. Entrepreneurs are the experts in running and managing their own business. But it is difficult especially for smaller companies to devote the resources to keep a check on all possible risks facing their business.

Accountants can help the SME management to fulfil their responsibilities, ensure that the business is run in a sustainable way, and that the financials are in order and not indicating forthcoming issues.

This paper – part of our SME risk management project series – outlines some of the main insolvency risks and challenges faced by SMEs. We highlight the role that professional accountants can play in managing and preparing for the risks, identifying red flags to better advise their SME clients. It also includes two checklists to support the accountant in their work to mitigate their clients’ insolvency risks.

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