The Art, Craft, and Science of Risk Management in Small-and Medium-Sized Family Businesses

Abstract

In this study, we investigate how risk management is practiced and perceived within the setting of small- and medium-sized businesses (SMEs). We fill a gap in the extant risk management literature, which focuses almost exclusively on large organizations. We interview SME owners to gain insight into the specific risk management activities they engage in, the drivers that lead to the adoption of said activities, their attitudes towards risk management, and how their accountants shape and contribute to risk management in SMEs. We find that rather than a specific set of formal processes, SME owners view risk management as a mindset that emphasizes the preservation of key assets, creation of competitive advantages, and development of business opportunities. Nevertheless, these activities are usually planned and deliberate. We also find that accountants add value to the risk management process by helping owners interpret financial and operating information and by analyzing trends in data.

Keywords: Risk Management, SME, Small Business, Management Accounting, Entrepreneurship

JEL Classification: D81, G32, L26