Risk Management in SMEs

Abstract

We investigate how owners of small- and medium-sized enterprises (SMEs) perceive, make sense of, and practice risk management. Drawing on Schatzki’s practice theory, we theorize on how and why risk management happens in SMEs, thus filling a gap in the extant risk management literature, which focuses almost exclusively on large organizations. We interview entrepreneurs and conduct site observations to gain insight into the risk management activities they engage in, the drivers that lead to the adoption of said activities, their attitudes toward risk management, and how their accountants may shape and contribute to risk management in SMEs. We find that, rather than a specific set of formal processes, entrepreneurs view risk management as a mindset that emphasizes the preservation of key assets, creation of competitive advantages, and development of local talent and expertise. We observe a high proportion of practices that are informal, but these activities are nevertheless planned, deliberate, and fully integrated within the fabric of organizations. We also find that while accountants external to SMEs help entrepreneurs with bookkeeping, tax filing, and financial statement preparation and interpretation, they do not actively contribute to helping entrepreneurs manage risk. Our study provides both theoretical and practical implications by way of empirical insights on how SME owners perceive, make sense of, and manage risk.

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

JEL Classification: D81, G32, L26