At owner-operated companies, the focus of conservative financial management is not on short-term share prices, but on the achievement of stable cash flows. Such stability has become increasingly important and challenging in the wake of the global economic crisis, giving rise to the fundamental question: Do companies need to focus even more on risk management or does a wait-and-see approach make more sense given the lack of sales visibility?

Everyone is at risk, risk is simply an unavoidable part of every business. At its most basic, risk management refers either to operational measures or hedging transactions using financial instruments (or a combination of the two). The former includes elements such as passing on price risks, price escalation clauses, relocation of operations or substitution of raw materials in order to protect cash flow profits from undesirable changes . On the other side of the risk management coin are non-securitised transactions such as forward contracts or options. Such derivatives have established themselves as standard instruments for financial risk management over the past 25+ years. The decline in minimum volumes for such products to EUR 250,000 highlights their suitability for broad and direct application for hedging of exchange rates, interest rates or commodity prices.

The view often expressed in the media that the use of financial instruments is a speculative practice fails to look at the entire picture. Hedging means that a “speculative” underlying transaction (e.g. the purchase of diesel fuel) is matched with a “speculative” financial instrument, providing a mutual offsetting effect which results in something “non-speculative”. Only in the absence of the corresponding underlying transaction can isolated use of financial instruments be deemed speculation. In the vast majority of cases however, companies are using such instruments for hedging of an underlying transaction.

Operational measures alone do not suffice. The financial crisis has clearly shown that a purely operational approach to risk management does not provide absolute planning reliability in cash flows. Companies that invoice exclusively in their domestic currency can observe that even domestically manufactured products are being offered within their own countries at a lower price after taking a detour through countries with depreciated currencies. For their part, companies in these other countries are increasingly demanding price reductions or pushing for price renegotiations, as domestic currency invoicing means increased costs for the customer as a result of the exchange rate difference. Furthermore, the traditional fixed-price contract in raw materials procurement is no longer "risk-free" either. The more fluctuation there is in sales and the more customers are lost in the process, the greater is the risk represented by contractually agreed purchase commitments. A separation of ongoing procurement from price risk management is often the solution of choice in this case.

Adaptability and a long-term planning horizon for the business activities of owner-operated companies should also apply to risk management. When it comes to practical application, the flexibility of financial instruments offers valuable benefits, especially in volatile times.