In recent years, micro enterprises have made great contributions to China’s economic development and solving employment problems. However, due to their small scale, lack of funds and financing difficulties, micro enterprises are vulnerable to financial risks, which has slowed their development. Therefore, an important issue now is to study and explore the financial risks of micro enterprises. Based on China’s current national conditions and market situation, this article focuses on the financial risks of micro enterprises, studies the prevention of financial risks for micro enterprises, and puts forward relevant countermeasures to avoid risks, in order to provide micro enterprises with practical and valuable suggestions. It aims to provide a reference for in-depth research on the sustainable development of China’s micro enterprises, and make beneficial explorations for China’s healthy economic development model. At the same time, it also provides beneficial solutions for information users and regulatory and governance departments of enterprises.
Micro enterprises have weak financing capabilities and lack of financing channels
Unlike large enterprises, micro enterprises often choose higher-cost financing methods when facing difficulties in cash flow turnover and financing. On the one hand, micro enterprises have weak financing capabilities. They often cannot meet the loan conditions of banks, and can only seek financing through underground private lending with high financing costs. On the other hand, micro enterprises lack diversified financing channels. Apart from bank credit, they have almost no financing instruments such as corporate bonds, short-term financing bills, etc. Therefore, broadening financing channels and increasing financing convenience for micro enterprises are the top priorities.
Low profitability leads to low investment returns of micro enterprises
Micro enterprises are often in industries with low barriers to entry, fierce competition and low profit margins. They lack core competitiveness, economies of scale and bargaining power. As a result, their profitability is inferior to large enterprises. The low profitability directly leads to the low return on investment of micro enterprises. According to statistics, the investment of micro enterprises is often in projects with fast returns. But under the constraints of various objective conditions, the actual investment income of micro enterprises is still at a low level on the whole.
Micro enterprises lack awareness and capabilities of financial risk management
On the one hand, due to the lack of professional financial personnel, micro enterprise owners often lack awareness of financial risk management, and it is difficult to identify and prevent financial risks in a timely manner. On the other hand, micro enterprises’ capabilities in financial data analysis and financial risk assessment are insufficient, and they do not have complete financial risk early warning and internal control systems. Once risks occur, micro enterprises often fail to respond in time and take effective measures, thus exacerbating the loss.
Countermeasures to improve micro enterprises’ financing capabilities
First, micro enterprises should establish credit systems, strengthen credit management, and improve their credit records, so as to increase their opportunities for bank credit financing. Second, make full use of Internet finance, crowdfunding and other emerging financing models to broaden financing channels. Third, guide private capital and foreign capital to increase direct financing support for micro enterprises through fiscal and taxation, investment and financing, etc. Fourth, local governments can provide special credit loan guarantees for micro enterprises, appropriately lowering financing thresholds.
Strengthen cost control and improve investment efficiency
First, micro enterprises should focus on the source management of production costs, implement fine management of expenses, and strive to reduce operating costs. Second, make rational use of financial leverage and operating leverage, expand production scale, and improve labor productivity to reduce unit product costs. Third, strengthen supply chain management to obtain raw material price advantages. Fourth, implement differentiated competitive strategies, enhance core competitiveness of products or services, and increase profit margins.
Improve financial risk management capabilities of micro enterprises
First, micro enterprises should attach importance to financial personnel training and introduction, and establish appropriate financial management systems. Second, make rational use of financial instruments and derivatives to avoid market risks. Third, make full use of big data and information technology, and establish financial early warning systems focusing on operational indicators. Fourth, strengthen internal controls, conduct regular risk assessments, and establish risk response plans. Fifth, introduce third-party risk management consulting services when necessary.
In general, the keys to improving financing capabilities, investment returns and financial risk prevention of micro enterprises lie in broadening financing channels, strengthening cost control, and enhancing financial management capabilities. Only by organically implementing various measures above can micro enterprises truly improve their competitiveness and achieve better development.