Analyzing Financial Risk Management Practices in Small and Medium Enterprises: A Focus on Risk Identification and Mitigation

Exposure to financial risks has made many Small and Medium Scale Enterprise vulnerable to financial instability and operational disruptions. Failure to effectively manage the risks have always resulted in unexpected losses, cash flow problems, and reduced that threaten SME sustenance. Hence, this study examined techniques for identifying, assessing and mitigating financial risk management in Small and Medium Enterprises. Cross-sectional survey strategy was implemented on a sample size of 120 SMEs purposively selected from Nigeria. Four-point Likert-scale questionnaire was used in gathering the primary data used in the study. The research questions were analysed using descriptive tools whereas the hypotheses were tested using Kendall Tua correlation. The findings revealed that SMEs in Nigeria significantly deploy financial audits, SWOT and PESTLE analyses, KPIs, and risk mapping for identifying financial risks, and such usage significantly improves financial risk identification at 5% level. Risk assessment tools such as risk scoring, sensitivity analysis, stress testing, and scenario analysis are also extensively utilized, and such usage significantly improves financial risk assessment at 5% level. Additionally, mitigation strategies such as collaboration networks, diversification, stakeholder management, and internal control oversight are effectively employed to manage and reduce financial risks in SMEs at 5% significance level. In conclusion, the adoption of these financial risk management practices positions SMEs to better manage potential financial challenges and reduces their vulnerability to economic disruptions. The study recommends that SME owners and financial managers should mandate regular reviews and updates to keep financial risk identification tools aligned with shifting market dynamics and financial domain to ensure that their financial risk identification practices remain proactive and responsive to emerging risks.