All types of business enterprises will need to deal with a certain amount of uncertainly. There will always be risks to doing business, but everything possible will be done to keep these to a minimum. These uncertainties may be due to internal matters within the company or it may be due to conditions in the outside world.
So What is a Business Risk?
In simple terms a business risk is anything that could have a negative impact on a company’s ability to make a profit or to function. It could also be anything that impacts the worth of a company; for example by lowering the price of their shares. Sometimes the risks that a company faces can be divided into financial risks and business risks; with financial risks only referring to those uncertainties that could prevent a business from meeting their financial obligations.
Business Risk and Internal Factors
Internal business risks could include anything in the operation that has an element of uncertainty attached. If the business changes anything about their operation then this will always involve an element of risk. For instance, if they decide to launch a new product there is always the risk that it won’t sell. Other internal factors that influence business risk could include such things and marketing strategies and even packaging. Human resources are another area where there is a huge potential for risk if employees aren’t productive or are not put in a position where they can make the most of their skills.
Business Risk and Outside Factors
The outside factors that create a business risk can be a huge problem because they are often impossible to control. If there is an economic meltdown then this could adversely a business because nobody has the money to buy their products. There is also the tendency for products and services to go in and out of fashion, and customers might suddenly decide to stop buying a product. Another outside business risk that is always present is the competition. If somebody else produces a similar product that is better or cheaper this can take a huge chunk out of sales.
Business Risk Can Rise or Fall
Business risk can rise on fall dependent on what is happening internally within the company and in the outside world. If a business is releasing a brand new product during the middle of a recession then it might be that their business risk is high. On the other hand if they are enjoying the fruits of a successful product launch and the economy is doing well then their business risk might be considered low. With most business their business risk will always be fluctuating.
Business risk is an important factor for anyone who is considering investing in a company. If this risk is very high then the investor may decide that it is too much of a gamble. On the other hand, some investors can be attracted to high risk ventures because they might feel that there is the potential for higher rewards.