Business risk can be defined as uncertainties or unexpected events, which are beyond control. In simple words, we can say business risk means a chance of incurring losses or less profit than expected. These factors cannot be controlled by the businessmen and these can result in a decline in profit or can also lead to a loss.

Understanding Business Risk

Business risk is associated with the overall operation of a business entity. These are things that impair its ability to provide investors and stakeholders with adequate returns. For example, a business manager may make certain decisions that affect its profits or he may not anticipate certain events in the future, causing the business to incur losses or fail.

Type of Risk

There are a lot of risk in business. I am going to tell you some of them which are given below:

Physical Risk

This includes any risks to your employees, buildings and assets. Common physical risks that your business might face are fires, water damage and theft or vandalism. Physical damage will result in repair or replacement costs and can also lead to legal costs if you are found liable in some way.

Strategic Risk

Every business decision holds some strategic risk. You make decisions which are designed to lead you closer to your business objectives, but there’s always a risk that they won’t. This might be because the decision itself was the wrong one but could also be due to poor execution, lack of resource or changes in the business environment. This in turn can lead to a number of things such as loss of profit, poor cash flow, missed deadlines or low sales.

Compliance Risk

Every business is governed by some form of legislation and regulation. The possibility of failing to adhere to these rules and guidelines equates to compliance risk and of course can lead to fines, prosecution and reputational damage.

Human Risk

Your employees themselves can create risk to your business through a number of ways. Their behavior in the work place can create risk if they are incompetent or non-compliant, while their behavior outside the workplace can also impact, for example, if they are misusing drugs or alcohol. Businesses must also protect themselves against the risk of fraud or embezzlement.

Technology Risk

Technology may be the cause of some of the most common risks we face in business. These risks can range from anything as basic as a power outage through to hardware and software failure, malware and cyber-attacks. Such risks can lead to loss of time through systems and equipment not being in working order, loss or corruption of data and in some cases data breach.

Financial Risk

There are a number of different ways that a business can face financial risk. Some may be internal and others may be driven by external factors such as fluctuations in the financial markets or exchange rates. Non-payment from clients creates financial risk, as does poor financial planning and projection. These risks can lead to loss of income and to a negative cash flow, which if serious enough, can mean an end to your business.

Types of Business Risks