Business Risk

See Also:
Hedging Risk
Controller Definition
Risk Premium
Commercial Risk
Transfer Risk
Moral Hazard

Business Risk Definition

The business risk definition is the various risks a company copes with while doing business. It is a very broad concept. It generally includes the entire spectrum of risks which a company encounters.

Business Risk Explanation

Explained as the risk which causes many businesses to fail, business risk should not be taken lightly. Business risk exposure can come from a variety of situations: risk of competition, risk of change in market dynamics, risk of change in supply lines, buyer behavior, the legislative environment surrounding the business, and more. With an ever changing environment surrounding the business threats may arise which could cause one part or even the entire business to fail. Due to this fact, the prudent business owner must keep abreast with changes through constant research. This research puts the overall environment of the business in check.

Business owners also like to keep extra cash to deal with risk. This extra cash allows for unexpected expenses like lawsuits, legislative changes, changes which require more marketing, and more. Cash can protect a business from staying stagnant in the market positioning it takes.

Business Risk Example

Look at the following business risk example. Lee is the owner of a small Gelato store. His business, small and discretionary, has to face many business risks. As a result, Lee survives off of his gumption and perseverance.

Recently, Lee had to perform a major business risk evaluation. Lee just noticed another gelato store opening across the street. This risk, the threat of competitors, could mean the failure of Lee’s business. He has to act fast.

To deal with this, Lee takes a more focused marketing approach. He begins to contact community organizations. He provides a unique offer: 25% off gelato and free room to meet in his store. This has 2 benefits: increasing sales while getting the word out to the customer. After 2 months, it is clear that Lee’s plan was a success: his business is growing. It seems that people who come for a meeting have returned because they like the product.

Lee resolves to keep cash on hand and begin to find other routes for marketing. He knows that if he sticks with his business, then he can achieve great things.

Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

business risk

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

business risk

,

One Response to Business Risk

  1. vishal kumar July 12, 2018 at 12:45 pm #

    I have read your article about business risk. It provides a lot of information to me. You really write informative articles. I also read your other articles. your writing skills are very good.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.