Business Risk

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

Business Risk Definition

Business risk, defined as the various risks a company copes with while doing business, is a very broad concept. Business risk generally includes the entire spectrum of risks which a company encounters.

Business Risk Explanation

Business risk, explained as the risk which causes many businesses to fail, 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

Lee is the owner of a small Gelato store. His business, small and discretionary, has to face many business risks. 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 he can achieve great things.

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