Daily Archives: July 9, 2018

Principal types of business risk that you should be aware of

Risk can be described as an uncertainty, in that there is the possibility of you not having a positive return from your initial investment. Risk can be as a result of being exposed to danger (which can be economic, social or political) that can have a negative impact on your business performance. The following are some of the risks that you as a business owner should always bear in mind as you continue with your day to day endeavors.

  •         Strategic risks

This type of risks arises from business operation in a particular industry for a given duration of time. These risks can be associated with a change of the consumer preferences or difference in technology levels and performance that can result in your product becoming obsolete. The only way you can counter this type of risk and keep them in check is by regularly obliging with the customer feedback to ensure that you remain relevant.

  •         Compliance risks

Compliance risks result from the negative impacts that can affect business as it complies with the rules and regulations. A good example of rules and regulations that can affect our company is the employee protection regulations imposed by the lawmakers like OSHA which stands for Occupational Safety and Health Administration.

  •         Financial risks

Financial risks come about from the manner in which money is handled in your business. Some of the financial risks arise because you may not be sure who may be the credit worthy people in your customer base and for how long can the customer stay without paying for the credit given. Others may arise from having few clients that fund your business being in a position that they can’t afford to pay and lastly because of the fluctuations of interest rates.

  •         Operational risks

This type of risks arises from having an internal failure. Internal business failure can result from some things like your business system breaking down, employees being weak in their work and so on. In this type of risk, you don’t get any return something that is possible in both financial and strategic risks. Other external factors that are sources of operational risks is a breakdown of a transport system that can cut down your supply chain.    

In conclusion, other business risks are not easy to classify them. For example, environmental disasters cannot be branded in the four types of business risks, yet they may cause uncertainty of future cash flows.