5 Causes of Business Risk


Meaning of Business Risk

Business risk refers to uncertainties that affect business functioning. It is harmful to the normal growth of the business. These risk need to be timely addressed and handled. Many businesses acquire losses due to these risks.

Business risks vary from business to business as per their size. These risks can’t be avoided but need to be controlled. Business Risks are of 2 types: External risk and Internal risk. Risk which arises due to internal control is termed as internal risk. These risks are under the control of the business. External risk arises to adverse conditions of the economy. These risks are not under the control of the business.

Causes of Business Risk

Market competition

This refers to the competition from the existing competitors in the market. It is one of the major cause of business risk. Business needs to keep an eye on the activities of its competitors from time to time.

Business needs to keep to compete in terms of price and quality from its competitors. Prices of the product should be kept according to the market demand. Business should focus on efficiency to cut down its prices & provide better quality.

Natural factors

These are natural factors which affect business performance. Natural calamities like flood, drought, earthquake, cyclone etc. are such factors. These are not under the control of the human. These are all unavoidable & bring large destruction to the economy.

Large loss of profit, life & property is brought by these factors. These losses can be minimized by taking various insurance covers.

Government regulation

It refers to rules and regulations to be followed by the business. Government changes these rules from time to time. Sometimes these rules are too strict for the business to be followed. Small businesses largely suffer due to these government rules.

These rules & regulations bring large losses for the business when becoming unfavorable for them. Government rules are unavoidable & need to be followed at any condition.

Economic causes

Condition of the economy also affects business performance. Sometimes the economy faces conditions like poverty & recession. This affects the overall market. Demand for the goods and services decline affecting the business operations. This brings a slowdown in business operations thereby bringing losses.

Human causes

These are the causes on the part of a human that leads to risk. These causes include activities like theft, robbery, carelessness, work stoppage due to riots, strikes, failure of power etc. These causes bring heavy losses for the business. These need to be handled properly on time. The main reason behind all these activities is the failure of management.