Business risks arc subdivided into:
1. Marketing risks
2. Credit risks
3. Equipment risks
4. Inventory risks
5. Government risks
6. Fire, theft, and accidental risks
Marketing involves risks which assume different forms:
1. Goods may get damaged, broken or over-ripe.
2. The whole stock may become outdated or out of fashion.
3. New substitutes or inventions may render the present product obsolete.
4. The taste, preferences, likes, and dislikes of consumers may change.
5. The business may face unfavorable change in prices.
6. Competition may damage the business.
7. New models and designs may affect the demand for the present product.
8. A key manager may leave the firm ir he may die.
9. Fire, theft, pilferage may take place.
Many of the above risks are uninsurable and can only be minimized by up-to-date information, continued research, proper training, effective policies, proper planning, and adequate controls.
Credit risks are of two kinds:
1. Goodwill or credit of the company:
Any unsuitable business transaction or activity may damage the credit of the company.
2. Bad debts
Account receivables and note receivables may not be collectible and may turn into bad or doubtful debts.
A large part of capital is invested in fixed assets including machinery, equipment, and tools. Fast changing and growing science and technology may render these assets obsolete. If the company rejects the new technology, or inventions but the competitor accepts it, the latter will capture the market share of the former owing to better product, price, costs, design, and so on which are the result of new technology. On the other hand, it may be quite difficult for the former to dispose of the old machinery to arrange for money to purchase the new one and to train the staff to work on it.
Businesses carry large stocks of merchandise to meet customer demands. A fairly large amount of capital is invested in the stock. Its employment m ist be productive and safe. Overstocking and under-stocking always run many risks and hence right amount of capital should be invested to keep a right level of inventory. Over-or under-stocking runs the following risks:
1. Unfavorable change in prices.
2. Likelihood of theft or pilferage.
3. Fire, rain, sun, dust may damage merchandise.
4. Development of new inventions, innovations, or new substitutes.
5. Competition and change in the brand loyalty.
6. Handing and carrying costs.
Government policies, sudden or routine, always pose a risk on business corporations. Budgets, and policies on import, export, and labor, and continuous changes in them always affect businesses at that substantially.
Fire, Theft & Accidental Risks
These risk are uncontrollable and always present. The factory may catch fire owing to short circuit or otherwise, goods may be stolen, cash may be embezzled or misappropriated, accounts may be manipulated, or the worker may meet an accident. Floods, earthquakes, storms may also damage business assets.