What is Business Risk and its main Causes?


What is Business Risk

Business is mainly run to earn profit. However, there is always a chance of suffering loss in it. This danger of loss from unforeseeable events in future in business ins named as business risk. Business risk is an essential element of business. It cannot be avoided but it can be minimized by taking timely suitable measures by the businessman.

Main Causes of Business Risk

The main causes of business risk in brief are as under:

1.Nature factors:  There are certain natural factors lie earthquake, floods famine hailstorm etc, which cause damages to business. Since human beings have no control over nature, therefore the loss caused to business due to natural causes I unavoidable.

2.Competition: If there is stiff competition for the sale of a product in the market and the manufactures indulge in out throat competition be cutting for the sale of a product in the market and the manufactures indulge in cut throat competition by cutting down price of the good or by producing cheaper quality of the product, it will increase business risk.

You may also like to Read:

3.Mismanagement: If the management running the business is inefficient and there is no proper planning and control in it, it will increase the cost of production of goods, lower its quality, it may load to decrease in profit sand eventually flop the business.

4.Change in demand: If there is a sudden change in demand for the product, it will lead to loss in business, for example, a new mobile phone company introduce a mobile set which is much cheaper in price as well as in service, the other phone companies are likely to suffer business losses.

5.Change in government policy: if there is a sudden shift in monetary and fiscal policies of the government, it may lead to loss in business.

6.Use of modern techniques of production: If the manufactures set up heavy machinery and begin to use modern techniques of production, which lower per unit cost of production of goods, the small business units producing similar goods will suffer losses as they will not be able to introduce heavy machinery.

7.Human causes: business loss may also occur due to theft, forgery, lavish, expenditure, top heavy investment etc

How to minimizing Risk in Business:

Risk is an essential element of business it cannot be avoided, however, the degree of risk can be minimized by taking the following measures.

1.Market research: The business before establishing a business and when the business in operation should keep a constant watch on the quality, prices of the goods produced by the competitors, this will enable him to adjust the prices of his goods according the condition prevailing in market.

2.Production of goods according to the new techniques.

3.The should be effective advertisement for the sale of goods.

4.A business can also minimize the risk by insuring his goods against fire, theft.