Example of a Business Risk

by Kyra Sheahan; Updated September 26, 2017
Business documents

There are many types of risks that permeate the business world. Internal and external barriers and challenges can arise unexpectedly and hinder a company’s production, profitability and success. Since risks have the potential to be damaging, companies can protect themselves by identifying immediate threats and developing plans to avoid or minimize those risks.

Financial Risks

A company’s financial structure is an integral part of its business. Finances allow companies to hire staff, buy equipment, lease buildings and more. Since so many aspects of a business rely on good financial standing, financial risks can be devastating to a company. According to Business Link, debt is one example of a financial risk. When companies rack up large amounts of debt, investors and stakeholders may feel uncertain about their return on investments (ROI’s). This can cause investors and stakeholders to withdraw corporate investments, thereby creating a negative financial impact on the company.

Strategic Risks

When a company decides to implement a new business strategy, such as developing strategic alliances or manufacturing new products, the outcomes may be uncertain. This level of uncertainty can create risk. The Federal Financial Institutions Examination Council (FFIEC) explains that new strategies do not guarantee prosperity, and since there’s a chance that the plan could flop, new strategies can be risky.

Economic Risks

The economy is a threat to businesses. When the economy rises and falls, so does the demand for goods by the consumer market. As such, businesses are vulnerable to the changes in the economy. A thriving economy inspires more consumer spending and market growth. A poor economy, however, may deter spending habits for an unforeseen amount of time. This can be risky for businesses, as they depend on consumers to maintain profitability.

Competitors

Competitors are a natural business risk. Biz/Ed explains that companies are not isolated from one another in their market, so competition between companies is inevitable. Competitors are risks because similar businesses compete for the same customers. When one company makes a change, such as lowering their retail prices, the other company may be impacted by it. As such, companies benchmark against each other to see how they can beat their competition.

Health and Safety Risks

Depending on the industry, some companies face more immediate health and safety risks in their daily operations than others, such as construction companies and hospitals. Maintaining the welfare of personnel is an important part of managing a business. By not preventing, or preparing for, health and safety threats, employers risk the potential for accidents, injuries and fatalities in the workplace.

About the Author

Kyra Sheahan has been a writer for various publications since 2008. Her work has been featured in "The Desert Leaf" and "Kentucky Doc Magazine," covering health and wellness, environmental conservatism and DIY crafts. Sheahan holds an M.B.A. with an emphasis in finance.

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