Definition:

Business risk is the uncertainty or potential for loss that a business faces due to factors beyond its control. It’s the risk that a company will not achieve its financial goals due to external factors.

Types of business risk:

  • Market risk: The risk of loss due to fluctuations in the market, such as changes in interest rates, exchange rates, or commodity prices.
  • Credit risk: The risk of loss due to the failure of customers or suppliers to meet their financial obligations.
  • Operational risk: The risk of loss due to internal failures, such as operational inefficiencies, fraud, or natural disasters.
  • Strategic risk: The risk of loss due to poor strategic decisions or a failure to adapt to changes in the market.
  • Regulatory risk: The risk of loss due to changes in laws or regulations that affect the company’s operations.

Why is business risk important?

  • Risk management: Understanding business risk is essential for effective risk management.
  • Decision-making: Business risk can influence decision-making about investments, financing, and other strategic matters.
  • Profitability: Business risk can affect a company’s profitability and financial performance.

In essence, business risk is the uncertainty or potential for loss that a business faces due to external factors, and it’s an important consideration for any business.