Causes of Business Risk

Sun, 01/06/2013 - 06:44 -- Umar Farooq

The main causes of business risk are as under:

1. Natural Factors

There are certain nature factors like floods, earthquake etc. which can damage the business. For human beings nature is uncontrollable, so any loss due to nature calamities is unavoidable and uncontrollable.

2. Competition

When business have strong competitors in the market and the manufactures indulge in cut throat competition by cutting down price of the goods or by producing cheaper quality of the product, which is a great hazard for business.

3. Change in demand for the product

If there is a sudden change in demand for a certain product can create a business risk. For instance, when Samsung introduce S III mobile it certainly affected the market for Apple in many country.

4. Use of Modern Technology

If a company is financially sound can install heavy machinery and use modern techniques of production. By doing this per unit cost of production of goods decreases, for small business units it is not possible to do so. It is lead to suffer their business.

5.  Human Causes of Business Risk

Business loss may also occur due to theft, forgery, lavish expenditure and top heavy management.

6. Change in Government Policies

Government policies are unavoidable for business. If a sudden change comes in monetary and fiscal policies of government which is not favorable for business will lead to loss.

7. Mismanagement

Sometimes management is not capable to run the business which is the important cause of business risk. Due to improper planning or what they planned cannot attain the planned objectives which increased the risk. All these can lead bad cash flow, increase in per unit cost.