What is Business Risk, Definition, Concept & Factors

Tue, 01/08/2013 - 08:54 -- Umar Farooq

What is Business Risk

When someone is running the business whether it is small or large scale, entrepreneur must understand business risk. Business risk is a major tool for investors with the help they decide whether to invest or not. Every business face risk but it is important for the company to measure the risk exactly. The amount of risk affects the company’s securities as well.

Definition of Business Risk

The only motive of business is to earn profit. However, there is always a possibility of suffering loss in it. This chance of loss from unpredictable events and situations in business in named as business risk.  Business risk is an important component of business. It is unavoidable but can be minimized by taking timely and appropriate measures by the entrepreneur.

Factors of Business Risk

There are two factors of business risk

External Factors

External Factors of business risk are not controllable for the business. Inflation in the economy, change in the government fiscal policies, change in demand for goods and services, increasing number of competitors in the industry are

Internal Factors

Internal factors of business risk are controllable for the business if compare it the external factors. Employees turnover rate can be controlled by the company by providing handsome salaries, Insurance and good working environment. A declining sales graph can be increased by developing good marketing plans.

Business risk is very important because it directly affects company’s share price or securities. When the risk arrow goes upward a significant downward change can be noticed in the securities of the company and vice versa. Risk is a key indicator for investors whether to invest in the company or not. When comes to evaluation of company’s risk there are three important factors should kept in mind.

  1. External factors which are uncontrollable
  2. Internal factors which are controllable and
  3. Company’s worth or assets and securities.