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Types Of Business Risks

Business risks are unforeseen circumstances that may cause businesses to make small, inadequate profits or fail. Every business is prone to risks ranging from small businesses to big businesses. Generally big businesses have planned out strategies against risks unlike small businesses which haven’t got the resources to plan strategies against risks. Sometimes small business owners do not even factor risks when considering the general well-being of their business. This article intends to throw light on types of business risks and to help small business owners to plan towards them.

Economic risks

Economic risks are associated with changes to factors that affect the economy. These risks may include interest rates of loans, exchange rates, increase in tax rates, increase in production costs and increase in import or export rates. Changes in these rates and costs will subsequently affect the first on the supply chain to the last on the supply chain. Profits margin will be reduced and might also affect the quantity of goods for a business. Small business owners can manage economic risks by cutting costs like paid advertisement and laying off less significant employees.

Natural risks

These are also natural situations like earthquakes which might keep you out of operation for days or weeks, heavy storms causing flooding and preventing your daily business activities or even a fire outbreak. Natural risks or disasters may affect your capital, goods, assets and in some occasions, human lives. Small businesses which encounter natural risks usually do not bounce back due to unavailability of resources. One way to prepare for natural risks is to subscribe to an insurance policy that will help you to reestablish or get up on your feet after a natural risk.

Competition risks

Competition is necessary for business because it keeps you on your toes and ensures that your business is abreast with all business trends, effective marketing strategies and also to push you to do more. Unfortunately competition becomes a risk to your business if not well managed. Competition risk is a result of actions by your competitors in the market setting that enables them to maximize their profits while affecting your business negatively. Fortunately, you can stay ahead of your competitors by researching your competitor’s strengths and weaknesses, targeting new market areas, establishing great relationships with customers and stepping up your marketing strategy game.

Reputational risks

Good name is better than riches but in the case of business, a good name results in riches. Businesses invest in building a good reputation for themselves obviously because consumers are biased towards businesses with good names and would naturally shun from reputation stained businesses. The reputation of your business can be dragged in the mud due to the actions of the company, employees or customers’ reaction to unsatisfactory services rendered to them. This can lead to loss of social capital and also financial capital. Reputation is one of a business’ most valued assets and must be protected at all costs. Reputational risks can be managed by focusing on creating a positive image for your business and also encouraging a quick response to anything that can ruin your reputation.

Other types of risks

  • Operational risk: loss of financial capital due to a disruption in the business’ processes  or day to day activities.
  • Compliance risk: risk associated with negligence of law and rules and regulations concerning the kind of business.
  • Security and fraud: loss or reduction in profit due to employee theft, shoplifting, website security threats.

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