Risks in business
Every business decision has an element of An estimate of the probability of an unwanted outcome. It depends upon the chance of it happening and the consequences if it did happen.. A successful A calculated risk-taker who sets up a business in return for financial gain. must be willing to take risks. However, they should also be able to recognise when the level of risk is too high, by using information, such as Market research involves gathering data about customers, competitors and market trends. data, that is available to them.
Business activity can expose an entrepreneur to different types of risk:
- financial loss
- lack of security
- business failure
Financial loss
An entrepreneur needs money to set up a business. This may be their own money or borrowed money, perhaps from a bank or an investor. The business will then need to ensure that The amount of money made after all expenses have been paid. are sufficient to pay this money back
If the business is not profitable then the entrepreneur, and any lenders, risk losing the money.
Lack of security
Setting up and running a business takes time and energy. Entrepreneurs often have to give up their existing job to pursue their business idea, along with the security of a regular Money received from employment or investments.. In addition, they may have to work long, irregular hours, and may find it difficult to take holidays in the early days of running a business.
Business failure
A major cause of business failure is a lack of The movement of money into and out of a business' bank accounts.. A business can face serious problems if they don’t have enough money coming in to cover costs. A customer paying late may mean a business is unable to buy supplies or pay its employees.
Another big risk that a business faces is the failure to make enough money to survive and being forced to close. This usually happens due to poor The income earned by a business over a period of time from selling its goods or services., which can be caused by:
- a lack of market research to find out what customers want
- running out of raw materials
- poor management, with not enough thought given to the consequences of decisions on how to manage the business
Minimising the risks
Risk is unavoidable. However, with careful planning, an entrepreneur can minimise the amount of risk they face by:
- carrying out market research to find out what customers want
- writing a A document that sets out the future intentions of the business. to identify potential problems
- ensuring that there is sufficient money available
