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Four types of business risks you need to know

Four types of business risks you need to know

Four types of business risks you need to know

It is apparent that many people in this millennium dream to set up a business. Because, people like to be the boss of their own, to choose where they should work, and to decide the income that they should earn each month.  

Though the vast majority of people carry these dreams and want to become entrepreneurs, most of them don’t come forward to establish it. The main reason behind this is business is a risky task.

Once you become a business owner, risks will be like an inevitable aspect of your everyday life. Because, every decision that you make holds risk in business. In addition, it will be difficult for you to come out of stress. 

In this article, let’s discuss the choppy waters of business risk, and we show how you can run your business in a way that protects you and allows you to manage your risk successfully.

  • Physical Risk 

Physical risks include any risk to your employees, buildings, and assets. Most of the businesses face this risk in their organizations because of fire, water, destruction, or theft. Besides, physical damages will result in the repair and replacement costs, and sometimes, it leads to legal costs as well.  

Role of Physical Risk Management 

  1. Install safety features such as fire and smoke alarms, sprinkler systems and fire escapes
  2. Practice fire drills to ensure everyone knows what to do in the event of a real emergency
  3. Take out Insurance
  • Strategic Risk 

A business holds strategic risks at every turn of its execution. Thus, entrepreneurs should make comprehensive, well-thought-out business plans.  But, it is a fact that things may change with the passage of time, and your best-laid plans can sometimes look very outdated. This is strategic risk. It is the risk that your company’s strategy becomes less effective and your company struggles to reach its goals as a result. 

  • Operational Risk

Operational risks include the potential of failures related to the daily functions of an organization, such as the customer service process. Some definitions of operational risk claim that it is the result of the insufficient or failed process. However, operational processes that are deemed to be completed are successful as well as they generate risk. 

  • Financial Risk 

In business, financial risks happen in many ways. Sometimes, it happens internally (non-payment from clients or due on paying bank loans), and at other times, it happens due to some external factors (fluctuation in the financial market or exchange rates).   

These financial risks can be lead to the loss of income or to a negative cash flow, which is fit to put an end to your business. 

Examples of Financial Risk Management

  1. Financial planning and projection
  2. Robust reporting and analytics to monitor the success
  3. Putting credit control processes in place