Business risk : The term ‘business risk’ refer to the possibility of inadequate profits or even losses, due to uncertainties or unexpected events. For example, the demand for a particular product may decline due to change in tastes and preferences of consumers. Decrease in demand will result in lesser sale and thereby lesser profits.
Nature of business risk : The nature of business risks can be understood in terms of its peculiar characteristics:
- Business risks arise due to uncertainties.
- Risk is an essential part of every business.
- Degree of risk depends mainly upon the nature and size of business.
- Profit is the reward for risk taking.
(a) Natural causes: e.g., flood, earthquake, heavy rains, etc.
(b) Human causes: carelessness, negligence of workers, riots, etc.
(c) Economic causes : e.g., change in demand, change in technology, shortage of raw material, higher taxation etc.
(d) Other causes: e.g., political disturbances, enactment of new laws, fluctuation in exchange rates, etc.