Types Of Business Risks You Need To Know
As a business owner, one of your primary goals will be to make a profit. However, there is no guarantee that this can happen that easily. Your business may realize a lower return on investment than you expected. It may actually experience a loss after you have paid all your expenses. The possibility of financial loss is called a risk.
While a business cannot totally eliminate all the risks of doing business, marketers can reduce and manage risks through careful planning. Risks are managed by using the best available marketing information, analyzing opportunities, and making decisions to balance risks with adequate monetary returns.
Lets take a closer look at each type of business risks and how it affects your business in general.
Economic risks. These occur from the changes in overall business conditions. These changes can include the amount or type of competition, changing consumer lifestyles, population changes, limited usefulness or stylishness of some products, product obsolescence, government regulation, inflation, or recession. Businesses that fail to change their products when competitors offer more features and benefits experience economic risk through lost sales. For instance, similar businesses in your area have offered customized bookmark printing and it generates more sales compared to ordinary bookmarks. If you dont conform to the trend, it would be very likely that your bookmark printing business is at risk unless you also offer what is on trend now in the market.
Consumer lifestyles and population changes are other economic risks facing modern businesses. More single-parent households, dual-income families, the aging of the baby boom generation, and the increasing number of singles delaying marriage all present potential risks for businesses that fail to adapt products to meet changing needs.
Also, changes in the general business environment caused by inflation or recession can present economic risks. For example, all businesses in an area experiencing high unemployment will suffer through reduced product sales.
Natural risks. These are risks resulting from natural causes that include floods, tornadoes, hurricanes, fires, lightning, droughts, earthquakes, and even unexpected changes in normal weather conditions. Some products depend on predictable weather conditions for success. For example, a hardware store in the Midwest that sells snow blowers will depend on a predictable season of heavy snow to sell their product. A mild or light snowfall during winter represents a natural risk to the business. Conversely, a dry summer or drought will affect the sales of lawnmowers. The sale of recreational products such as boats, snow skis, motorcycles, swimming pools, snowmobiles, and related clothing items are affected by weather conditions. These risks can spell financial ruin for a business.
Human risks. These are caused by human mistakes and the unpredictability of employees or customers. Some of the more common human mistakes are:
Customer or employee dishonesty- taking goods or money, shoplifting.
Employee carelessness- for example, mistakenly switches the design for the ordered bookmarks to another company that leads to reprinting of it.
Employee incompetence- for example lacking the skills to do the job well.
Customer or employee accidents- for example, a customer falls over merchandise left in the aisle, breaks an arm, and sues the store. Or an employee badly cuts his or her finger while creating a store display.
Employee illness- for example, becoming ill as a result of inhaling toxic fumes from a chemical cleaner used at work.
Customer non-payment of accounts- for example a customer pays for goods with a fraudulent check.
These are just some of the types of business risks that you should know to guard your business from failing.