Q:

What is business risk?

A:

Quick Answer

Business risk is the chance that the overhead a business faces to stay in operation is larger than the money the owner has to spend on it. The owner takes upon himself the risk that cash flow from the business may be inadequate to meet the expenses the business incurs.

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What is business risk?
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Full Answer

Risk exists in any business venture. Upkeep on the physical building in which the business operates, salaries of those working, and the costs associated with making or buying goods to sell or offer in service are all typical business expenses that the owner must meet with business cash flow. If he is unable to meet those obligations, his business fails. Business failure occurs either because the product or service did not appeal to enough people or because the economy as a whole did not do well enough for consumers to buy the product or service.

Business risk is not the only risk involved with opening or running a business. Financial risks also exist. Many times owners and investors borrow money or use their own money to put into a business model. If the business fails, they lose their money, and any outstanding loans must be repaid regardless of whether or not the business succeeds. Business risk is separate from financial risk, and together, they make up corporate risk.

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