Types of Business Risk and How to Overcome it

3 Main Types of Business Risks Every Leader Should Plan For

     An important thing that should not be overlooked in managing a business is knowing the risks that may arise, for example, such as financial risks.

In a business, risk is unavoidable. Business risk is a normal thing in business activities.

It is important to understand what business risk is and the different types of risk in business. By knowing the concept, it is hoped that you will be more prepared when running a business.

Motivation and risk-taking management can also be better prepared.

Definition of Risk in Business

Basically, there are several definitions of risk that are known in the business world. However, in general it can be concluded that the concept of risk is always associated with uncertainty in the future.

The more specific definition of risk is the consequence that arises as a result of uncertainty, resulting in an adverse impact on business owners.

On the other hand, if the consequences that give rise to this impact are considered beneficial, then it is not referred to as a risk. These positive consequences are considered as expected gains.

Risks like this are basically always there in everyday life. However, the intensity will increase when you do business activities.

Moreover, when you want big profits or results, then the risks you face will also be even bigger. This condition is known as high risk high return.

1. Financial Risk

Financial risk occurs when a company does not carry out debt management or financial planning tasks. Market changes or losses can threaten the company's financial position. Some types of financial risks for businesses are:

- Liquidity risk

Companies face liquidity risk when they are unable to convert their assets into cash quickly.

Example: A marketing company takes out high-interest loans in anticipation of growing its client base, but the company is not growing as fast as its executives anticipated.

High loan interest rates put marketing companies at risk of default on loans, which can negatively affect the company's financial operations.

- Currency risk

Businesses may experience currency risk in international business transactions, as the value of foreign currency can depreciate unexpectedly.

- Default risk

Taking a business loan with interest that is greater than the company's ability to afford can put the company at risk of default.

Solution :

Financial risk is a risk that is difficult to prevent, bearing in mind that this occurs because of changes that you cannot foresee.

Of course it would be better if the buying and selling system was carried out under safer terms, for example sales on credit should be secured with guarantees from customers.

If possible, the company should not take on debt, it is enough to sell a few shares if it wants to expand its business, and if the transaction is on an international scale, of course all financial transactions should be calculated before making an agreement because product prices can change at any time.

2. Operational Risks

Operational risk occurs when day-to-day business activities threaten profit. Internal systems or external factors can lead to operational risk for the company. The following are specific types of operational risk:

Asset damage

Natural disasters can damage the physical assets of the company, which is an operational risk.

Employee mistakes

A business can experience threats to its operations if employees make significant mistakes in the workplace.

External fraud

The company experiences external fraud such as theft by third parties, the theft poses operational risks for the company.

Solution :

Some of the things that can prevent operational risk are by using human resources (HR) who are trained and professional in their field.

If your marketing and ordering use website technology, you should have a second website to help with the ordering process, or it could also be your company information.

You can also use social media to promote and maintain your company's reputation.

3. Strategic Risk

Strategic risk occurs when a company's business strategy goes wrong, or its executives fail to follow any business strategy at all. Companies may fail to achieve their goals due to strategic risks.

Example: If a pharmacy positions itself in its market as a provider of low-cost prescriptions, and a competitor starts selling prescriptions at a lower price than the pharmacy, that puts the pharmacy at strategic risk of losing profits to competitors. (theonebrief.com)

Solution:

In essence, you have to prepare what strategy you will run when you are building a business, so that later it can run on the right track, thereby minimizing the losses incurred.

You can't be stubborn and egotistical with your own will, you have to go with what the market wants.

You also have to know the advantages of the product or service that you offer so that it is easier for the market to accept.