Business risks are defined as those risks that can impair the cash flows of an insurer because of adverse economic conditions. These risks make it difficult for businesses to break-even in times of cut throat competition or in other words, it becomes difficult for the issuer of cash flows to meet his/her operating expenses. A business risk can also be defined as those circumstances or factors that sometimes make a negative impact on business profitability. It is also called as company risk.
When we consider small businesses, there are a few things that these companies should mull over including under-resourcing risks, health and safety risks and credit risks. Under-sourcing risks are defined as, transferring your work to someone else for a small fee, so that you are protected against unforeseen circumstances, if you are not capable of completing that task. Secondly, there are health and safety risks such as; employees in your firm getting injured either in the work place or on customer property. These may have a negative impact on your continuing business profitability, as it may lead to a contingent liability for your business.
Small companies are more prone to experiencing credit risks as compared to large or medium sized firms. Credit risks are defined as, the customers defaulting on payments, hence affecting the company’s liquidity position. Small businesses as compared to larger ones do not have a contingency plan in place for events that they may have to control over in the foreseeable future. In this way, small businesses usually have limited going concern ability as compared to large sized entities and are more prone to disasters.