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:
1. Business risks arise due to uncertainties.
2. Risk is an essential part of every business.
3. Degree of risk depends mainly upon the nature and size of business.
4. 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.