Every business faces risks, but not all businesses are equally vulnerable to all of them. A risk is something that can negatively impact your company’s profitability, reputation, or even its survival.
To make sure you’re aware of the risks you’re facing, you should take the time to evaluate your business’s exposure to the different types of risk. In order to have better business risk management, you’ll need to know what the main types of risk are.
There are five main types of risk that businesses face: 1. Financial risks 2. Operational risks 3. Legal risks 4. Strategic risks 5. Reputational risks
Businesses are facing so many risks in the modern economy that it can be hard to know what direction to look in. Increasingly, firms are facing risks related to technology, as they rely more and more on the Internet and their website to make sales and communicate with clients.
This article will go over some of the main risks that businesses face today and help you better identify and protect yourself from the risks that could sink your business.
Table of Contents
What are The 5 Main Risk Types that Businesses Face?
Financial and Operational Risk
Financial risk is the risk that an investment or business will lose money and not be able to pay back its investors. Financial and operational risk are two very different types of risk that are unique to a business and its investors.
These risks are very different from each other in terms of how they are calculated and what they mean for a business. Operational risk is the risk that the business will not be able to execute its business plan (for example, delivering products and services) successfully.
Legal Risk
Legal risk arises from your business’s actions or inactions. It can occur in a wide variety of legal areas, including employment, consumer protection, product liability, the environment and the workplace.
Reputational Risk
Refers to the risk that your business may lose the trust of key stakeholders. It’s not just a risk when it comes to your company—it’s a risk for each employee of your company. Without a solid reputation, the “goodwill” of your business can disappear, potentially causing a loss of clients, clients, employees and more.
Strategic Risk
When business risk is brought up, it is thought about in terms of personal elements (e.g. the risk that a key member of staff will leave, or that a new product will not succeed). Strategic risk is a risk that has the potential to undermine your business’s success. It is the risk of not achieving the long-term goals of your business as a result of a failure to react to changing market conditions.
Business Environment Risk
This type of risk is mainly based on the external factors that can affect your business. It is the risk of not being able to carry out your business strategy as a result of external forces such as economic, political and social changes.
Competitive Risk
This type of risk is mainly based on the actions of your competitors. It is the risk of not achieving your business goals as a result of competitive activity.
