Business risk is something that is inevitable when we run a business, whether small, medium, or large businesses are not free from business risk. These business risks vary from financial, technology, to government policies.

Business risks are unexpected and can certainly cause losses to the business. Yes, even though the business plan is well prepared, risks can still occur and become a barrier to the development of your business.

But there is no need to worry. Although unavoidable, these business risks can be identified and solutions planned.

Therefore, in this article, we will invite you to recognise what business risks are, the types, causes, and solutions. Let's read the article until the end!

What is Business Risk?
The word "risk" itself is taken from the English word "risk", which means failure, obstacle, obstacle, danger, or loss.

So, business risk can be defined as an obstacle and disadvantage that can occur at any time when building a business.

The possibility of risk arising in a business can indeed arise from various factors, such as poor management, company systems, and strategies. In addition, risks in a business can also arise due to external factors such as disasters, economic shocks, and so on.

If not detected as early as possible, business risks can cause greater losses. Therefore, companies or business people must have the ability to mitigate, manage and transfer risks.

Factors Causing the Onset of Business Risk

As mentioned earlier, business risks can be caused by two factors, namely internal and external. Internal causes mean that they come from the company or business itself, while external are things outside the control of the company or business. Here is the explanation:

Economic Problems

The existence of economic problems in a country is one of the factors causing business risks from external parties. This is because business activities are certainly inseparably related to the economic activities of a country.

When the country's economic conditions are problematic, it can have an impact on the existing business sector.

Natural Disasters

This one cause also comes from external parties and companies or businesses have absolutely no control over it. For example, the pandemic that occurred some time ago, making most businesses affected, or the tsunami that destroyed the company, and so on.

Human Behaviour

The factor that causes business risk is human behaviour. This arises from internal company or business factors due to improper decision-making or policies.

If not detected as early as possible, business risks can lead to the following
For example, poor management of business and resources. Loss of consumer confidence, debt accumulation, and so on.

Classification of Business Risks

Business risks cause at least two types of losses in a business, namely speculative risk and pure risk. Here is the explanation:

Speculative Risk

Speculative risk is a risk that if it occurs can cause a loss, or does not cause any loss (no loss), or can get a profit (gain).

Examples of speculative risk are overproduction, monetary risk (foreign exchange rates), or stock purchases. For example, there is a possibility of loss if a company invests by purchasing shares.

After some time, the purchased shares decline, resulting in a loss for the company.

Pure Risk

Pure risk is a form of risk that if it occurs will cause a loss and if it does not occur it will not cause a loss. Examples include fires, accidents, earthquakes, floods, landslides, and others.

For example, if a restaurant suffers a fire, it will almost certainly suffer losses due to property damage. After that, the restaurant would have to close temporarily for repairs and recovery, or even close permanently due to bankruptcy after the fire.

Types of Business Risk

After discussing the factors that cause and classify business risks, it is also necessary to know what are the types of business risks. This is because business risks arise in relation to important aspects of your business development.

Here are six types of business risks that you should know:

Market Risk

The first type of business risk is market risk, which is caused by changes in the macro market. Where many business people are unable to stem it.

For example, when running a contemporary coffee business and you have just created a new menu 'Kopi Gula Aren' which is currently trending and in demand by many consumers. But suddenly, a new menu comes out that has become a consumer favourite, for example 'Regal Coffee'.

In fact, at that time you had bought enough ingredients to make Aren Sugar Coffee. This is a disadvantage, where you have a lot of ingredients in stock but are no longer needed.

Therefore, you need to understand the market conditions and the possibilities that will occur in the future. Start by taking a personal approach with your customers. Ask for their opinions and suggestions for further product innovation.

Strategy Risk

This one business risk is closely related to strategy, where there is risk or uncertainty resulting from a lack of business strategy. This is because a strategy is needed and carefully prepared, or must be carried out when there is competition that might threaten our business.

For example, a mobile phone company called Nokia used to be a trend in all circles. But after the arrival of the latest operating system, Android, Nokia actually used another operating system and suffered huge losses because consumers prefer to use Android.

Related to this, you must prepare what strategy to run when going or currently running a business. So that later the business can run and minimise losses.

As a businessperson, you should also not be selfish and still have to think about the existing market conditions and dare to choose strategies that may not immediately bring profit, but will produce it in the long run in the future.

Credit Risk

This type of risk applies to those of you who run businesses with credit payment systems, such as finance companies. Where you have to understand the risk of consumers who do not pay off the instalments.

It is possible that the customer runs away, goes bankrupt, dies, and so on. To avoid this risk, you need to analyse your debtors or potential customers.

Furthermore, you also need to determine several things such as the limit of debt that can be given and the maximum length of credit period that can be given.

Operational Risk

This risk will usually lead to a failure in managing a business related to daily operational activities. This may occur due to some technical failures, such as server errors, human errors, or inefficient processes in business operations.

For example, your company recruited five people for business development. After doing so, it was discovered that recruiting five people was actually inefficient and only required three people.

Of course, this can harm the company in terms of material and time, where the company needs to pay employee salaries and take a long time for the recruitment process.

Financial Risk

This type of risk will usually have an impact on the finances of the company or business and refers specifically to cash inflows and outflows that may cause financial losses to the company.

For example, you have a business where most of the revenue comes from a number of large clients who make payments for products in several stages.

Then during the repayment stage, the client does not make payments according to the specified schedule. This can certainly damage your business cash flow and create uncertainty about when the client will pay the settlement.

Therefore, it is important to create a sale and purchase system with safer terms, for example, payment of only five per cent of the total cost of the bill and set a penalty for clients who are late in making payments. Also, avoid debt if it is not for urgent needs.

Legal and Compliance Risk

Legal risks usually arise due to claims from other parties for violations of the law, such as copyright infringement, reneging on agreements that have been written in the contract (default), not following applicable laws and regulations, and so on.

In addition, compliance risk is also closely related to legal risk, where this risk arises due to the inability to fulfil statutory provisions or regulations.

For example, violations in the labour sector such as providing salaries below the minimum wage, in the tax sector, or not having a business permit in running a business. If you commit this violation, you may be subject to sanctions ranging from reprimands, fines, to suspension of business activities.

How to Solve Business Risks?
Now, you already know what types of business risks can occur in your business. So, what are the solutions to overcome them?

Below are some things that can be prepared carefully in order to be able to overcome business risks that occur in your business:

Write a Business Plan

In running a business, it is important to make a written plan. Look at it from various perspectives to plan goals, evaluate, and assess the business.

Pay attention to the operational, financial, and marketing strategies.

Do Risk Management Planning

Risk management planning is different from business planning. A risk management plan lists the steps that can be taken, procedures, and ways to overcome if risks occur.

For example, if your business produces a perishable product, it must determine how to make the product safe when distributed to the market.

Follow the Plan

If you have written all the plans, both business and risk management plans, then follow them. With the guidelines that have been made, it will minimise the risks that occur.

In addition, if you have followed the plan and all operational standards, then all you have to do is evaluate whether there is a profit or a loss.

Minimising Risk with Legality Compliance

Another important thing in running a business is about fulfilling compliance with business legality documents. Without legal documents in place, your business is illegal and not legally protected.

That's why it's important to ensure you avoid legal and compliance risks. Where the risk is no longer material loss but can cause your business to be forced to close or get a fine.

This is an explanation of business risks ranging from understanding, causal factors, classification, types, and how to overcome them.

Although unavoidable, but never make this risk as a reason for you to hesitate in stepping. This is precisely where business challenges must be faced with the right strategy.

Source : kontrakhukum.com