Types of Business Risks

Types of Business Risks

1. Finance risk/ going concern risk
This is potentially the most serious risk facing a company. A company will not be able to operate as a going concern. Specific going concern indicators include:

• Competitors who are not exposed to the same manufacturing and exchange rate  risks 
• Falling sales 
• Increasing borrowings
• Cash management issues 

2. Currency risk
Currency risk occurs when companies trade with customers or suppliers in other jurisdictions. The risk relates to exchange rate movements that affect the value of debts or payments to overseas companies.


3. Interest rate risk
This risk relates to changes in interest rates, particularly where company has borrowed money. The risk-is interest rates will Increase, adversely affecting repayments (unless the terms of the loan are for a fixed rate of interest).


4. Credit risk
This is the risk that customers fail to meet their obligations to pay invoices on time. Lack of cash collections affects a company in three ways:

• Collection falls, meaning that less cash is available to pay company expenses 
• There may be an Increased Incidence of bad debts, further decreasing cash collections 

5. Liquidity risk
This is the risk that a company cannot pay its debts as they fall due to a mismatch between inflows and outflows. This can be confirmed by the situation when a company secures short term borrowings on long term assets.


6. Financial risk
Financial risk in this area normally relates to the need to restate financial information due to errors or irregularities in the accounting systems.