Types of business risk

Strategic risk arises when the implementation of a business does not go according to the business model or plan. A company’s strategy becomes less effective over time, and it struggles to reach its defined goals. If, for example, Wal-Mart strategically positions itself as
a low-cost provider and Target decides to undercut Wal-Mart’s prices, this becomes strategic risk.

Compliance risk- This type of risk arises in industries and sectors highly regulated with laws. The wine industry, for example, must adhere to the three-tier system of distribution, where it is a requirement for a wholesaler to sell wine to a retailer, who in turn sells it to the end consumer.

Operational risk- This risk arises when the day-to-day operations of a company fail to perform.

Reputational risk- Any time a company’s reputation is ruined, either by one of the previous business risks or by something else, it runs the risk of losing customers based on a lack of brand loyalty.

Financial Risk Direct financial risks have to do with how your business handles money. That is, which customers do you extend credit to and for how long? What is your debt load? Does most of your income come from one or two clients who might not be able to pay? Financial risks also take into account interest rates and if you do international business, foreign exchange rates.

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