AOF Entrepreneurship Unit 3 Lesson 7 Business Risks

Risk is the degree of exposure to loss or damage that a business takes on, which can also generate gains • Businesses must take on some risks in order to generate profit. • Managers need to understand the risks in their business and their budget decisions. • Risk is in part about the uncertainty in business decision making. How is a business risk like gambling?

Managing and mitigating risk involves four steps 1. Assessment—Weigh risks 2. Prevention—Avoid or mitigate risks 3. Recovery—Plan ahead what to do if something goes wrong 4. Repeat—Regularly reassess risks, review risk objectives, and take action Why do businesses need to carefully weigh their risks before taking action?

Companies face internal and external risks Internal Risks External Risks Operational: faulty systems, administrative procedures Environmental: natural disasters, fire, water pipes bursting Financial: business structure, financial goals, business transactions Market: changing trends, competition Strategic: achieving goals in business plan Compliance: laws, regulations, taxes Health and Safety: having an Technological: data breach, accident, illness crashing, obsolescence

Business managers must assess each type of risk affecting the business and plan for how to respond ! Think like a customer to anticipate risks. • What do parents worry about when their child is in a home daycare? • What do dog owners worry about with pet sitters? How would you want the business to ensure safety? As the business owner, how will you turn these customer fears into a plan for managing risk?

Part of risk prevention involves setting goals and controls that help businesses measure success • Setting goals helps entrepreneurs plan for success. • Milestones help identify when a business is off target. • If goals aren’t met, identify why and adjust the company’s business practices.

Each business faces unique risks based on its industry, business model, and business execution 1. Businesses should know the risks related to their business model, products, and practices. 2. A risk assessment indicates the impact of each risk and lists strategies for reducing risk. 3. Business risks can affect the company’s finances in the short or the long term.