Business risk

Business risk is the possibility that an organization's operations or competitive environment will cause it to generate financial results that are worse than expected. The following are all factors that can impact business risk:

  • The amount of competition or potential competition
  • The stability of an entity's market share
  • The risk of lawsuits and the ability to mitigate this loss
  • The amount of government regulation
  • The stability of product price points
  • The stability of raw material prices
  • The impact of a decline in general economic conditions

An entity that has a high business risk should be operated in a more conservative manner in order to avoid the risk of failure. This means keeping the debt level as low as possible. If there is a need for additional funding and the business risk is high, management should prefer the use of equity funding.