Risks are inevitable in every business. They are a part of every budding and established company across the world, and they come in different forms—business, non-business, and financial. However, of all these types, there is one major concern among businesses that strongly affect their decision-making: financial risk.

Financial risk directly affects a business’ capital, therefore, it gets high priority in the concern lists of companies. While these risks are inescapable part of the game, succeeding in the business can be achieved through good risk management. However, if you are a budding company without background in risk management, outsourcing services may just do the trick for you.

Credit Risks

When one party fails to fulfill its obligation, say in the case of a customer, and the other party, the business, makes the payment, credit risks occur. This type of risks arises when a business finances the purchases in the customer’s stead. Credit risks may also arise due to difficult foreign exchange policies.

Legal Risks

Sometimes, companies may face legal constraints such as lawsuits. This is when legal risks in businesses occur: when companies incur financial loss because of legal proceedings. Good risk management services should help anticipate such risks and be prepared for its impact.

Liquidity Risks

When companies don’t have enough cash to keep the business going in times of general or seasonal downturns, liquidity risks happen. There are two types of liquidity risks: asset liquidity and operation funding liquidity. Asset liquidity is the conversion of assets into cash for emergency needs while operation funding liquidity refers to the daily cash flow.

Market Risks

Market risks arise when changes occur in a specific marketplace where the business is competing. These changes include movement in interest rates, stock price, buying tendency of consumers, and other factors. Adapting to these changes or failure to do so can dictate the success or fall of the business.

Operational Risks

These types of risks arise from a business’ ordinary activities. Operational risks include mismanagement or technical failures. Common problems involved in this type are fraud risks, business model risks, personnel issues, or any inaccuracy in the business’ marketing and development tactics.

Political Risks

Political risks occur when the government makes decision that will affect businesses operating in the area. This may affect the company stocks, tax law, operation policies, and other business-related matters. While this is unavoidable, hiring good risk management services should help the company prepare for unforeseen changes.

Societal Risks

Natural calamities, terrorist attacks, and wars can also affect businesses around the world. Such world events cause societal risks to arise, therefore, business should be prepared for these instances.

Equipping yourself with the knowledge of the financial risks above should help you make informed decisions for your business. With such knowledge and good risk management services, your business is bound to rise among its competitors in your chosen industry.

Sources:

http://economictimes.indiatimes.com/definition/risk-management

http://www.investopedia.com/ask/answers/062415/what-are-major-categories-financial-risk-company.asp

https://www.simplilearn.com/financial-risk-and-types-rar131-article

http://www.marketwatch.com/story/whats-your-greatest-financial-fear-2014-06-13