The term ‘business risk’ refers to possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes and preferences of consumers, strike, increased competition, change in Government policy etc. These are of two types: speculative and pure.
Causes of Business Risks:
1. Natural causes: The causes which are beyond human control e.g., flood, earthquake, heavy rains, famine etc.
2. Human causes: It includes carelessness or negligence of employees e.g., theft, strikes, riots, misappropriation of cash and products etc.
3. Economic causes: It is related to a chance of loss due to change in market condition e.g., fluctuations in demand and prices, competition, change in technology etc.
4. Physical causes: Mechanical defects or failures which may also lead to losses e.g., bursting of boiler or machine, may cause death or destruction.
5.Other causes: These include unforeseen events like political disturbances, fluctuation in exchange rates etc.
