Question

What is meant by the risk of a business model?

Answer 1

Business risk is the risk associated with running a business. The risk can be higher or lower time to time. But it will be there as long as you run a business or want to operate and expand. Business risk can be influenced by multi-faceted factors. For example, if a firm isn’t able to produce the units to make profits, then there is a huge business risk. Even if the fixed expenses are usually given before, there are costs that a business can’t avoid – e.g. electricity charges, rent, overhead costs, labor charges etc. Different type of risk of business model are -

Strategic risk:

This is the first type of business risk. The strategy is a major part of every business. And if the top management isn’t able to decide the right strategy, there’s always a chance to fall back. For example, when a company introduces new product to the market, the existing customers of the previous product may not accept it.

Operational risk:

Operational risk is the second important type of business risk. But it has nothing to do with external circumstances; rather it’s all about internal failures.

Reputational risk:

This is also a critical type of business risk. If a company loses its goodwill in the market, there is a huge chance that it would lose its customer base as well.

Compliance risk:

This is another type of business risk. To be able to run a business, a business needs to follow certain guidelines or legislation. If a business is unable to follow such norms or regulations, it is difficult for a business to exist for long.