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Business Risks
How much of a risk are you willing to take?
Going out on a limb.
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Business Risks Terms
Risk
The possibility of a financial loss.
Risk management
The process of managing a businesss
exposure to risk in order to achieve
business objectives. Business r isk
The possibility of business failure or loss.
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Types of Risks Specu lat ive risk
Risking loss to make a profit.
Possibility of seeing a loss, no change, or
actually making profit
Examples include buying new machinery
constructing new buildings
Pure r isk
The possibility of loss to a business without anypossibility of gain
Economic risks
Natural risks
Human risks
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Economic RisksRisks that result from changes in overall
business conditions. Examples of economicrisks include:
CompetitionMore businesses that would
compete with your business open in the area. Changing consumer lifestylesThe lifestyle
of the consumers in your area changes due to
new industry opening or closing, new
businesses, etc.
Population changesPotential customers
moving out due to economic downfall
or moving in due to new economic opportunities
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Econom ic Riskscont inued
Limited usefulness of products - newproducts introduce replace your products orthe needs of customers needs change
Inflationthe availability of cash tocustomers will reflect in the buying patterns.
Product obsolescenceproducts you
offer to the public is not longer needed orout-of-date.
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Econom ic Riskscont inued
Government regulationnewregulations can change the status ofyour products. Products can be
recalled because of safety measuressuch as baby products or medicines.
Recession Just as with inflation the
availability of cash affect customerpurchases.
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Natural Risks
Risks resulting from natural causes.Examples include: Floods
Earthquakes
Tornadoes
Hurricanes
Fires
Lightening
Droughts
Unexpected changes in normal weather
conditions
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Managing Business Risks
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Ways to Reduce Risk Design work areas to reduce the chance
of accident or fire.
Educate employees on safe use ofequipment.
Check and service safety equipment ona regular basis.
Stress the limits of your companysproducts.
Provide customers with instructions on theproper and safe use of products, as well aswarnings about possible hazards.
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Ways to Reduce Risk Shoplifting is a form of external theft that
involves taking items from a businesswithout paying for them.
Ways to reduce shoplifting. Educate employees on shoplifting prevention
guidelines.
Provide effective store layouts with adequatelighting and orderly displays.
Store expensive items in locked display cases ortag expensive merchandise with electronicdevices.
Employ the use of two-way mirrors, securitypersonnel, or closed circuit television.
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Ways to Reduce Risk Control employee theft.
Install closed-circuit television systems and
point-of-sale terminals that generate
computerized reports.
Provide company policies that make
employees aware of expectations.
Utilize pre-employment testing to detect
employee attitudes about honesty.
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Ways to Reduce Risk Implement ways to reduce robbery.
Robbery involves the taking of propertyby violence or threat.
Limit the amount of money kept on hand.
Use a safe. Handle bank deposits discreetly.
Install surveillance cameras to help identifyrobbers.
Schedule employees so that no one is alone in a
business at any time. Hire security guards.
Provide adequate lighting inside and outside ofthe building.
Make sure that doors are locked and alarms are
set at night.
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Ways to Reduce Risk
Purchase property insurance to cover: the loss of physical property such as cash,
inventory, vehicles, buildings.
real property such as buildings, land, and fixtures. personal property such as vehicles, clothing,
furniture, jewelry.
Purchase business interruption insuranceto make up for:
lost income if a business is shut down forrepairs or rebuilding.
Allows a business owner to continue to pay rent,salaries, and other key payments.
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Ways to Transfer Risk
Purchase casualty insurance to: Protects a business from lawsuits.
Pays the claim if a person is injured on yourbusiness premises or if a worker causes
damage Types of casualty insurance Errors-and-omissions insurance: Protects businesses
from lawsuits resulting from mistakes in advertising.
Product liability insurance: Protects manufacturers
from claims for injuries that result from using theirproducts.
Fidelity bonds: Protect companies from employeetheft.
Performance bonds: Protect a business if work is notfinished on time or as agreed.
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Ways to Transfer Risk
Purchase life insurance to: Pay a business in the event of the insured
persons death.
Covers owner(s) and key managementemployees
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Ways to Transfer Risk
Pay Workers Compensation
A government-regulated program which provides
medical benefits and income to employees who
are injured on the job.
Compensation is dependent on the wages or
salary of the employee, the seriousness of the
injury, and whether the injury is permanent or
not.
Frees businesses from the threat of employee
lawsuits
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Business Risk Retention
Businesses is self-insurance againstbusiness loss.
If a business cannot or does not provide for
ways to transfer risk using one of the
described means, the business should setaside money each month to help cover the
costs should a loss occur.
Planning for the unexpected, can save a
business.
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Emergency Planning
Businesses must:
create emergency response plans to help
handle emergency situations moresmoothly.
have procedures in place before a crisis
occurs.