Companies face a variety of business risks that can threaten their ability to achieve their goals if these risks are not monitored and navigated properly. Business risks include everything from financial and reputational risks to compliance and cybersecurity risks, all of which can seriously impact a company’s strategic plans if business leaders don’t take action to mitigate them.
Yet successful business owners can’t reasonably tip-toe around every risk. Attempting to avoid all risks at all costs can hinder a company’s growth. A certain amount of calculated risk is necessary for a company to take chances that allow it to stand out in the marketplace, outperform competitors, win over customers, and earn profits.

What’s most important is that business owners are aware of the typical risks that could shake up their operations. That way, they can aim to prevent them and minimize their impact if they occur. Here’s a look at common business risks for business leaders to consider as they protect the health of their companies.

Financial Risks

Companies must generate sufficient cash flow to make interest payments on loans and to meet other debt-related obligations on time. Financial risk refers to the flow of money in the business and the possibility of a sudden financial loss. A company may be at financial risk if it doesn’t have enough cash to properly manage its debt payments and becomes delinquent on its loans.

Businesses with relatively higher levels of debt financing are considered at higher financial risk, since lenders often see them as having a greater chance of not meeting payment obligations and becoming insolvent. Types of financial risk include:

Credit risk:

When a company extends credit to customers, there is the possibility that those customers may stop making payments, which reduces revenue and earnings. A company also faces credit risk when a lender extends business credit to make purchases. If the company doesn’t have enough money to pay back those loans, it will default.

Currency risk:

Currency risk, also known as exchange-rate risk, can arise from the change in price of one currency in relation to another. For example, if a U.S. company agrees to sell its products to a German company for a certain amount of euros, but the value of the euro rises suddenly at the time of delivery and payment, the U.S. business loses money because it takes more dollars to buy euros.

Liquidity risk:

A company faces liquidity risk when it cannot convert its assets into cash. This type of business risk often occurs when a company suddenly needs a substantial amount of cash to meet its short-term debt obligations. A manufacturing company may not be able to sell outdated machines to generate cash, for example, if no buyers come forward.

Ideas for managing financial risks:

• Aim to operate on a lean budget with a low overhead and minimal debts, saving as much money as possible to maintain a steady cash flow.
• When seeking loans, look for those with the lowest interest rates possible.
• Pay attention to fluctuations in foreign currency rates.
• Make regular debt payments on time.

If a company relies on just one or a handful clients for most of its revenue, its financial risk could be significant if one or a few stop using its services. Businesses may want to diversify their customer base so the loss of one client wouldn’t devastate their bottom line.