what is business risk? What is its nature

Dear Student,

Business Risk: The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. Business enterprises constantly face two types of risk : speculative and pure. Speculative risks involve both the possibility of gain, as well as, the possibility of loss. Speculative risks arise due to changes in market conditions. Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike are examples of pure risks. Their occurrence may result in loss, whereas, non-occurrence may explain absence of loss, instead of gain.
Nature of Business Risk:
1. Business risk arise due to uncertainty: Uncertainty refers to the lack of knowledge about what is going to happen in future. Natural calamities, change in demand and prices, changes in government policies and prices, improvement in technology, etc., are some of the examples of uncertainty which create risks for business because the outcomes of these future events are not known.
2. Risk is an essential part of every business: Every business has some risk. The amount of risk depends on the nature and size of business. Risk can be minimized but not eliminated.
3. Degree of risk depends mainly upon the nature and size of business: Nature of business and size of business are the main factors which determine the amount of risk in a business.
4. Profit is the reward for risk taking: ‘No risk, no gain’ is an age-old principle which applies to all types of business. Greater the risk, greater is chance of earning profit. Profit is thus a reward to the businessman for taking risks.


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Business risk refers to chance of incurring losses or less profits than expected.
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Business Risks

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Nature of business risk

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