What do you understand by nature of business risks?

Business risks arise due to uncertainties
Uncertainty is an essential condition of business because business decisions are concerned with future which cannot be forecasted with 100 per cent accuracy. Uncertainties arise due to the ever-changing environment within which a business operates. Natural calamities, changes in demand and prices, improvements in technology, changes in government policies and rules, etc. are example of uncertainties which create risks in business.

Business risks vary according to the nature and size of business
All business enterprises are not exposed to the same type of degree of risk. The degree of risk is much higher in big business than in small scale operations. Similarly, a business dealing in articles which are subject to frequent changes in fashion or demand faces greater risks. The time and place of business also influence the degree of business risks.

Profit is the reward for risk taking
Where there is no risk there is no gain. Greater the risks inherent in a business, higher is the chance of profits. Higher profits are the consideration which an entrepreneur gets for bearing risks inherent in business. However, greater risk is no guarantee of higher profits. Profits is the reward for inherent risk rather than artificially created or speculative risks.

Business risks cannot be evaluated easily
It is difficult to measure accurately or calculate business risk. The risk arises due to conditions, many of which are beyond the control of management. A businessman can make an intelligent guess about business risks but cannot predict them with certainty.

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