The Factors Affecting Or Influencing Business Risk

Earlier article describe the basics of Business Risk.

Append below are the major factors that affects or influence Business Risk:

1.   Intensity of Competition-The higher the level of competition, the higher the business risk

2.     Higher Fixed Cost Structure-Generally, if a business has higher fixed costs it will result in higher business risk. If the business’s cost structure comprises mainly variable costs, it has a much lower business risk than one that has fixed costs

3.     Size of business-The smaller the firm, the higher the business risk as it is more difficult for a small firm which is usually a new firm to compete or be more adaptable compared to a bigger or established firm.

4.      Growth prospect:-Rapid growth/expansion would expose the firm to higher business risk as it can cause earnings to be more volatile

5.     Product diversification-the more a firm is dependent on one product, the higher the business risk compared to a firm which has a few products hence its performance does not depend on only one product and is able to reduce risk.

6.     Sensitivity of demand for a firm’s products to general economic conditions- if the demand for a firm’s product is highly sensitive to economic conditions, the higher is the business risk. A firm that sell essential goods has a low business risk as the demand for their products is generally stable irrespective of economic conditions.





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