Starting a business is more than having a good idea about what it should be and obtaining the financing to get it going. Both are a good beginning, but they must be followed with sound business planning for acquiring goods and services and selling the company’s products or services. Part of that planning is identifying the risks involved. Before we discuss the details of the business activities in the chapters to follow, we consider the risks of being in business and how we can minimize the negative consequences of those risks. A risk may be generally defined as anything that exposes us to potential injury or loss. In business risks can turn into significant losses, scandals, or total company failure. There are hundreds of risks that any business faces. Some examples are
?the risk of product failure that might result in the death of consumers ?the risk that someone will steal assets from the company ?the risk that poor-quality inventory will be purchased and sold
Risks relate to all aspects of the business including:
?General strategic risks-for example, should we market our cigarettes to teenagers? ?Operating risks-for example, should we operate without a backup power supply? ?Financial risks-for example, should we borrow the money from the bank or get it from our shareholders? ?Information risks-for example, should we use a manual accounting system?
The potential losses from taking on business risks may be the loss of reputation, loss of customer’s loss of needed information, or loss of assets. All the losses translate in to monetary losses that can put the company at risk for total failure. It is difficult to think of business risk without considering the relationship of risks to ethics. When the risks of business result in losses or legal exposure a, firm’s managers want to minimize the damage to the firm. In such cases, the ethical standards of the firm and its managers become paramount. A manager must always put good ethical behavior above putting a good face on the firm’s financial position or performance.
Failure to do this has resulted n huge losses for employees and investor. A risk is a danger-something that exposes a business to a potential injury or loss. To deal with the risks and increase the chances to reap the rewards, a firm must establish and maintain control over its operations, assets, and information system. A control is an activity performed to minimize or eliminate a risk. As we study the business processes that all will be engaged in during there first year in business, we will look at how he can control the risk involved in each process.
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