Business Risk Flashcards

Questions and Answers

What is business risk?

The possibility of loss or gain in business operations (correct)

Only the potential for gain in business

The risk of personal injury

None of the above

What are hazard risks?

Events that can cause injury or harm (correct)

Only financial risks

Guaranteed business success

None of the above

What are operational risks?

Possible events resulting from employee actions and daily business activities.

What are strategic risks?

Risks that have a significant impact on a company's long-term plans. Signup and view all the answers

What are financial risks?

Possible events that influence a company's cash flow. Signup and view all the answers

The best way to handle a risk is to avoid it.

True Signup and view all the answers

What does transferring risk mean in a business context?

Shifting risks to another person or business. Signup and view all the answers

What happens when businesses retain a risk?

They do nothing to reduce or eliminate the risk. Signup and view all the answers

What are contractual agreements?

Agreements between parties where one provides a product and the other pays in return. Signup and view all the answers

What are warranties?

Promises to repair or replace faulty products. Signup and view all the answers

What are guarantees?

Promises to refund customers if something goes wrong. Signup and view all the answers

What are surety bonds?

Instruments that protect businesses from breaches of contract. Signup and view all the answers

What are rental/lease agreements used for?

To use equipment or real estate without ownership. Signup and view all the answers

What is a sole proprietorship?

A business owned by one person who bears all risks. Signup and view all the answers

What is a partnership?

A business where partners share all risks. Signup and view all the answers

What defines a corporation?

A business where owners limit losses to their investment. Signup and view all the answers

What is insurance in the context of risk management?

A frequently used option for transferring risk. Signup and view all the answers

What types of property can be at risk in a business?

Merchandise, business fixtures, and equipment. Signup and view all the answers

Why would a business need transportation insurance?

To cover risks of loss or damage while goods are in transit. Signup and view all the answers

What do fidelity bonds protect against?

Theft or mishandling of valuables by employees. Signup and view all the answers

What does liability insurance cover?

Losses from accidents or injuries on business property. Signup and view all the answers

Study Notes

Business Risks

Business risk involves the potential for loss or gain when conducting business activities.
Distinction between types of risks: hazard, operational, strategic, and financial.

Hazard Risks

Hazard risks are events that pose potential harm to individuals, property, or the environment.
These risks typically result in losses rather than gains for businesses.

Operational Risks

Operational risks arise from employee actions and daily business processes.
They can disrupt normal business activities and impact efficiency.

Strategic Risks

Strategic risks significantly affect a company's long-term objectives and require a broader view of the business environment.
Managing these risks is crucial for sustained success.

Financial Risks

Financial risks directly affect a company’s cash flow.
Both external factors (market fluctuations) and internal factors (poor financial management) contribute to financial risks.

Risk Management Strategies

Avoiding: Completely omitting the risk from the business process is the safest option.
Preventing/Controlling: Implementing measures to minimize or manage identified risks.
Transferring: Shifting risk to another party (e.g., through insurance).
Retaining: Accepting the risk and not taking steps to mitigate it.

Contractual Agreements

Contracts facilitate the transfer of risk between parties.
Common types of agreements include guarantees/warranties, surety bonds, and rental/lease agreements.

Warranties and Guarantees

Warranties involve promises to repair or replace defective products.
Guarantees assure customers of a refund if products fail to meet expectations.

Surety Bonds

Surety bonds protect against contractual breaches by ensuring compensation for losses incurred.

Rental/Lease Agreements

Such agreements allow businesses to obtain equipment or premises without significant upfront costs, beneficial for startups.

Business Organization and Ownership Types

The structure of a business (sole proprietorship, partnership, corporation) influences the risks owners face:
- Sole Proprietorship: The owner bears all business risks personally.
- Partnership: Partners share business risks collaboratively.
- Corporation: Shareholders limit their risk to their investment amount.

Insurance as a Risk Transfer Option

Insurance is a common method for transferring risks, offering financial protection against various potential losses.

Property Risks

Risks to property, including merchandise and equipment, can arise from theft or damage (e.g., fire).

Transportation Risks

Businesses involved in shipping and storage may obtain transportation insurance for coverage during transit.

Robbery or Theft

Fidelity bonds can protect businesses from employee theft, particularly for those handling valuable items.

Personal Injury Risks

Liability insurance covers losses from accidents or injuries occurring on business premises, providing financial protection for such events.

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Description

Test your knowledge of business risk concepts with these flashcards. Learn about the different types of risks involved in business, including hazard and operational risks. Perfect for students and professionals looking to enhance their understanding of risk management.