Any business is a risky business. To know what might threaten an entrepreneur, it is necessary to find out what risks still exist.
Financial risk is a possible loss by the organization of a part of its property, receiving less income than planned, or the formation of unpredictable expenses as a result of conducting financial and production activities. These risks are quite diverse, and in order to effectively manage them, it is necessary to classify them.
According to the degree of risk, there are:
- permissible - material losses in an amount not exceeding profits (characteristic of any business, are an everyday attribute of the work process);
- critical - characterized by such losses in which the funds invested in a particular project or transaction do not pay off;
- catastrophic - partial or total loss of property of an entrepreneur or company (the result is bankruptcy).
Consider the main types of financial risks:
1. Market risk determines the likelihood of a decrease in the value of an asset due to changes in the value of currencies, stocks, bonds, interest rates and other things.
2. Credit (trading, banking) financial risks - the threat of partial or complete default by partners or other parties to the agreement. In order to insure against such a risk, you can attract guarantors who will incur liability together with debtors.
3. Tax - these are financial risks in which losses are possible resulting from changes in tax legislation, or due to an erroneous calculation of tax payments by the entrepreneur himself. To protect yourself from this, it is worth using the services of a professional accountant.
4. Investment financial risks - losses resulting from investment activities. Investment programs and the investment manager can help to avoid such a problem.
5. Deposit - associated with the inability to return bank deposits. Such risks are the result of the wrong choice of the bank, so you should approach this issue as seriously as possible.
6. Liquidity risk - losses that occur during the implementation of investment projects due to a significant change in the assessment of their quality.
7. Operational financial risks - are formed as a result of technical errors during operations, emergencies, intentional and unintentional actions of personnel, equipment failures, etc.
Based on the scope of occurrence, risks are divided into external (not dependent on the organization) and internal (their occurrence is due to the work of the company itself). The condition for the occurrence of internal risks may be inefficient construction of assets, unskilled employees of the financial department, incorrect characteristics of economic partners, and much more.
Risks are also unpredictable and predictable. By duration they can be:
- Permanent - associated with the impact of permanent factors and exist throughout the life of the enterprise or the time of the implementation of a particular operation.
- Temporary - appear only at some stages of the operation, are divided into short-term and long-term.
Also, financial risks can be classified based on their objects as follows:
1. Risks of a specific operation. They include all financial risks that arise during the conduct of an action.
2. Various areas of economic activity.
3. The financial activities of the organization as a whole. They characterize a whole range of risks arising during the functioning of the company.