Factors Effecting Profit Financial Risk

Risking It All  Risk  Possibility of financial gain or loss or personal injury  Businesses that do not profit must close  Personal injury can occur if businesses do not take the appropriate safety precautions  Businesses must consider:  Natural risk  Human risk  Economic risk

Natural Risk  Weather conditions that cannot be avoided  Tornadoes  Blizzards  Hurricanes  Floods  Droughts  Ice Storms  Less catastrophic weather conditions can cause problems  Heavy thunderstorms  Dangerous lightening *Can you cite some recent examples?

Human Risk  Customer dishonesty  Employee theft/dishonesty  Employee incompetence  Poor attitudes  Poorly trained  Shoplifting  Credit card fraud  Bad checks  How do businesses attempt to manage these types of risks?

Economic Risk  Economic conditions  Consumer lifestyles  Individual purchases  Discretionary income  Demand  Recalled products  Research to find a recent recall. What effect did the recall have on the business and the consumer?

Gain or Loss risk  Gain example  A sports team is very successful and attracts many fans  Investors make a great deal of profit  Loss example  A flood closes a golf resort  Investors cannot possibly gain from the event  Speculative risk could result in either a gain or a loss as in the sports team example  Pure risk occurs when there is no chance of a gain

Controllable Risk  Prevent or reduce the occurrence of the risk  Business has adequate safety measures in place  Employees are well-trained in safety procedures  Uncontrollable Risk  Natural disasters  Think of a place you visit often and name some safety procedures that business has in place. Can you think of any way to improve their safety?

Insurable Risk  Pure risk for which the chances of loss are predictable and the amount of the loss can be estimated  Fire  Earthquake  Flood  Theft  Injury  Workers’ Compensation  Uninsurable risk occurs when there is a chance that a loss could occur, but the dollar amount cannot be estimated

Managing Risk  Risk management  Preventing, reducing, or lessening the negative impacts of risk by using one of these strategies:  Risk Avoidance  Comply with safety laws  Background checks on employees  Safety training  Video surveillance  Security guards  Controlled access  Warning signs

Managing Risk, con’t.  Risk Insurance  Predictable losses  Property  Liability  Theft  The premiums from many businesses are pooled to and used to pay the losses that a few businesses experience.

Managing Risk, con’t.  Risk Retention  Uninsurable risks  Breakdown of equipment  Low demand  Bad economy  Products that won’t sell  Owners realize that there are uncontrollable circumstances that can negatively impact the business  Businesses must set aside funds for use in these circumstances