Unforeseen happenings can be a major threat to the success of a value-added business. Sometimes you can anticipate these occurrences and take protective action. However, there are situations where we are blindsided by events.
Risk is usually defined as a potential loss that you can insure against. An example is the risk of business loss due to fire and the ability to purchase fire insurance.
A loss that cannot be insured against is usually referred to as uncertainty. For example, the possible loss of a market due to a change in consumer’s preference cannot be insured against. So other protective actions must be taken. A business strategy to diversify market product offerings may partially protect you against this type of uncertainty.
A strong equity position in your value-added business balance sheet can help protect you against both risk and uncertainty. The legal structure of the business can also provide protection.
More information on risk management is presented in the box at the right.