In India, running a small business brings both hope and challenges, and understanding risk is just as important as finding opportunities. For MSMEs, knowing the difference between business risk and financial risk helps owners prepare smartly for the future. Let us look at these ideas in a simple Indian style.
Risk is a fact of business
Every business faces some amount of risk, just like daily life. Suppose you open a clothing shop in the local market and then you may plan everything. But sometimes the number of customers is lower than you thought or the cost of fabric suddenly goes up due to market reasons. All these surprises are part of business and financial risks, which every entrepreneur experiences.
Analysing risk is necessary
Business risk means anything that can disturb your daily business and your sales. No matter what you do, there may be things outside your control that cause uncertainty. For example, customers’ tastes can suddenly change, and a product that was selling fast may stop moving if people want something new. If a big shop opens next to you, selling similar clothes at a lower price, it can hurt your profits. Innovation and technology can also affect old businesses. For example, think of shops selling only in the market, but now customers prefer to buy online. Sometimes problems come from outside, like floods or new rules set by the government that increase your costs. All these are examples of business risk, and they can make your revenue unstable.
To fight business risk, first keep an eye on the market and what your customers want. Study trends, ask your buyers, and always be aware of what is happening around you. You can also add more products or services so that if one does not work, others still keep your business running. Build good relations with your vendors and keep more than one option for getting your supplies. It is smart to have a backup plan for emergencies, whether it is having some money set aside or a method for selling products online if the shop cannot open.
Making wise decisions
Financial risk is about decisions you make regarding money loan-taking, spending and using different funding sources. Borrowing money can help your business grow, but you must use loans carefully. If you take too much loan and sales slow down, it becomes difficult to pay back and your business can run into trouble. Financial risk can also come from outside reasons. For example, when interest rates go up, repaying loans gets costlier. If your business depends on imports or exports, a sudden change in the value of the rupee can affect profits. Some businesses struggle because they do not keep track of money properly—they don’t know where cash is going or coming from, which creates problems.
Balancing financial aspects
To reduce financial risk, always try to balance how much of your business runs on loan and how much comes from savings or investment. Relying only on loans is risky, so try to have different ways to get funds. It can be through family, investors or even government loans. It is also wise to save a little money every month for emergencies. This kind of planning helps you face any storm that comes.
If business and financial risks are not managed, your business may end up paying higher interest, struggle to get new loans, or face loss of profits. This makes it hard to survive in a competitive market. By understanding these risks and planning in advance, you get a better chance to grow and make your MSME successful.
Vikas Money is always here to support MSME owners and entrepreneurs, with simple financing and guidance. When you know about risks and how to handle them, you become stronger and ready to become a winner in your business journey.