Financial & Economic Risks

Risk that customers or counterparties will fail to pay as owed, turning receivables into bad debt.

The risk that those who owe your business money will fail to pay as owed . For most companies, this comes from customers defaulting on credit sales (accounts receivable turning into bad debt). In financial sectors, it includes loans or counterparties defaulting. Credit risk management involves credit checks, setting credit limits, and possibly trade credit insurance.

The level of revenue risk your business faces by relying on a small number of customers for a large portion of sales . If one big client leaves or dramatically cuts back orders, it can seriously harm the company’s financial health. Similarly, reliance on one or a few suppliers (supplier concentration) can present a risk if that source fails. Diversifying the customer base and supplier base is key to mitigating concentration risk.

Risk of fraud schemes by external parties that inflict loss on the company. This includes cyber fraud (hackers stealing data or money), counterfeit payments or check fraud, vendor scams, or theft by outsiders (burglary, cargo theft) . As digital transactions increase, cyber-enabled fraud (phishing, business email compromise) is a major concern.

The risk of misstatements in financial reporting due to errors or fraud, stemming from weak internal controls, which can lead to regulatory penalties and loss of investor confidence.

Risk of material errors or fraud in financial statements or reports, which can lead to restatements, regulatory penalties, stock price drops, or loss of investor trust. This includes deliberate accounting fraud (e.g. earnings manipulation) or unintentional misstatements due to weak controls. For example, failure to comply with Sarbanes-Oxley (SOX) controls or detect accounting irregularities could result in misstated financials .

The risk that a company cannot secure necessary debt or equity financing on acceptable terms, hindering its ability to fund operations, invest, or grow.

The risk that rising inflation will increase the cost of labor, materials, and other inputs, eroding profitability if prices cannot be passed on to customers.

The risk of losses due to fraud committed by employees or insiders, such as theft of cash/inventory, expense fraud, embezzlement of funds, or financial statement manipulation . Internal fraud can lead to direct financial losses and reputational harm (especially if executives are involved). Proper internal controls and audits help mitigate this.

The risk that an entity will be unable to meet its short-term financial obligations due to insufficient cash or inability to quickly raise funds . In other words, running out of cash to pay bills on time. Liquidity issues can force a company to sell assets at a loss or default on obligations, potentially leading to insolvency.

The risk of losses in a company's financial portfolio or earnings due to movements in market factors like interest rates, foreign exchange rates, or commodity prices.

Risks associated with pursuing mergers or acquisitions, such as overpaying for a target, cultural clashes, integration difficulties, or failing to achieve synergies. A poor M\&A strategy or integration plan can erode value and distract management.

The risk of actual revenues falling short of forecasts or targets, which can lead to budget gaps and strategic challenges. Inaccurate sales forecasts can mislead resource allocation. Monitoring forecast vs actual and using scenario planning can mitigate this . (E.g., a company expecting 10% growth that gets only 2% will need to adjust costs quickly.)

The potential for new tax laws, changes in tax rates, or aggressive tax enforcement to result in higher costs or penalties than expected. Taxation risk includes the chance that a government introduces new taxes or closes loopholes that disrupt an industry’s business model . Companies also face risk if they misinterpret tax rules or have accounting errors leading to underpayment.