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Lesson 10 of 11 12 min

Business Risk

Competition, debt, concentration, and other things that go wrong.

Written by Mateo LermaLast reviewed 3 sourcesEditorial standards

All lessons in Understanding Businesses

Step 1: The lesson

What are the biggest risks a business faces?

Every business faces risks. Good analysis doesn't pretend they don't exist — it names them and asks how bad they could get.

Some risks come from outside: recessions, new laws, technology changes, and competitors. Others come from inside: too much debt, dependence on one customer or one person, or weak cash planning.

Key term

Leverage

Using borrowed money. Debt magnifies results: profits look bigger in good times, but fixed interest payments can crush a business when sales fall.

Key term

Concentration risk

Depending heavily on one customer, supplier, or product. If that one relationship ends, a big part of the business goes with it.

Where to find them

Public companies must describe their major risks in a "Risk Factors" section of their annual report (Form 10-K), filed with the SEC.

Step 2: See it

Common business risks

Competition from rivals. Heavy debt. Depending on one customer or supplier. Depending on one key person. Regulation changes. Technology making the product obsolete. Economic downturns.

  1. Competition

    Rivals copy the product or cut prices.

  2. Debt

    Fixed payments continue even when sales fall.

  3. Concentration

    Too much depends on one customer, supplier, or product.

  4. Key people

    The business struggles if one person leaves.

  5. Regulation

    New laws change what's allowed or what it costs.

  6. Technology

    A new invention makes the product less needed.

Step 3: Real-world example

One customer, 60% of sales

Parts Plus, a hypothetical manufacturer, makes $10 million a year. $6 million of that comes from one car company.

  • That customer has huge negotiating power — it can demand lower prices, knowing Parts Plus can't afford to lose it.
  • If the car company switches suppliers, Parts Plus loses 60% of its revenue overnight, but its fixed costs don't shrink.
  • Add a large loan with fixed payments, and one lost contract could put the whole company at risk.

Step 4: Knowledge check

Quiz: Business Risk (3 questions)

Answer each question, then check your answer to see the explanation. Retake it as many times as you like.

Question 1 of 3

ScenarioA bakery gets 70% of its sales from one grocery chain.What's the biggest risk?

Choose an answer.

Step 5: Summary

Summary: Business Risk

Businesses face outside risks like competition, regulation, technology, and recessions, and inside risks like debt, concentration, and key-person dependence. Leverage magnifies results in both directions. Public companies list their risks in their annual reports.

Step 6: What you should remember

Key takeaways: Business Risk

  • Name the risks honestly — every business has them.
  • Debt magnifies good and bad results.
  • Concentration = too much riding on one customer, supplier, or product.
  • Read the Risk Factors in a company's 10-K.

Key terms in this lesson

Finished the lesson?

Mark it complete to track your progress.

Sources and further reading

Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.

  1. 1.
    How to Read a 10-K/10-Q (opens in a new tab)

    Investor.gov (U.S. Securities and Exchange Commission) · investor.gov

  2. 2.
    What is Risk? (opens in a new tab)

    Investor.gov (U.S. Securities and Exchange Commission) · investor.gov

  3. 3.
    EDGAR Full Text Search (opens in a new tab)

    U.S. Securities and Exchange Commission · sec.gov

Cite this lesson

Financial Literacy Club. (2026, September). Business risk. https://learnwithflc.org/courses/understanding-businesses/business-risk

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