Question

identify four business risks a small business in Florida might face. For each, describe the risk financing alternatives (retention and transfer) that are available and identify the one you would select and explain why.

Answer 1

The top four business risks a small business in Florida might face are as follows,

• Workforce Quality
• Economic Uncertainty
• Cash Reserves
• Growing too Fast

Now let us try to understand these risks.

• Workforce Quality: Though the Florida is generating large jobs but there is shortage of the quality workforce. Thus the company has to spend on training of employees which requires large investment for the company towards training. Since high expenditure is required on training it is advisable to transfer investment expenditure to third party. Since the businesses need huge capital for growing and running their businesses without trouble.
• Economic Uncertainty : The Florida economy is dependent on small business community as the small businesses are facing various problems or challenges the Florida's economy will remain uncertain which bothers the small business owners. As the economy is expecting a recession in the coming days. The economic uncertainty losses are to be transferred since it will be huge amount and the small business can't afford to bear them
• Cash Reserves : The other challenge is cash reserves because during the financial crisis cash reserves help the businesses to obsorb loss that may take place during crisis. To create the cash reserves it is advised that the owners of small business contribute a small amount to the reserves in regular intervals so that in the crisis period they can use the cash reserves if the loss is small or moderate but if the loss is high it is advised to transfer the loss to the third party by taking insurance against it.
• Growing Too Fast : The small business owners in Florida wants to grow the business fast as a result they often plan poor and will fell short of financing or may expand the market at the wrong time as a result they will face the working capital problem. In order to address this challenge the small businesses has to plan well and make the market research well in advance and create a financing provision and contribute towards it. In this case it is better option is to built and transfer very in the third party will built the project and when it is ready to operate it will transfer to the company which gave the project. In this case the company has to retain and finance it internally i.e. retention strategy is to be followed to avoid other cost.