Risks and How to Deal with Them

Study the words and the word-combinations.

damage n	повреждение, ущерб, убыток
injury n	вред
loss n	убыток
absorb losses from risks	покрывать убытки от рисков
subject v	подвергаться
handle v	управлять, осуществлять контроль, справиться
inventory n	товарно-материальные запасы
theft n	воровство, кража
flood n	наводнение
hurricane n	ураган
riots n	беспорядки
liability to employees	обязательство перед служащими
safety n	безопасность
liability to the public	ответственность перед общественностью
be liable for	быть обязанным возместить вред; быть ответственным за что-либо
apply to v	касаться, применить
retail establishment	предприятие розничной торговли
excessive loss	чрезмерный убыток
bad debts	безнадежные долги
extend credit	продлевать кредит
collect accounts receivable	взыскивать счета к получению
loss through dishonest employees	убыток от нечестных служащих
securities n	ценные бумаги
cope with v	справиться с чем-либо
financial hardship	финансовые затруднения
cause v	служить поводом, вызывать
go out of the business	ликвидировать предприятие
prospects n	перспективы
lack of liquidity	отсутствие ликвидности
marketing risk	рыночный риск
cover v	покрывать, обеспечивать денежное покрытие
fall in value	понижаться в стоимости
drop v	падать, снижаться, понижаться
location n	местонахождение, расположение
style n	вид, модель
fall out of favor	не пользоваться спросом
self-insurance n	самострахование
set aside v	оставлять
reserve fund	резервный фонд, резервный капитал
losses incurred	понесенные потери
insurance policy	страховой полис
shift the risk to smb	переложить риск на кого-либо
hedging n	хеджирование, страхование от потерь
quote v	назначать цену, котировать
commodity exchange	товарная биржа
keep informed	держать в курсе
price trend	тенденция цен
adverse trend	неблагоприятная тенденция
be aware of	знать, сознавать
appeal to v	обратиться к; прибегнуть, апеллировать
deal in futures	сделки на срок (фьючерсные сделки)
insure v		страховать
statute law		статутное право; право, выраженное в законодательных актах
pay off v		полностью рассчитаться, оплатить
assume responsibility		взять на себя ответственность
outsell v		продавать больше, чем конкуренты
erosion n		разрушение, эрозия
take the market share from smb		отнять долю рынка от кого-либо
bring forward		перенести на более ранний срок
extend a payback period		продлевать период окупаемости
average rate of return		средний коэффициент окупаемости
breakeven point		точка критического объема производства
sales target		плановое задание по реализации продукции

1. Scan through the text. [13, с. 115—118].

Risks and How to Deal with Them

Risk can be defined as the chance of damage, injury, or loss. Every business firm operates with daily risks, and the small firm is no exception. The small firm is characteristically less able to absorb losses from risks. These facts make it very important that every small firm understands the risks to which it is subject. Once these are known, a policy can be established on how best to handle the risks so as to keep losses to a minimum.

Risks faced by the small firm:

— Damage to property. The property of most small firms is represented by its inventory and its building if it is owned by the firm. The building and the inventory are constantly subject to the risks of damage and loss fire, theft, floods, hurricanes, and riots.

— Liability to employees. All employers are respon­sible for the health and safety of employees while they are performing their duties for the firm. Legislation giving employers such responsibility has been one of the greatest developments in social responsibility in recent years.

— Liability to the public. This type of risk is often illustrated by the proverbial slip on a banana peel by a customer in the store. Store owners are liable for injuries received by persons on their premises. This liability applies to apartment houses, factories, and wholesale establishments as well as to retail establishments. This risk includes not only physical injuries, but also damage to the property of others.

— Excessive loss from bad debts. We have noted the importance of extending credit carefully and on the basis of a well-established procedure. Losses due to inability to collect accounts receivable can be severe. Protection against such losses can be expensive.

— Loss through dishonest employees. No business-people like to admit they have dishonest employees. However, countless cases of employee theft are reported every year. Such losses can be in the form of cash, securities, or merchandise. This is another real risk that must be recognized and coped with.

— Financial hardship. Financial hardship has probably caused more small firms to go out of business than any other single risk. It is especially sad to see a firm with otherwise excellent prospects suffer because the lack of liquidity has been allowed to dominate its financial condition.

— Marketing risks. Marketing risks cover such things as having an inventory of merchandise suddenly fall in value because the market price has dropped. Having a location lose its value is also a marketing risk. In the sale of style merchandise, situations occur when the style has fallen out of favor and the remaining merchandise on the owner’s shelves has lost most of its value.

When the existing risks are known, business owners may turn their attention to the matter of what to do about them. They will realize that some risks are easier to control than others. In all cases good management will do some of the following:

— Remove the cause.

— Create self-insurance. Under, a self-insurance plan, a speci­fied amount is set aside in a reserve fund each year to be available to cover any losses incurred.

— Purchase Outside Insurance. An insurance policy shifts the risk to the insurance company. Insurance can be purchased from es­tablished insurance firms to cover many of the risks listed here. These are considered normal business risks. In addition, Lloyd's of London will insure almost any nonbusiness risk – for a price.

— Practice hedging. Any small firm that buys quantities of products quoted on the nation's well-established commodity ex­changes should know about hedging and should practice it to protect normal profits. Hedging is often misunderstood as a device to make profits, but it is only to protect normal profits.

— Good management. Good planning and good management are probably the best protection against most of the other risks that have been considered. For instance, good management will keep itself in­formed of price trends; good accounting records and study of operations against a budget will warn of any developing adverse trends. The risk of financial hardship can best be coped with by proper financial planning and financial management.

2. In each of the following, select the word or phrase that best completes the statement or answers the question.

1) What of most small firms is represented by its inventory and buildings?

a) the property

b) the workforce

c) the capital 

d) the fund

2) Who gives employers responsibility for the health and safety of employees when they are performing their duties?

a) the firm

b) the manager

c) the state

d) legislation

3) Protection against losses due to inability to collect accounts receivable can be

a) well-organized

b) expensive

c) cheap

d) well-done

4) Losses through dishonest employees can be in the form of

a) cash

b) merchandise

c) securities

d) all of these

5) When business owners are aware of the existing risks they may

a) appeal to the insurance company

b) pay their attention to the matter of how to handle them

c) run their business successfully

6) A self-insurance plan is

a) a plan to cope with losses

b) a capital spending plan

c) a specified amount set aside in a reserve fund each year

7) Fire Insurance is property insurance that covers risks of

a) the damage of water

b) fire

c) the damage of smoke

d) all of these

8) Hedging is a device to

a) run business

b) protect profits

c) make profits

d) keep accounting records

3. Match the words with their definitions.

4. Supply the sentences with the missing words.

risk, damaged, responsibility, premises, debt, protection, liquidity, set aside, hedging, commodity

1) It was evident that it had created ... problems.

2) In 1991 the firm moved to new ... in Bethnal Green.

3) Labour is bought and sold like any other....

4) Such a response would be an irrational....

5) Their failures in this area have ... their self-confidence and credibility.

6) This deposit provides a way of ... against fluctuating interest rates.

7) You must spend less until your ... are paid off.

8) I made, amistake and I will assume ... for it.

9) This policy gives you ... against loss of earnings due to sickness or unemployment.

10) The government ... barely thirteen percent of this money for health and education.

5. What are the opposites from the text of the following words?

Maximum, exclude, cheap, disadvantage, wrong, illegal, carelessly, bad, many, withdraw, rarely, ability, favourable, descrease, failure.