Question

Liability is one of the most significant concerns that a person has when she starts a business. What does that mean and why is it a concern? What would be an example of a business with low exposure to liabilities? Also, give me an example of a business with a high level of exposure to liability risks?

Answer 1

Liabilities refer to dues and payables to outsiders. This can be a concern if the company does not have sufficient assets to pay them off. This can result in default and loss of credibility of the organization. A business that makes cash purchases is one with lesser liabilities such as a transportation company that needs to pay for petrol and fuel and costs in cash. On the contrary a business which makes credit purchases is the one with high exposure to liabilities. Example of such a business is a manufacturing business which purchase raw materials on credit.