A common financial risk that entrepreneurs encounter is _________

• A. High taxes
• B. Bankruptcy
• C. High maintenance costs
• D. High insurance costs

Answer: (B)

Financial risk for startups centers on the possibility that cash inflows won’t cover outflows, threatening the business’s ability to continue. Bankruptcy is the clearest manifestation of that risk because it denotes insolvency—being unable to pay debts—which often forces liquidation or reorganization. When cash flow is volatile and funding is scarce, the chance of reaching bankruptcy increases, making it the most consequential financial risk to a startup’s survival. Taxes, maintenance, and insurance are important operating costs to manage, but they don’t by themselves threaten the company’s continued existence in the same decisive way. They can usually be controlled through prudent budgeting, pricing, and strategic planning.