Risk financing
Risk financing is when people or companies plan ahead to cover the cost of something bad happening. Imagine you have a big bag of candy, and you're worried someone might steal it. You might decide to ask your friends to all chip in a few pieces of candy, just in case it gets stolen. That way, if it does get stolen, you won't lose all your candy.
Companies do something similar with things that could cost them a lot of money - like a fire or someone getting hurt on the job. Instead of just hoping those things won't happen, they plan ahead to have money ready to cover the costs. They might save up some money, buy insurance, or use other strategies to make sure they're ready. That way, if something does happen, they have the money to take care of it without having to go out of business.
Overall, risk financing is all about being prepared for the unexpected, just like having a backup plan for your candy or other things you care about.
Companies do something similar with things that could cost them a lot of money - like a fire or someone getting hurt on the job. Instead of just hoping those things won't happen, they plan ahead to have money ready to cover the costs. They might save up some money, buy insurance, or use other strategies to make sure they're ready. That way, if something does happen, they have the money to take care of it without having to go out of business.
Overall, risk financing is all about being prepared for the unexpected, just like having a backup plan for your candy or other things you care about.