A third factor in determining a fair profit percentage is risk. Risk is divided into two types. The first is insurable and the second is uninsurable risks. Insurable risks are mitigated and have very little to no effect on the profit formula due to transferring the risk to a third party known as the insurance underwriter. Uninsurable risks are non-transferable and therefore the profit must be adjusted to compensate for this type of risk.
Those risks that are immeasurable or not an act of God and exist for most small businesses are called uninsurable. In general, insurance companies will not cover these risks. It is this type of risk that profit must be adjusted to provide some form of funding to offset the likely occurrence in the future. Uninsurable risks fall into two categories.