When in business, you do not just have to worry about what happens behind your operation doors. Many outside factors can, directly and indirectly, affect your business. Here are six external factors that might be affecting your business.
Macroeconomics
Macroeconomics is the study of how governments and countries distribute wealth and use their resources. It attempts to explain what drives inflation or stimulates the economy. The economic environment of the world around us affects businesses. Economic conditions cause the shift of supply and demand, which directly affects your economic growth or decline.
It also drives changes in inflation rates and interest rates, which may ultimately affect your business as well. It is important to understand economics’s role in business.
Legal Factors
Laws, guidelines, regulations, and liabilities are aspects of the legal environment that businesses should consider. From providing safe packaging to labeling products regarding their use and misuse, businesses should protect themselves from possible lawsuits and claims against their product or services. Other evolving legal factors, can also affect the manufacturing and marketing of your product. These legalities are complex and often the most dangerous factor your business may face.
Legal Factors that Businesses Should Consider?
Businesses should consider several legal factors to ensure compliance with the law and avoid legal issues. Some of the specific legal factors that businesses should consider are:
- Business structure: The business structure chosen by a company can affect its personal liability, taxes, and fundraising ability. The most common business structures are sole proprietorship, partnership, limited liability company (LLC), and corporation.
- Contracts: Contracts are legally binding agreements between two or more parties. Businesses should ensure that their contracts are well-drafted, clear, and enforceable.
- Intellectual property: Intellectual property (IP) refers to creations of the mind, such as inventions, literary and artistic works, and symbols. Businesses should protect their IP through patents, trademarks, and copyrights.
- Employment law: Employment law governs the relationship between employers and employees. Businesses should comply with employment laws related to hiring, wages, hours, and working conditions.
- Tax law: Businesses must comply with tax laws related to income, employment, and sales taxes.
- Health and safety regulations: Businesses must comply with health and safety regulations related to workplace safety, product safety, and environmental protection.
- Data privacy: Businesses must comply with data privacy laws related to the collection, use, and storage of personal information.
- Litigation: Businesses should be prepared for potential litigation and have a plan in place to handle legal disputes.
Technological Forces
Technology can impact every aspect of your business, from production to consumption. Other elements that technology touches on include development, marketing, tracking sales, shipping, and other logistics. It is essential to understand that technological forces drive your business, so you need to know how they affect each aspect of your operation. That way, you can adjust accordingly and adapt to meet your business needs effectively.
Examples of How Technological Forces Can Affect a Business?
Technological forces can have a significant impact on businesses. Here are some examples of how technological factors can affect a business:
| Technological Factors | Examples of Impact on Business |
|---|---|
| Automation | The automation of many unskilled tasks can allow companies to replace human production, reducing costs for manufacturers, distributors, supermarkets, and many other different businesses. |
| Computer calculation speed/power | Faster computers can help businesses process data more quickly, leading to increased efficiency and productivity. |
| Internet connectivity | The internet has revolutionized the way businesses operate, allowing them to reach customers all over the world and conduct transactions online. |
| Wireless charging | Wireless charging technology can make it easier for businesses to keep their devices charged and reduce the need for cables and cords. |
| Security in cryptography | Improved security measures can help businesses protect their data and prevent cyber attacks. |
| 3D technology | 3D printing technology can help businesses create prototypes and products more quickly and efficiently. |
| Engine efficiency | More efficient engines can help businesses reduce their fuel costs and operate more sustainably. |
Overall, technological factors can have both positive and negative effects on businesses. Businesses need to stay up-to-date with the latest technological developments and adapt their strategies accordingly to remain competitive in their industries.
Social Changes
American demographics are constantly changing. Gender, ethnicity, location, education, age, occupation, and population income can affect your business. More often, society also requires businesses to be better corporate citizens by contributing to local communities and charitable organizations, known as Corporate Social Responsibility (CSR). The population requires the ethical treatment of workers and environmentally responsible practices. These factors create challenges for businesses as they attempt to serve their customers and the changing trends or fads.
Environmental Concerns
Major environmental events, such as climate change, weather, pollution, and natural disasters can impact the supply chain. These environmental concerns can disrupt the production or transportation of raw materials, driving prices higher because the demand has gone up while the supply is low. Your business will want to monitor these environmental impacts and help develop a contingency plan to respond to such events.
Political Climates
The government plays a significant role in taxation, regulation, and international trade, determining how businesses operate. The government can influence the economy with political stability and trade and tax policies. Regulations surrounding health insurance coverage paid sick leave, and unemployment regulations can directly affect your business.
Businesses do not operate in a vacuum, so you must understand how external factors impact your operations and develop plans to monitor and combat them. When you have a contingency plan, your business is better prepared to take on these outside factors head-on.
