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Thought LeadersWhat External Factors Can Impact a Business?

What External Factors Can Impact a Business?

The UK is experiencing a never-before-seen growth in new businesses, with more SMEs created in 2021 than in any year prior. These new businesses are starting at an interesting socioeconomic period, with the impacts of Brexit and other economic shocks reverberating through the country. But how exactly do external factors affect businesses, and which are most impactful?

Policy

Political matters can have a profound effect on the operation of a business, from its day-to-day activities to executive decision-making. The frameworks for legal operation as a business are set out by government, from trading standards to health and safety laws and even employment law.

Changes to domestic policy, and the introduction of new laws and regulations, can affect businesses and business models both for better and for worse. More stringent health and safety legislation can ensure worker safety, but require additional budget for compliance. New laws on company mergers and partnerships can result in new levies on transactions, again impacting revenue.

“One of the major challenges is that policy changes can be made pretty much instantly – businesses, therefore, need to be nimble and prepare in the best way possible for a range of eventualities,” comments James Durr of Manchester property auction house.

Economy

The economy is the system by which every business operates. Its movements directly impact the businesses that operate within it, and can be impacted itself by the movements of businesses. The UK’s economy is somewhat interwoven with politics, as legislation can influence banking organisations and the inflation rate. The Foreign exchange market, or forex, can also have an impact on the economy – for example, with the pound performing poorly against the dollar, US investors have more spending power with UK businesses, increasing revenue.

Economic shifts can change a company’s outlook in an instant; if banking interest rates increase, returns on invested revenue are greater, while rising employment can ensure greater consumer spending and a more productive workforce. The current increase in the inflation rate is pushing up the cost of goods, in part bolstering record profits for larger businesses.

Technology

Technological advancement is a cornerstone of business innovation, and changes not only the way in which businesses internally operate, but also the shape of their revenue streams entirely. New developments in industrial processes and manufacture have significant effects on business, as early adopters of new efficient technologies or sustainable materials win out over competition.

Since the commercial availability of the computer and the global adoption of the internet as a resource, businesses have pivoted to put digital technology at the heart of their work in order to stay competitive – and with AI technology developing at breakneck pace, businesses are once again looking to new products and possibilities to maintain relevance.

 

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