Business

Why Business Environment Analysis is the Foundation of Every Business

Ever wonder why a business crumbles?

Despite the perfect budget, and laser-focused marketing? And despite the product being in demand?

Somehow, success never happens.

It’s because the foundation is faulty. And that foundation is internal and external factors, which, left unattended, can rupture and kill a business.

Using Business Environment Analysis helps identify these factors and understand how much or how little influence you have on them. You need the upper hand, and knowing these factors is the first step.

Business Environment Analysis reveals influencers

Internal and external factors are two contributors in business analysis. But what’s the major difference?

Internal factors are directly related to your business. Which means you have a semblance of control here. Like with the launch of a new product. Or having access to data on past product sales. You have a chance to alter or affect internal factors.

On the other hand, you can’t directly change external factors. Instead of changing or eliminating them, you need to be aware they exist. And with that awareness, learn to either live amongst it or adjust.

For example, you can’t change the price of state taxes. But you can adjust your business — product sales or shipping costs — to increase revenue after those taxes.

A thorough Business Environment Analysis will help you understand both the internal factors and external factors that will affect the growth of your business. Knowing is a big part of the battle — especially before launching a company or product.

No amount of top notch marketing or trendy graphic design can help if external and internal factors are crushing your efforts of success.

More internal factors Business Environment Analysis unravels

You want to know everything you can about the internal factors which affect your business. Because these are the factors you can influence to some degree. Here are a few to consider.

  • Expenses (product, labor, manufacturing, departments)
  • Past product sales
  • Inventory (shortages)
  • Expected costs (inventory, marketing, shipping)
  • Department/manager changes
  • Business objectives
  • Business mission statement
  • Design (product, logo, packaging)

Each of these things is under your command. And they affect a section of your business. But you can change these effects.

You can pay for more inventory. Or find methods to reduce expenses and costs. Or change your mission statement whenever you want. The results are yours for the taking.

Major external factors to watch out for

External factors simply exist without your input. They were there before you started your business. And they may still be there after. Instead of you influencing it like with internal factors, external factors influence you.

Major external factors can make or break your business. It depends on whether you’re aware they exist and actively monitor the way it affects your business. Some factors are:

  • Customer (acquisition, changes, loss)
  • Distributor and suppliers
  • Competitors (products, marketing, growth)

Among those factors are also those associated with PESTLE. The political, economic, socio-cultural, technological, legal and environmental influences. Big contributors to these factors are:

  • Political systems
  • Government policies/laws
  • Taxes and interest rates
  • Social classes and lifestyles
  • Tech developments and encryption
  • Climate changes

Again, these things exist and you either live with them or leave them behind. Because you can’t cancel laws or limit climate change. But they will hamper business if you’re not aware and prepared for them.

You need to understand the factors first

As exciting as product launches and new business ventures are, nothing dampens the mood quite like problems. You’re not going in hoping to fail. But if you don’t use Business Environment Analysis first, you’re setting yourself up for it.

The analysis itself isn’t difficult. You have a choice to use several different analysis to pinpoint internal and external factors. Many of which only take up time rather than money. Such as…

These factors are the foundation of your business. Everything else — product, expenses, marketing — are the layers on top. They can’t succeed if the foundation is faulty. So use Business Environment Analysis to keep everything upright.

Image: Pressmaster/Shutterstock.com

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The Author

Kiesha Frue

Kiesha Frue

Kiesha Frue is a freelance writer and editor with a love for health, wellness, and entrepreneurship. When she’s not researching into the sunrise, her nose is stuck in the latest (and cheesiest) of fantasy novels.