What natural factors affect business growth?
How to be prepared as a business owner?
Business is an essential part of our lives; we can get all the items we need for our living, from food, clothes to all other things that come to mind, due to business activities.
Just imagine if, for any reason, the normal operations are affected, or a business stops growing, what will be the impact on our lives? What, then, are the factors that affect a business?
The concept of a business environment is vast. There are several micro and macro environmental factors affecting business. The microenvironment influences the working of a particular industry. It (microenvironment) consists of all factors that can impact the general operations of a company, including the daily proceedings. A company's microenvironment includes its customers, suppliers, distribution and logistics partners, competitors, and even the general public.
The macro factors are more general and can affect all businesses located in a specific area, state, or country. Most of these environmental factors affecting business are beyond the direct control of a company.Macro factors are classified as economic, technological, socio-cultural, legal, political and environmental.
Among the environmental parameters, several natural factors affect business; these are Climatic effects, natural disasters, Pollution and environmental policies, and health pandemics like the recent Covid-19.
The impact of any significant natural catastrophe is severe and goes much beyond affecting a few companies and businesses; the entire economic activities of a country may reel under its (natural calamities) influence.
Natural elements affecting business
1. Climatic effect
Experts attribute unpredictable weather conditions in the past few years to the increasing levels of global warming. In India, inadequate or excess rainfall may impact agri-related businesses adversely.
Companies and individuals within the agriculture ecosystem, from crop processing to seeds and fertilisers, machinery to logistics, may fail to meet their planned targets if the weather does not support them.
There are other instances of natural external factors affecting business, like in the soft drinks industry. While an extended summer, the primary selling season of this product category, brings in a big cheer for this industry, a mild climate during the summer months can mean no growth for the companies.
Products like air-conditioners, room heaters, woollen garments, among many others, are always on the brink due to the possible effects of a climatic impact.
2. Natural disasters
Earthquakes, severe storms, floods are among the major external environmental factors affecting (a) business. Companies (also individuals) engaged in commercial activities near a sea-side or a low lying area need to recognise these natural factors in their operational plan.
3. Pollution and Environmental Policies
1. Policy changes
A business operating in an area of significant environmental concern faces considerable uncertainty from legislation that addresses such concerns.
Specific units located near forest zones, green belts, and archaeological monuments may get affected due to a change in the environmental policy.
In India, a large cement plant had to look at alternative sources for raw material when a policy change capped its mining operations. The company had to redraw its business plan as the input cost went up substantially.
In another example, over one thousand small and medium leather units had to relocate due to their proximity to a metro city because of environmental pollution. Over the years, the city's growth engulfed those industrial units causing a change in legislation, which made relocation compulsory.
2. Permits
Some companies are in business activities that impact the surrounding environment. Manufacturing units of several items using furnaces to large bakeries, laundries, and many others have to file for an operating permit from competent agencies typically.
These permits define the minimum standards or limit of air emissions, handling hazardous materials, waste management and more. If the prescribed standards are not followed, these companies face the risk of penal actions, including closure.
The system of permits specifies the exact type of activities a firm can perform within a particular area or locality.
4. Health pandemic
The covid-19 pandemic created circumstances which modern business has never faced. Lockdowns, staying indoors, working from home forced a change in people’s habits leading to a complete disruption of several companies and businesses.
But it also forced new ways of doing businesses, and several firms reinvented themselves. We all know natural disasters are unpredictable and can strike anywhere, anytime. What can companies do to be prepared?
Safeguards for business against natural calamities-
What can companies do?
The crucial issue is understanding the seriousness of a disaster. As the owner or the chief executive of a company, you must imagine the possible impact (of calamities) on the business.
Spreading the message among the entire staff is the next step. Many post-disaster surveys globally have shown that people did not know some of the emergency measures.
Keep a plan ready
- Be mentally aware of natural calamities.
- Keep an emergency plan ready.
- Share the plan with all concerned.
- A disaster management team with roles identified.
- Assembly points and methods of contact must be well-explained.
- Educating employees on the emergency evacuation plan.
- Backup of all critical data.
- Plan for communicating with customers on supply disruptions and emergency actions.
- Organise mock emergency drills at least twice a year.
Insurance
Appropriate insurance cover is a possible solution against natural external macro-environment factors affecting business.
Buying an insurance cover will be a critical financial decision for a small business, balancing working capital needs and insurance premium. A careful evaluation of the operating plan is necessary for providing for the required premium amount.
One must remember that insurance is a complicated issue. A small business-owner taking professional help in finalising the policy may be a good option.
Supportive plans
Creating an emergency reserve of funds- Even the best policies will not cover your total losses in a natural calamity.
Keeping a track of raw material and finished goods inventories- Monitor levels as per the estimates given to the insurance company. Maintaining planned levels will facilitate quick claim settlement in the event of a calamity.
Focus on Prevention
Forecasting the time of a calamity is impossible, but today's advanced weather reports can provide reliable updates of storms and heavy rainfalls. If your business is facing a risk from these factors, you can decide to suspend operations to minimise loss.
Detailed and specific guidelines against potential fire hazards are available; implement measures to reduce impact.
Be a fast learner
The sudden strike of the current covid-19 pandemic has not allowed companies and businesses to make an alternate plan. Several companies suffered severely, and many are still struggling for a revival.
Some learnt the lessons quickly and adapted to the changing environment; a lean structure, operations tuned to customers' demands, and flexibility in decisions.
Conclusion
Several natural factors can affect a business. A preparedness plan is the best solution against natural calamities. Companies operating in areas prone to disasters must treat the preparedness exercise as a grave necessity.
On its face, preventive measures cost money, which is the most critical issue for a small business. But on the brighter side, a company learns to shed weight, becomes more flexible and ultimately more efficient as a result of the preparedness plan.
Also Read:
1) TOP 10 Problems Every Small Business Face (And how to fix them)
2) Steps to Survive a Recession and Grow Your Business Even in a Bad Economy
3) Reasons Why Every Small Business Should Market on Social Media
4) Types of Small Business Insurance and What it Covers
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FAQs
Q. Our family runs a grocery store in a small sea-side town. A few years back, we were badly affected by a cyclone and borrowed heavily to restart our business. What preventive measures should we take for the future?
Ans. Your location is disaster-prone, and better preparedness is the only safeguard.
a. Concentrate your efforts on developing home-deliveries and online sales, even if it is a small town.
b. Invest in systems (low cost) to track item-wise sales and inventories. Operate with a minimum number of days stocks as per your sales pattern.
c. Go for insurance, even if it is for partial coverage.
d. Use the best possible place for storage and invest in quality storage devices for higher protection.
e. Track weather conditions online and be prepared.
f. View additional investments on systems, storage facilities and insurance as necessary loss reducing expenditures.
Q. How fast can a company recover from the impact of natural calamities?
Ans. Experts say that if you recognise that natural calamities can affect your business and stay prepared with a basic plan, then chances are your recovery will be faster than those who remain unprepared for such a challenge.
Q. What are the differences between natural factors and other environmental factors, since both can affect a business?
Ans. Other factors (economic, social, political and the like) are more predictable and can be handled to some extent with planning. Natural factors affect businesses suddenly and sometimes with unprecedented impacts.