Why Is It Important to Consider External Factors in Your Business Plan?
- The primary external factor that will affect your business is your customer base. You must establish a plan of action to adapt to your customers' changing expectations and desires. Your business plan should outline how you will monitor and measure your customers' satisfaction. It should also outline how you will continuously develop and improve your products or services. If you do not consider this important external factor, your competitors may develop goods or services that your customers will turn to when your business does not deliver.
- Competition is any other business that sells products or services similar to your own. When developing a business plan, you should consider your competitors and understand how they are similar and different from you. By identifying your own strengths and weaknesses and the strengths and weaknesses of external businesses, your competition, you can differentiate your business. Understanding your competition can help you develop new ways of conducting business that could lead to a greater market share and better financial performance.
Industry & Market
- Another external factor that it is important to consider when developing a business plan is the industry and market that your goods and services fall into. The economy will greatly affect your profitability. You should understand whether your products are elastic or inelastic. If your products are inelastic, it means people will buy them regardless of the price because they are a necessity. If your products are elastic, an increase in the price will lead to decreased sales because people do not need them, and will use the money for goods that are essential for survival. You must make sure your business plan identifies how your business will react to a good economy as well as a bad economy.
Legal and Ethical Factors
- A business must plan for the ever-changing laws and regulations placed by the government and other bodies. This could include the increase of tax on importing goods or services, the enforcement of stricter labor laws or even the banning of certain goods or services. Closely related to legal factors are ethical factors. A business must plan to act in accordance with the ethical expectations of its stakeholders as well as society in general. This is constantly changing, and a business must make it a point to plan for this to be successful.