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How to Write an Effective Business Plan: External Factors

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Last Updated on March 13, 2024 by Treana Wunsch

Whether we like it or not, our business will be influenced by factors beyond our control.

Events such as devastating storms, pandemics, new technology and more can impact your business. The External Factors section is where you will show investors that you are aware of these factors and how you plan to adapt. In this business plan section, you’ll identify external factors that could influence your business.

Writing a business plan is an important part of any successful business venture. When constructing a business plan, it is essential to include an external factors section that outlines the potential external influences that may affect the success or failure of a project. This section helps investors and other stakeholders understand the risks associated with the proposed venture and allows entrepreneurs to anticipate obstacles and come up with solutions.

Knowing what obstacles or opportunities lie ahead for your business can help you create a realistic roadmap for success. This article will provide helpful guidance on how to identify these external factors that may influence the success of your business. It will also give guidance on how to write the section.

What are External Factors in business?

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When it comes to writing an effective business plan, external factors are key components that should be considered. External factors refer to elements outside of the organization, such as economic conditions and other economic forces, which can hugely impact the business’s success. It is important for entrepreneurs to be aware of these external factors in order to plan for potential risks and opportunities.

External factors should not just be viewed as obstacles; they can also provide valuable insights into trends or changes in the market which can help businesses innovate and create successful strategies. A business may find that a new law passed in the area has made it difficult to operate in its current market. Rather than viewing this as an obstacle, the business can use this new law as an opportunity to change its business model to one that is more in line with the new law.

Businesses must identify their target markets and anticipate what customers may need or want in order to develop products or services that meet those needs. Amazon, an online retail giant, is an example of a business that has identified its target market and anticipates what customers may need or want. Amazon offers a wide variety of products and services, such as the Amazon Kindle, which allows users to read books on the go.

Understanding potential competitors and their strengths and weaknesses are also essential when developing an effective business plan. For example, a company that sells shoes may find out that its biggest competitor is offering a 10% discount on all purchases. By understanding this, the company can decide to offer a similar discount or focus on other ways to attract customers.

Additionally, understanding government regulations in Canada related to the industry can help entrepreneurs make informed decisions about how best to operate within those boundaries. The Canadian government recently implemented a new regulation requiring all businesses operating in the food industry to provide nutritional information on their products. By understanding this regulation, entrepreneurs in the food industry can ensure that their products are compliant with the law and therefore marketable to consumers.

Economic

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Photo by Tech Daily on Unsplash

Small business owners must consider the external factors that impact their businesses when creating an effective business plan. Economic conditions, such as inflation and unemployment, can affect a small business’s ability to thrive. Understanding how to identify economic factors for small businesses is essential for long-term success.

For example, understanding the local market and its fluctuations is key for a small business to succeed. For instance, a small business in Toronto may have to adjust its pricing and product offerings if they notice an uptick in competition from large businesses.

Alternatively, a small business in a rural area may not have to worry about competition as much. So, it might be able to charge higher prices for its products without fear of losing customers.

When considering economic factors, entrepreneurs should research the state of the economy both nationally and locally. It is important to understand any changes in key indicators like employment levels and inflation rates, which can be found through reliable sources including government agencies such as Statistics Canada or The Bank of Canada. Additionally, entrepreneurs should research industry trends specific to their field to get an accurate picture of current market conditions.

Social

Understanding how and why societal factors can affect small businesses will help entrepreneurs create an effective plan that takes into account all potential risks.

Societal factors, such as population shifts, changing consumer trends and government regulations, can have a huge impact on small business operations. As population growth or decline shifts demographics within different regions, it can change the demand for certain products or services, potentially impacting sales volume for a given organization. Additionally, changing consumer trends may mean that what customers demand today could be different than what they desire tomorrow, forcing entrepreneurs to adapt quickly or risk losing out on valuable business opportunities.

For example, in the wake of the pandemic, many small businesses have had to close their doors due to a decrease in consumer spending. With more people working from home, local restaurants and shops have seen a significant drop in business.

Technology

robot looking at the camera
Photo by Alex Knight on Unsplash

Technology has become increasingly important for small businesses to remain competitive and successful in the ever-evolving marketplace. In recent years, advances in technology have revolutionized the way small businesses operate by providing new opportunities for efficient operations and cost savings. From cloud computing to payment processing systems, there are a variety of ways that technology can be used to improve business operations and help achieve success.

In order to maximize the benefits of technology, small business owners need to have an effective plan that considers external factors such as market trends, customer demand, and technological innovations. Technology plays an important role in this planning process by helping entrepreneurs identify trends, analyze data, evaluate customer feedback, create marketing strategies, and develop innovative products or services.

For example, a small business owner in the retail industry who is looking to increase sales could consider investing in a point-of-sale system with an integrated digital payment platform to streamline transactions and reduce checkout times.

Environment

li an lim ycW4YxhrWHM unsplash
Photo by Li-An Lim on Unsplash

Understanding how the environment affects small business is critical for any entrepreneur who wants to write an effective business plan that will help them compete in today’s competitive market. The environmental conditions in which a company operates can affect its ability to succeed or fail.

For example, businesses located in areas with extreme weather may have difficulty attracting customers during times of high temperatures or heavy rains.

In addition, companies must consider how they will be impacted by changes in consumer preferences and behaviours that are influenced by climate change and other environmental issues.

Legal

Small businesses are the backbone of many economies, yet they often struggle to remain viable due to a number of external factors beyond their control. One such factor is the legal system, which can have a major impact on small business success. Understanding how the legal system can affect your business plans and decisions is key to creating a successful and sustainable plan of action.

In 2018, the Supreme Court of Canada unanimously ruled that an employer in British Columbia had to pay overtime compensation to a group of employees who had been misclassified as managers, even though they had been performing the same duties as their non-managerial colleagues. The court ruled that the employer had to pay overtime, even though the employees’ title was manager, and they were earning high salaries.

The laws that govern everything from incorporation, patents, trademarks and licensing agreements have all been established by governments in order to protect both businesses and consumers. In addition, regulations related to taxation, employee relations and other areas must be taken into consideration when creating an effective business plan. A lack of knowledge or understanding about these laws may lead to costly mistakes for small business owners who fail to comply with them. Furthermore, staying abreast of changes in legislation can help ensure that you are operating within established guidelines.

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Once you’ve identified the external factors that have the potential to influence your small business, you can outline them in a table such as the one above.

For added visual interest, you can add the table to the business plan. This will also indicate that you’ve fully researched all potential factors.

Putting it all together

Knowing what the external factors are is one thing but it doesn’t end here. Once you’ve identified the factors most likely to influence your industry, you will choose the top 3 to 5 that will have the most impact. Then you will indicate how your business will adapt to the factors and how you will stay informed.

Ways of adapting to external factors

When you're finished changing, you're finished.

Adapting to external factors is essential for any business’s success. Without proper adaptation, a business can find itself in dire straits that it may not be able to recover from. Therefore, for any entrepreneur looking to craft an effective business plan, understanding the importance of adapting to external factors is key.

By thinking about how your small business will adapt to ever-changing external factors and documenting that process, your business can stay ahead of potential threats. Additionally, businesses should continually re-evaluate their strategic plans based on feedback from customers and employees while also considering government regulations that could affect operations or finances.

Business owners need to consider how external factors will influence their operations in order to create an effective plan for growth. Companies must evaluate industry trends and competitive pressures in order to develop strategies that allow them to remain competitive in the market. Additionally, they should factor in legal constraints, including local zoning regulations, labour laws, and tax policies when drafting plans for expansion or new service offerings.

Ways of staying informed

Staying informed on external factors affecting small business is essential to success. Business owners must be aware of political, legal, economic, and social trends that can impact the way their companies are run. Knowing what’s happening outside the company walls can help them prepare for potential challenges and capitalize on potential opportunities.

In today’s ever-changing business environment, staying up to date on external factors is crucial for a business plan. It’s important to understand how changing markets and consumer behaviours can affect your strategic goals. By researching current market conditions in local communities and global economies, entrepreneurs will get a better understanding of the competitive landscape they face when planning out their operations.

Additionally, tracking social trends like consumer spending habits or industry regulations provides valuable insight into how these variables may influence their bottom line in the future. You can do this by following the local, national and global news, subscribing to notable business magazines or websites and joining small business groups.

This is how it might look in your business plan

Potential external factors

  • Recession may cause prime target markets to slow down or close.
  • Major technological advancements could be expensive to keep up with
  • Growth of the online outsourcing industry would increase competition

 

We plan to adapt by

  • shifting the target market to those that thrive in a recession, such as renovation companies, repair services, and counselling services.
  • having money set aside in the budget for new software updates, new hardware, new software and new ways of sharing information.
  • stay niche-focused and always have a unique competitive advantage.

 

We will stay informed by

  • scheduling regular time to research economic health. 
  • staying in regular contact with IT and business contacts. 
  • following the leaders in my industry.

That's All Folks...

I hope with this information you will find it easier to write the External Factors section of your business plan. Up next…Industry Profile.

If you have questions, please comment below and I’ll be happy to answer them.

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P.S. Whenever you’re ready, here are 3 ways I can help you.

Online Business Management. I will assess your business and make recommendations for improvements. Together we’ll create a plan to streamline the daily operations. My goal is to simplify your business so you can focus on what’s important.

Business Plan Writing. Take the first step to building your dreams.

Digital Marketing. If your business doesn’t have a digital marketing plan, you’re leaving money on the table.

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