Running a business in today’s world is challenging, especially after the pandemic. Many companies suffered devastating losses. Many of them had to shut down. It taught many business owners a lesson that not just internal factors but external factors play a vital role in keeping your business up and running. Many businesspeople learned this hard, but the world doesn’t end there. Let’s take this pandemic as a starting point to understand what other factors could influence your cash flow.
Political Instability or Changes
In economics, political instability is the number one factor affecting a region’s businesses. Whether small, medium, or large, any business will suffer political instability or constant change in the political environment. It is one reason companies experience rapid or slow growth rates during election years. Most major corporations of the world try to minimize their business activities during this period and wait for new policies to emerge. Then, these businesses adjust their internal procedures accordingly. Therefore, entrepreneurs should always watch for any political change that could adversely affect their business.
Economic Ups & Downs
While most major corporations of the world tend to enjoy the ups and downs of the economy, most small and medium businesses suffer significantly. If you are in the business of import and export or are selling imported products, then the chances are that the regular increase or decrease in dollar prices might affect your business’s cash flow. If your country’s currency’s exchange rate is down, then your overall business landscape might suffer.
Social Norms & Influences
Society plays a vital role in shaping a country’s demand and supply situation. Fashion, trends, and taboos can hurt your business directly. For instance, during this recent pandemic, face masks became a significant business. Many widely known apparel and sports brands dove into the business of manufacturing face masks simply because their other products weren’t doing well enough. Almost the entire 2020 was in a state of lockdown. It advised people not to do luxury shopping. Therefore, apparel and fashion accessories were not doing well. For many such businesses, the only viable option was switching to producing face masks and gloves.
Technological Advancements
For businesses that deal with technological products and services, staying up to date with the recent trends is a dire need. For instance, Nokia was the most considerable cell phone manufacturer ten years ago, and today, the company is not even in the top five. Why? Simply because they could not keep up with their consumers’ technological demands. While the world was moving towards Android & iOS-based smartphones, Nokia was trying to compel them to switch to Windows smartphones, which backfired, and as a result, the company almost went bankrupt.
Social Media Influence
Social media is probably the most powerful tool in human history to shape our choices and mindsets. People use Social media worldwide to express their pleasure and displeasure with products and services. One wrong move and your business will appear on Facebook or Twitter with a negative review. Regular social media management and reputation management are essential to avoid such instances.
How to Prepare for External Factors to Better Manage Your Cash Flow
Feeling helpless is natural when you cannot control the external factors that can adversely affect your cash flow. However, while you cannot control the facets themselves, you can manage your reaction to them and be better prepared. Maintaining a backup cash flow is crucial in today’s business climate. Of course, this might not be the best solution for every business, but restraining your spending and being flexible with maintaining your cash flow usually works for most companies. Adopting a flexible cash reserve strategy with pre-determined goals can help you have enough cash reserve for rainy days.
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