Running a business in today’s world is challenging, especially after the pandemic. A lot of companies suffered devastating losses, forcing many to shut down. In a way, these losses taught many business owners that not just internal factors but external factors play a vital role in keeping your business up and running. Many business people learned this the hard way, 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. Politics are one of the reasons enterprises experience variable 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, any entrepreneur 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 economy’s ups and downs, most small and medium businesses suffer significantly due to it. If you are in the import and export business 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 as a whole plays a vital role in shaping the demand and supply situation within a country. 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. Government officials advised people not to do luxury shopping. Therefore, apparel and fashion accessories did not perform 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 largest cell phone manufacturer just 10 years ago, and today, the company is not even in the top 5. 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, quite possibly, the most powerful tool in human history to shape our choices and mindsets. Social media is used worldwide by people to express their pleasure and displeasure with products and services. If you make one wrong move, 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 have adverse effects on your cash flow. However, while you cannot control the elements 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 while maintaining your cash flow usually work for most companies. Adopting a flexible cash reserve strategy with pre-determined goals in mind can help you have enough cash reserve for rainy days.
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