Understanding every angle of your business means being aware of both the internal and external factors that impact your business performance (both positively and negatively), and an environmental analysis does just that.

As you run your business with your exit and sale in mind (as all business owners should, even if your exit vision is several years in the future), consider completing an environmental analysis that you can utilise to anticipate potential opportunities or pitfalls for your business that may be coming up in future (or that may have happened in the past within your industry specifically, so you can prepare accordingly).

If you’ve been following along with our blog series’, you’ll recognise that an environmental analysis has plenty of overlap for other key documents for your business – everything from your business plan to SWOT Analysis to your sales strategy, so keep them in mind as you conduct your environmental analyis.

Importantly, there is a difference between an environmental impact analysis and an environmental analysis (but, to add a little more complexity, they can be linked) – your environmental impact analysis looks at the environmental footprint of your business and how it uses resources, utilises recycled materials, energy and so on – your environmental analysis refers to the wider market environment and forces at play.

So, let’s get started.

What does an environmental analysis look at?

Visualise an environmental analysis as being composed of two halves, both the internal and the external coming together to provide you with a complete understanding of influential factors for your business. Internal refers to the strengths and weaknesses within your business, everything from your product or service range to the costs involved in daily operations. External refers to the threats and opportunities outside of your business – other competitors in the market who offer similar products or higher level considerations such as upcoming shifts in the economic landscape, or even a global pandemic.

Being able to not only understand but to be able to somewhat anticipate and prepare for your business’ response to changes in the wider environment gives you the opportunity to articulate these to a future buyer, so no stone is left unturned. 

What does an environmental analysis assist with?

This kind of analysis is an information-gathering exercise that results in data which you can translate into action. An environmental analysis assists with future forecasting (especially important for your financial projections), threat identification and response strategy, supporting you to reach your long and short-term business objectives, creating effective marketing strategies and solutions, performance improvement and more. In short, it’s a worthwhile endeavour for any business owner (or someone considering purchasing a business) and can even form the basis of a more detailed business plan if you’re just starting out.

If you’re at the later stage of your business journey and undertaking this exercise with a view to sell your business soon, your environmental analysis will come with the benefit of hindsight and an in-depth understanding of how your business reacts to changes in the environment. 

What are the key steps to complete an environmental analysis?

First, detail the environmental factors that you’ll be evaluating, which will vary depending on your industry. A business owner working in the construction industry will want to be looking at shipping and import fees and changes to their supply chain or availability of materials – look at anything and everything that may impact how you run your business.

If you’re just starting, go high level to begin, and add more detail to your analysis document as you go on.

Next, research and collect official information relevant to these environmental factors – you might be researching newspaper articles or looking to industry-relevant publications that discuss changes to regulation. Always utilise verified and trusted sources that are backed by data.

You’ll then need to evaluate the competitor businesses in your industry and see what threats they pose in their operations, for example, pricing themselves more affordably than your business. With this information, you can then begin to predict how these changes will impact your business in future – you might brainstorm this with your team, survey customers or even run a focus group. It’s important to know what the potential result could be for your business, even if it’s a worst-case scenario. 

To finish, assess how you will respond to such threats and changes – perhaps you need to spend more time innovating your product line to stay a cut above the rest? Maybe you need to reduce operating costs for months ahead when other overheads will increase.

Now that you’re done, continue to review your environmental analysis regularly, as market forces and other internal and external factors can pop up over time.