An environmental analysis helps you understand the positive and negative impacts of internal and external factors on your business performance.

As you plan for your exit and sale, consider completing an analysis to anticipate future opportunities or challenges and learn from past industry trends to prepare accordingly.

If you’ve been following our blog series, you’ll see that an environmental analysis overlaps with key business documents like your business plan, SWOT analysis, and sales strategy. Keep these in mind as you conduct your analysis.

(You can find a SWOT and PESTEL template here.)

Importantly, an environmental impact analysis and an environmental analysis differ (though they can link together, adding some complexity). An environmental impact analysis examines your business’s environmental footprint, including resource usage, reliance on recycled materials, energy consumption, and more. In contrast, an environmental analysis focuses on the broader market environment and the forces influencing it.

So, let’s get started.

What does an environmental analysis look at?

An environmental analysis consists of two parts: internal and external factors. Internal factors include your business’s strengths and weaknesses, such as products, services, and operational costs. External factors cover market threats and opportunities, including competitors, economic shifts, or global events like a pandemic.

By understanding and preparing for these changes, you can clearly communicate your business’s strategy to a future buyer and ensure thorough preparation.

What does an environmental analysis assist with?

This kind of analysis is an information-gathering exercise that results in data that you can translate into action. An environmental analysis helps forecast, identify threats, and develop response strategies. It supports both short- and long-term business goals, effective marketing, and performance improvement. It’s valuable for any business owner or potential buyer and can even serve as the foundation for a detailed business plan, especially for those just starting out.

If you’re nearing the end of your business journey and preparing to sell, your analysis will provide valuable hindsight and a deep understanding of how your business adapts to changes.

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 supported by data.

Next, evaluate competitors in your industry to identify potential threats, such as more competitive pricing. With this information, you can predict how these changes may impact your business, possibly by brainstorming with your team, surveying customers, or running 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, regularly review your environmental analysis, as market forces and other internal and external factors may arise over time.