PESTLE Analysis for Your Business

By Randall Orser | Small Business

Politics, economics, sociology, technology, legal, and environmental (PESTLE) is an analysis framework the allows businesses to determine the health and potential of their business. These six factors of the PESTLE method contribute contextual information that expedites more targeted and informed business decisions. You can gain a better understanding of your business and industry by doing your due diligence of these six areas. In the end, you’re much better placed to make proactive decisions that promote growth and stability.

Politics

What is the government on the federal, provincial and local level up to as it relates to your industry? Whatever the government does can have an impact on your industry and the economy. Tax laws and trade restrictions (think the trade war happening now) can greatly influence your operational procedures and sooner or later your profit margins. You need to stay informed of any pertinent changes to political policies or legislation.

Political changes often reflect the attitudes of your target market, so it’s smart to stay on top of local and national political sentiment. The political environment can be a positive as well as a negative influence on your day-to-day business, however, knowing about any changes in advance helps you to be proactive in your preparations so you can at least try to take advantage of any situation that occurs.

Currently, the housing market is one area right now (2018) that the government is sticking its nose into thinking it can make housing affordable, not realizing that by doing so many owners may end up in financial ruin.

Economics

The success of any business is fundamentally related to the wider economic climate. You need to look at how present and anticipated economic factors, such as inflation and interest rates, are affecting your business. Stay informed about the economic outlook for your industry and community and make decisions based upon what’s right for your business.

The timing of major financial decisions can have a great impact on your financial prosperity. An example would be getting a loan when interest rates are low would save a large amount of capital that could be better spent in other areas. The key to using various economic changes to your advantage is keeping abreast of what’s happening so dedicate sufficient time and resources to collecting economic data.

Sociology

Your market demographics should be a foundational component of your sociological research. Take the time to determine the descriptive characteristics of your market such as their age, location, and disposable income. The more you know about your potential customers, the more strongly you can direct your product and marketing to them.

Knowledge of all cultural and demographic aspects of a market can help you develop your service. All businesses need to fulfill a role in society and only through detailed sociological analysis can you clearly define yours.

Technology

Technology is often a critical driver of innovation and market growth. Keep apprised of technological advances that could improve your efficiency and profitability. Technology is changing faster than ever, but you still need quickly figure out which ones will have a tangible and positive impact on your business.

Whether you commit to your own research and development or just keep your finger on the pulse of innovation, technological research is an important aspect of business development. Determine your current setup and identify any areas that could be improved by a change in technology. Executing technological changes in your business will prove to be a wise investment if it increases efficiency and widens profit margins.

Legal

You need to assess the legal landscape of your industry and business as they may directly affect the operation of your business. You need to be aware of the basics all businesses must follow, such as consumer and employment laws, but you also need to know of any legislation that may specifically relate to your business.

There may be industry specific laws that your business is subject to, however you may find that you’re actually exempt from others. Governments will regularly encourage certain industries via individualized legislation and tax breaks, so it pays to be aware of the law as it applies to your business.

Environmental

Some industries can more keenly benefit from environmental research, however, it’s definitely advantageous for all businesses to have a base knowledge of how environmental factors may impact business. For example, the climate and ecology of a specific area are certainly relevant to the tourism, insurance and farming industries. The environmental impact of your business may also be driving potential customers away, so apart from the ethical side of things, it can be undeniably more favourable to lessen your environmental impact of your operation.

An analysis of the strengths and weaknesses of your business, in relation to your industry and market, will increase your understanding of the operational health of your business. Using a mix of the factors in the PESTLE framework is a simple and dynamic approach to assessing your business and its potential for growth and sustainability.

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About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.