From regulations to tax laws, there are many ways the political environment can impact your business. It is important to consider how politics may affect your business when planning your business strategy.
Changes in Tax Laws
Governments frequently change tax laws to encourage or discourage certain behaviors or achieve desired economic outcomes. It is important to be aware of how potential changes in taxes could impact your bottom line when making decisions. For example, if you are considering making a major investment in new equipment and the political environment favors a tax break for companies who invest in a specific type of eco-friendly equipment, you may want to delay your project until you can take advantage of that tax windfall.
The political environment also affects the regulations government places on small business enterprise. Typical regulations include mandates on environmental protection, labor laws, consumer protection, financial reporting and others. Changes in regulation can have a huge impact on the day-to-day operations of some businesses, so it is important to be aware of potential regulatory changes and try to stay in front of them, rather than risking fines or other penalties if you fall behind.
Employer-provided health insurance has been a major lightning rod of controversy over the past decade. Under the Obama administration, many employers became required to provide a minimum level of health insurance coverage for full-time employees. President Trump has sought to repeal the changes under the Affordable Care Act and health insurance coverage will be a major topic of debate going into the 2020 election.
How well consumers feel the country is being run can have a big impact on purchasing behavior. When consumers are nervous about the state of the economy, national security, the outcome of elections and other political events, they tend to spend less. This can directly impact a business's bottom line through lost revenue and publically held companies can see their stock prices plummet in times of uncertainty.
Political stability is particularly important for businesses that operate internationally. Unstable political environments can lead to conditions that disrupt business operations, such as governmental overthrow, riots, or even war. There can sometimes be an opportunity in unstable environments, but that opportunity usually comes with a high level of risk.
When the opposing factions in Congress and the President can not agree on critical issues, such as the national budget, the stalemate can result in a government shutdown that can be very costly to some businesses. Lack of government services can impede some operations and lost income to government workers and those who depend on government contracts or services to stay operating can result in less consumer spending.
Even businesses that do not directly sell products to buyers in foreign countries can be affected by trade policy. Tariffs, sanctions, quotas and other governmental actions can make the goods manufactured in other countries substantially more difficult or expensive to obtain or even stop them from coming into the country entirely, forcing businesses who rely on those goods to find other suppliers to continue operating. This can impact both the availability of products and result in businesses charging higher prices to make up for the increased cost of production.
Most businesses have become heavily reliant on the internet to operate. This is particularly true of businesses that are migrating to a SaaS environment, where the speed and quality of internet service may affect their ability to access web-based and on-demand software. Recent attempts to abolish net neutrality could have a huge impact on some businesses, who may face higher fees from service providers to receive the level of service they need to do business.
The political environment can have a substantial impact on how profitable businesses are and how they conduct their operations. Staying aware of potential political change can help businesses mitigate political risks to their business.