Developing a good business plan and organizing the company’s internal structure are important steps to enable its development. However, there are external factors that can pose challenges, such as political instability.
When the country faces moments of uncertainty and, especially, crises involving the Government and its representatives, the entire economy can be affected. But there are efficient ways for you to prepare and overcome periods of instability with less damage and more stability.
Want to know how this is possible? Continue reading this article to understand how political instability can affect your business and how to prepare to overcome the challenges!
How can political issues affect my business?
Politics is one of the most important elements in the functioning of the country. In fact, its sphere of influence extends to the economy and the market, impacting the daily lives and businesses of many entrepreneurs.
For example, the country’s policy is responsible for defining aspects such as taxes to be charged and regulations to be followed. Therefore, it is necessary to pay attention to this issue when managing your business.
Another point to highlight is that political issues are not limited to the President of the Republic. There is action by members of the legislative branch, such as deputies and senators, and by the executive branch in other areas, such as governors and mayors.
Therefore, moments of instability in the political arena can affect the functioning of the economy and, consequently, your business. This happens due to the uncertainties generated by the crisis — affecting the market and the population.
Scenarios like these can cause people to review their financial habits to avoid spending and have money available to get through the situation. Another possible consequence is the withdrawal of foreign capital, increasing the international market’s distrust of the country’s future.
Companies may have their results affected in times of crisis. Therefore, it is important to know how to prepare for these situations, aiming to reduce the impacts of moments of uncertainty on business management.
What are the main market responses to political movements?
As you have seen, political issues have a significant influence on business and the economy. To find out how this happens, check out how the market usually reacts to scenarios of political instability!
Exchange rate variations
Changes in exchange rates are one of the first responses that the financial market can present in scenarios of political instability. After all, as you have seen, there may be a withdrawal of foreign capital due to economic uncertainty.
The negative impacts are more intense with the variation of stronger currencies, such as the dollar and the euro. Since they are representative in international trade, their appreciation against the real influences the purchasing power of the population.
Rising inflation
In addition to exchange rate fluctuations, political instability contributes to rising inflation . It represents the process of constant and widespread increases in the prices of products, goods and services on the market.
It causes impacts such as a decrease in the value of money and the population’s purchasing power. In this sense, as the country will be in a state of instability, inflation may increase if there is no effective control policy.
This scenario usually impacts families’ financial organization and can affect the performance of your business. This happens because it is possible to move fewer resources in the current economic scenario.
What steps can I take to protect my business from these effects?
Now that you understand what responses the market can give in the face of political instability, it is worth knowing how you can protect your business.
Check out the main good practices to adopt!
Develop a good business plan
To ensure greater protection, the first step is to develop a good business plan for the company. It should contain the organization’s objectives for the short, medium and long term and the measures to be adopted to make them a reality.
The plan will serve as a guide for all actions and movements that the organization will adopt. Furthermore, through constant analysis of the information, you can see whether the business is closer to achieving these goals.
To be more secure in the face of crises, it is worth including a “plan B” in this planning. It can contain guidelines on how to act in the event of negative performance or market instability. This way, the company will be able to protect itself in uncertain scenarios more easily.
Have a financial reserve
It is also important to build and manage your business’s financial reserves well. After all, as you have seen, unstable scenarios can affect the circulation of money in the economy and the company’s revenue.
Therefore, with good working capital management , there is a greater chance of being able to meet financial commitments — such as employee salaries and payments to suppliers. As a result, the risk of debt is reduced, which can prevent the company from continuing.
Improve financial control
Finally, it is worth investing in good financial control to optimize the management of your business’ resources. In fact, it is interesting to put this strategy into practice even before any political instability occurs.
The investment will allow you to better visualize the company’s financial indicators and identify its health. This way, if there are points that require attention, it will be possible to work on solutions more quickly.