A small business that has not been in the industry for long periods is likely to experience serious external factors that can cause severe cash flow problems. This is because it has not developed sufficient finances and structures to withstand external factors that affect business operations. Political factors are some of the external environmental factors that hinder the way business operates. These are some of how politics affect the operations of startup businesses.
One of the main political factors that affect the operation of the small business is the political instability in a country where the company operates. This mostly happens where political campaigns and elections experience rivalry and the possibility of civil unrest. The economies in such countries tend to slow down during the electioneering year, which significantly affects companies with little capital and structures. This is because investors don’t want to spend money due to uncertainty while customers are displaced.
Taxation may be seen as an economic factor that affects the way business operates. However, it is important to note that political leaders are responsible for passing legislation on taxes. There is a possibility that small business is likely to collapse if political leaders change taxation policies with the aim of taxing companies much money. Startups may not be able to pay such taxes and maintain their growth and the only option left is to close down operations.
Employment laws are formulated and implemented by the political class. One of the challenges that come out from the employment laws is the amount that workers are supposed to be paid by the companies. Political class members might want to please their followers by institution minimum wages, which are very high, which makes it hard for startup companies to pay. This leads to a situation where small organizations experience financial distress and may fail to grow because much of their resources are used to pay salaries.
Levels of Corruption
It is difficult to separate corruption from the political class and other members of the government. Large companies are likely to corrupt leaders so that they are exempted from taxation and other strict laws that hinder the operations of the business. Small business organizations that don’t have funds to bribe the government officials are exposed to unfair competition and subjective rules which causes them to collapse.