How Do Climate Change And Natural Disasters Affect Small Businesses?

1. How Do Climate Change And Natural Disasters Affect Small Businesses? In the course of the entrepreneurial journey, a business owner faces multiple challenges that affect the cash flow of the business. Factors like economic shifts, pandemics, unexpected political turmoil, alteration in taxation policies, import restrictions, and climate change often influence businesses negatively. When it comes to climate change, the impacts on a business depend on the industry it is trading in, its location, and its vulnerability, like the factors on which its services/products or manufacturing process depend. Natural disasters like drought, floods, cyclones, bushfires, etc. impact businesses either directly, by causing physical damages, or indirectly, by disrupting the supply chain and curbing buyers’ purchasing capacity. For example, travel businesses of a flood-prone city face setbacks during monsoons, when the number of tourists reduces. Hence, while identifying the climate-induced risks, an entrepreneur must consider his/her business’s operating location, structure, susceptibility, and the specific industry it belongs to. However, catastrophic climate changes usually affect businesses in the agricultural, forestry, and fishing sector more than the ones trading in other categories. This is because these businesses need to rely primarily on the environment to operate uninterruptedly. On the other hand, industries like manufacturing,

2. tourism, and retail are also affected by climate change, but mostly indirectly, until any physical damage is caused to the business assets by a flood, storm, earthquake, etc. The impacts of climate change on small businesses, which generally do not have excess capital to make prior preparations or cope with sudden cash flow issues caused by a natural disaster, are quite big. Many small businesses even get permanently shut due to severe financial crises caused by the disruption in the operations, supply chain, and reduced income level of target customers due to natural adversities. Therefore, small business owners must always get a thorough understanding of the way the climate of the location can change and affect their businesses, and be ready with a post-disaster plan. Funds are the fuel to keep a business mechanism running. Hence, a post-disaster plan should comprise viable financing options, which can provide the businesses with the necessary funds and help them survive in times of crisis. 5 ways climate change and natural disasters impact small businesses: Incurs additional costs Post natural disasters, many governments require businesses to use green energy like solar/wind/geothermal power and set up necessary systems, which cost quite high.

3. Decreases productivity Climate change often creates unpleasant living and working conditions. This decreases the productivity of employees and eventually leads to operational disruptions in businesses. For example, water clogging due to floods can turn out to be a reason behind increasing malaria cases in a particular region, as stagnant water is the best place for mosquitoes to breed. Increases goods/service price and decreases purchasing capacity Natural disasters significantly affect the income level and purchasing power of people. On one hand, people lose jobs, on the other, the scarcity of food and water resources, difficulty in transportation, and low availability of resources cause prices to soar. In such a situation, people tend to prioritize necessary expenses, like food and medicine, over any other, and hence, those trading in luxury and hobby items experience considerably low sales. Changes in product/service demands The product/service demand shifts with climate change. When Winter is about to start, demand for woolen garments, ski equipment, etc. increases. Hence, before the season arrives, those trading in the mentioned products must prepare themselves to be able to handle high seasonal demands. They should pre-plan their finances and operations so that they can make enough money to be able to smoothly operate till the next winter comes.

4. Besides, due to global warming, weather patterns are getting altered in different parts of the world. For example, in some places, the intensity of winters has decreased due to the rise in global temperature. This is altering the demand for season-specific products/services. Changes regulations Due to the changing global environment, many regulations, aimed at preventing the rise of pollution, are imposed on companies that leave a heavy carbon footprint on the earth. These companies are being compelled to upgrade their facilities to reduce emissions. Governments are coming up with potential emission caps, to exceed which, companies will need to purchase extra credits. Those who can keep their emissions below their legal limit are able to sell their excess credit to other companies. Summary Climate change has a profound impact on businesses. Hence, entrepreneurs must understand and analyze the primary impacts of climate change on their businesses, associated risks, and opportunities. Also, they should consider evaluating the feasibility of using renewable energy such as solar, wind, and biomass and creating a system that can boost their performance. Source: https://zeropointfinance.com/how-do-climate-change-and-natural-disasters-aff ect-small-businesses/