Business environment refers to sum total of all the external factors which may affect the business directly or indirectly. It consists of all those conditions and forces external to a business unit, under which it operates.
Importance of business environment:
(i) Identification of opportunities: The external environment provides numerous opportunities for business units. The company, which is more conscious of business environment can take better advantage of opportunities instead of losing them to competitors.
(ii) Identification of threats: Environmental awareness helps an organisation to identify threats to its business interests and acts as early warning signals. Timely understanding of environment helps to make suitable changes in the organisation.
(iii) Helps in coping with rapid changes: A systematic and continuous monitoring of business environment keeps the management updated. It enables the business to cope up with the changes in the external environment by making relevant changes in their internal environment.