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, 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.

Source: https://zeropointfinance.com/how-do-climate-change-and-natural-disasters-affect-small-businesses/