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Business · Understanding external influences on business
External influences
Technology, legislation and the economy all change - and a small business cannot stop them. What it can control is how it responds. This lesson brings the chapter together and shows how businesses react to each kind of change.
Teacher resources
The teacher copies: slides with the questions built in, the answers, and anything else attached to this lesson for whoever is teaching it.
- External influences - Teacher Slides.pptx Teacher The lesson slides with the teacher's notes on each slide, and every question and mark scheme built in. Built from the lesson script on 25 September 2026. View
- External influences - Teacher Notes.docx Teacher The complete notes with the teacher's notes and every model answer in full. Built from the lesson script on 25 September 2026. View
Student handouts
The same files the students see, to print or hand out.
- External influences.pptx Built from the lesson script on 25 September 2026. View
- External influences - Completed Notes.docx The full notes for the lesson, to revise from. Built from the lesson script on 25 September 2026. View
- External influences - Exam Questions.docx Built from the lesson script on 25 September 2026. View
Last Lesson
Answer from memory before the answers appear.
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How does rising unemployment affect a business selling luxuries?
Customers have less income, so sales fall.
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What does SPICED stand for?
Strong Pound, Imports Cheap, Exports Dear.
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How do higher interest rates affect a business with a loan?
Repayments rise, increasing costs and reducing profit.
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What is VAT?
A tax added to the price of most goods and services.
Learning Objectives
- 1Explain why external influences are important to a business.
- 2Explain possible responses to changes in technology.
- 3Explain possible responses to changes in legislation.
- 4Explain possible responses to changes in the economic climate.
Why External Influences Matter
External influences are factors outside a business that it cannot control but that affect how it operates.
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Outside its control
A small business cannot stop a new law, a rise in interest rates or a new technology.
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Opportunities
Some changes help - a new technology may cut costs, or a weaker pound may boost exports.
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Threats
Others hurt - rising costs, new rules or customers with less to spend.
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The key skill
Spotting changes early and responding well, so the business survives and even benefits.
The Three External Influences
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Technology
New ways to sell, promote, communicate and take payment - e-commerce, social media, digital communication and payment systems.
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Legislation
New or changed laws on consumer rights, pay, discrimination, and health and safety.
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The economic climate
Changes in unemployment, incomes, inflation, interest rates, taxes and exchange rates.
Responding to Changes in Technology
Adapt, or be left behind by competitors who do.
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Adopt it
Start selling online, take contactless payments or promote on social media.
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Train staff
Make sure staff can use new systems to serve customers well.
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Change the marketing mix
Sell through new channels, compete on price online, promote digitally.
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Weigh the cost
New technology costs money, so a small business must judge whether the extra sales or savings are worth it.
Responding to Changes in Legislation
Obeying the law is not optional, but how a business adapts is a choice.
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Update practices
Change pay rates, refund policies, recruitment adverts or safety procedures.
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Absorb or pass on costs
Accept lower profit, or raise prices to cover the extra cost - for example after a minimum wage rise.
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Cut other costs
Find savings elsewhere, such as reducing waste or energy use.
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Use it positively
Promote high standards, such as a five-star hygiene rating, to win customers.
Responding to Changes in the Economic Climate
When the economy changes, the marketing mix and costs usually change with it.
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Falling incomes or rising unemployment
Offer cheaper products, value deals or smaller portions, and target new customers.
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Inflation
Raise prices carefully, find cheaper suppliers, cut waste and reduce costs.
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Higher interest rates
Pay off loans, avoid new borrowing, and delay expensive plans.
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Exchange rates
An importer might find a UK supplier when the pound is weak; an exporter might sell more abroad.
Change and Response
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A rival starts selling online
Threat or opportunity?: Threat. Possible response: Build a website or use an online marketplace
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The minimum wage rises
Threat or opportunity?: Threat. Possible response: Raise prices slightly or cut costs elsewhere
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Inflation raises ingredient costs
Threat or opportunity?: Threat. Possible response: Find cheaper suppliers or reduce portion sizes
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Interest rates fall
Threat or opportunity?: Opportunity. Possible response: Borrow to invest in new equipment
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The pound weakens
Threat or opportunity?: Opportunity for an exporter. Possible response: Promote more to overseas customers online
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Unemployment rises
Threat or opportunity?: Threat for luxuries. Possible response: Offer value deals and cheaper options
Adapting to Survive
This café is responding to several external influences at once. A value lunch deal answers customers who have less to spend; online ordering and contactless payments answer changing technology. None of the changes were the owner's choice - but the response was.
Value deals for the economy, online ordering for technology: responding to change.
Case study
2020: Every Influence at Once
In March 2020 the COVID-19 pandemic brought sudden changes from every direction. New laws forced cafés, restaurants and pubs to close their doors to customers. Many small food businesses responded with technology, switching to takeaway, delivery apps and online ordering almost overnight. The government responded to the economic damage with support such as the furlough scheme, which paid most of the wages of staff who could not work, and in August 2020 "Eat Out to Help Out", which paid half the cost of meals out from Monday to Wednesday, up to £10 per person. The businesses that survived were those that adapted fastest.
The Business Response Plan
You run a small independent bike shop that imports most of its bikes from Europe. In the same year, the pound weakens, the National Minimum Wage rises, and a large online retailer starts selling bikes more cheaply. For each change, say whether it is a threat or an opportunity, and plan one response.
1. Weak pound: threat or opportunity? Response?
2. Minimum wage rise: threat or opportunity? Response?
3. Online competitor: threat or opportunity? Response?
A good answer shows: All three changes identified as threats, each with a realistic response - e.g. find UK suppliers, raise prices carefully or cut costs, and compete on repairs, expert advice and servicing that an online retailer cannot offer.
Can I...?
- 1Explain what an external influence is.
- 2Explain why external influences matter to a business.
- 3Explain responses to changes in technology.
- 4Explain responses to changes in legislation.
- 5Explain responses to changes in the economic climate.
- 6Judge whether a change is a threat or an opportunity.
Summary & Exam Focus
- External influences are outside a business's control but affect everything it does.
- The three influences are technology, legislation and the economic climate.
- Changes can be threats or opportunities.
- The business can choose how it responds - adapting quickly helps it survive.
Exam focus
Justify how a small business should respond to a rise in the cost of its raw materials. (9 marks) (9 marks)
For response questions, weigh up two options, explain the effect of each on sales, costs and profit, and make a clear, justified choice - "it depends on" how customers react.
Key terms
The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.
- External influence
- A factor outside a business that it cannot control but that affects it.
- Economic climate
- The state of the economy, including jobs, incomes and prices.
- Opportunity
- An external change that could help a business.
- Threat
- An external change that could harm a business.
- Adapt
- To change the way the business works in response to an external change.
Questions and answers
9 questions set on this lesson, with the mark schemes and model answers open.
Define the term 'external influence'.
Mark scheme — 1 mark available
- A factor outside the business / beyond its control that affects it — 1 mark
Model answer
A factor outside a business that it cannot control but that affects how it operates.
State one external influence on a business.
Mark scheme — 1 mark available
- Any one of: technology; legislation; the economic climate (or a named part of it, e.g. interest rates) — 1 mark
Model answer
The economic climate.
Outline one way a small business could respond to a rise in inflation.
Mark scheme — 2 marks available
- A response identified, e.g. cheaper suppliers / raise prices / cut waste — 1 mark
- Developed: how it helps the business — 1 mark
Model answer
It could look for cheaper suppliers (1), so that its costs rise less and it does not have to raise its own prices as much (1).
Explain one way a small shop could respond to a competitor that starts selling online.
Mark scheme — 3 marks available
- A response identified, e.g. sell online / improve service / compete on expertise — 1 mark
- First linked point of explanation — 1 mark
- Second linked point of explanation — 1 mark
Model answer
The shop could start selling online itself (1). This would let it reach customers who prefer to shop online and are not near the shop (1). As a result it could protect its sales rather than losing those customers to the competitor (1).
Source: Rosa runs a small bakery. Inflation has increased the cost of her flour, butter and energy by 15% in a year, and her profit has fallen. Many of her customers are families on tight budgets. Option 1: Raise her prices by 10%. Option 2: Keep her prices the same and cut costs by switching to a cheaper flour supplier and baking fewer types of cake. Justify which one of these two options Rosa should choose.
Mark scheme — 9 marks available
- AO2 (Application, 3 marks): uses Rosa's context - 15% cost rise, falling profit, families on tight budgets, the two options — Level 1-3
- AO3a (Analysis, 3 marks): chains of reasoning about each option — Level 1-3
- AO3b (Evaluation, 3 marks): a justified choice with a supported judgement, e.g. "it depends on" — Level 1-3
Model answer
Option 1 would raise her revenue per item, helping to cover the 15% increase in her costs and restore some of her profit. However, many of her customers are families on tight budgets, who are also affected by inflation. A 10% price rise may push them to buy less or switch to a supermarket, so her sales could fall and her total revenue might not rise at all. Option 2 keeps her prices the same, so her price-sensitive customers are less likely to leave. Switching to a cheaper flour supplier and baking fewer types of cake would cut her costs and reduce waste. But cheaper flour could lower quality, and fewer types of cake means less choice, so some customers might be disappointed. On balance Rosa should choose Option 2, because her customers are on tight budgets and a price rise risks losing them to cheaper rivals, while cutting costs protects profit without driving them away. However, this depends on the cheaper flour being good enough that customers do not notice a fall in quality.
Which one of the following is an external influence on a business?
Why: A change in interest rates happens outside the business and is beyond its control.
A new law raises the minimum wage. Which is a sensible response for a small business?
Why: The business must pay the new rate, so it can raise prices slightly or cut costs elsewhere to protect profit.
Which change is most likely to be an OPPORTUNITY for a small business?
Why: Lower interest rates make borrowing cheaper and leave customers with more to spend.
Why is it important for a small business to respond quickly to external change?
Why: Businesses that adapt quickly can protect their sales and profit, and take opportunities before competitors do.