Debitoor Dictionary

Accounting terms explained in a simple way

PESTLE Analysis - What is a PESTLE Analysis?

PESTLE is a business analysis tool that is commonly used to assess what internal and outside influences have an affect on the business itself, and how they can (or already do) have an impact upon how the business functions.

Keep an eye on how your business is doing with Debitoor's expenses overview and profit and loss report features.

PESTLE is a rather straightforward tool, with each letter standing for a particular category: Political, Economic, Social, Technological, Legal, and Environmental. In essence, it is a much more in depth form of a Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis, as it looks at each category individually, rather than assessing things under four broader headings.

On the whole, it is a versatile tool where it is possible to look at challenges facing a business (in the way of barriers to entry), as well as assessing where opportunities lie that can be taken advantage of, regarding profits and growth for the company.

Breaking down the PESTLE analysis

Political

political aspects refer to (mostly) government involvement. This can be through new tax policies, trade deals, or things that affect wider society such as new employee legislation.

Economic

the impact that economic factors such as exchange rates, inflation, interest rates etc have upon the economy as a whole will (to an extent) dictate how well business can manage financially in the current economic climate.

Social

aspects of the social element refer to things such as income distribution, higher demand of services or products during holidays, lifestyle changes, or shifting cultural trends (again, impacting supply and demand).

Technological

refers to Research and Development of products/ services, how technologically aware consumers are (if they are not technologically aware enough, then the product or service will not be a success and will potentially miss its target audience), or the impact of automation upon certain industries.

these factors frequently refer to things covering employee rights, consumer protections, or health and safety. They can have a huge impact on how the business operates, as well as define policies for consumers such as refund/exchange laws in particular countries or regions.

Environmental

is a bit narrower in scope, and heavily depends on the industry and type of business that it affects. For instance, a chemical engineering company would need to focus considerably more on the environmental aspect by default compared to an IT company.

Similarly, tourism-orientated businesses will need to look at environmental factors such as how they will manage the number of people that they receive, and what the weather and climate is like for the particular country they will be operating in. If the climate has clearly defined seasons, then this will dictate how many months of the year they can operate for before closing down until next season.

Larger companies might focus more on environmental aspects in regards to their Corporate Social Responsibility (CSR) goals, whether it be recycling, reducing their carbon footprint, or making use of greener energy alternatives.

Applying the PESTLE analysis to your business

Although the PESTLE analysis can be used by anyone, and any business regardless of its size, it is important that the tool is used as a means to gain more insight and understanding of your business as a whole and the industry you are in.

Though it might seem a long process when first begun, it is vital that each aspect is given enough attention- with even more attention given to particular facets that you know will have a bigger impact upon your specific products/ services.

Focusing on the larger areas that you know will have a definite impact will help you to get the ball rolling, so you may find it easier later on when approaching the other criteria of the PESTLE analysis that you are not so sure of. As a model, the PESTLE analysis is broad by nature, so don't be too worried about finding specific exact categories or situations that would fit perfectly under a particular letter.

It is also more than possible that a particular aspect will relate or overlap with more than one category of the PESTLE, so there is no harm in putting something under one heading.

Why is the PESTLE analysis a useful tool?

By performing a PESTLE analysis, you'll gain a deeper understanding and knowledge of your business, and how it sits within the industry.

You will also get a better overview of specific areas that affect the operation, running, and governing of your business so that you can make changes accordingly. These changes could be to remain compliant with legislation, take advantage of new business opportunities, and see where improvements could be made in the future regarding areas of weakness.

PESTLE analysis and invoicing & accounting software

Keep yourself and the business on track by making use of the expenses feature, real time profit and loss reports, and balance sheet reports. These will help ensure that your business is thriving economically.

Committed to staying up to date, Debitoor complies with all current and future changes to tax, invoicing, and VAT regulations as they are announced. This means that as a user of Debitoor, you can rest easy knowing that it’s all taken care of and devote your time to doing what you love- running your business.