“Small businesses and startups are even more vulnerable to weather risks,” write the authors of a fresh study published in the Journal of Business Research, which notes the 70 per cent figure quoted above persists because many companies purchase their supplies weeks and months in advance. The ability to predict variations in weather that far ahead is beyond the capacity of most entrepreneurs. Cash flow is consequently impacted.
In an era of abnormal weather, it can be impossible to control the effects of a phenomenon affecting 70 per cent of businesses worldwide.
And impacted a lot. According to their study, which comprised 5000 British retailers across more than a dozen sectors, atypical weather has a majorly negative impact on sales. When analysing an unusually cold spring and an oddly hot autumn, they found sales of footwear declined by almost 10 per cent. For the sale of alcoholic drinks, the fall was as bad as 29 per cent.
“Given retail margins in this sector, this level of sales loss and shortage in cash inflows is an important disruption, likely to drive any retailer into financial distress,” conclude the professors, Jean-Louis Bertrand and Miia Parnaudeau.
They reached those conclusions via the design of a formula that took into account abnormal temperatures, precipitation and humidity over a period of nearly 30 years, noting an issue with climate change activists is their focus on consequences decades away when the reality for many business owners is that they’re experiencing a hit right now – and have been for a long time.
So what can be done about it? Well, in regards to the weather, not much really. At least not in the short term. But there are tools available, such as weather derivatives, which are financial products that enable people to reduce their risk by hedging against unexpected changes. It’s a form of insurance that doesn’t require the policyholder to prove there’s been a loss; just an unanticipated rise in rain, for instance, that could spell trouble in the near future.
The problem for many businesses, though, is that the external jolts they confront (and continue to endure) extend beyond the weather. Sudden regulations, unexpected competitors, disruptive innovations, unforeseen crises: just one of those can cripple an enterprise with little warning. The only certainty, the only constant, is that being in business is inescapably hard.
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