A business is an integral part of the social system. The sum total of all factors both internal and external which has an impact on the functioning of a business can be termed as business environment. The aggregate of all factors, forces and institutions which are external to and beyond the control of an individual business enterprise but which exercises a significant influence on the functioning and growth of individual enterprises business environment.
It is dynamic in nature since it keeps changing. Therefore any strategic decision relating to a business can be taken only after scanning the environment for a SWOT analysis of the strengths, weaknesses, opportunities and threats. The internal environment which is controllable yields the strengths and weaknesses of an organisation while the external environment which is uncontrollable relates to two factors namely opportunities and threats. The understanding of business environment is essential for taking important decisions, and ensuring success.