Business environment refers to all the external forces including economic, political, social, technological and legal that affect the performance of a business organisation. It is the sum total of all the individuals, the control of a business enterprise but has the power to affect its performance. It is important to udnerstand of the business environment because of the following reasons:

a. Business environment includes all the forces, factors and Institutions which can directly or indirectly affect the performance of the business. It is an aggregate of all the external forces.

b. All the forces and the factors which can affect the business organisation are interrelated to each other.

c. The business environment is dynamic in nature. It is flexible and constantly changing. For example, the taste and preferences of the customers continue to change.

d. The business environment is uncertain in nature. It is not easy to predict the future.

e. It is relative in nature. It differs from a region to another region. For example, the political conditions may differ from one region to another.

f. The business environment is the aggregate of various forces. This makes it complex and difficult to understand. It is easier to understand the effect of the individual forces but not of the aggregate forces.