Listening to news from the French pre-election goings on I hear similar issues and trends that have dogged the US (Trumping the establishment with populist government), Brexit (the majority wanting a different future than the past) and now hear of a similar breakdown in Australian establishment politics with now 10 independent senators.  In fact commentators are now suggesting that the traditional “bloc politics” of the two party system (that has led to more stable government and gradual change in the past) is dying and we are headed for a new future.

No matter what your political views are - there is one trend that is now very loud and clear - democratic governments will be different to the past and along with this will be policies that bend with population voting trends rather than left vs right policies.  It may be that Australia in future will always have minority governments or coalitions.  Whether this means more traditional policy positions will merge with wider more diverse social requirements or that a greater diversity of elected representatives will produce the same outcome I suspect is a mute point.  

In my opinion, the outcome of these voting, political and government trends is that policy will no longer be black vs white - such as labour vs liberal (with green tinges), conservatives vs liberal views, right vs left policies.  It will be a broad mix of concensus from very disparate representatives.  Picture future Senates (and possibly even House of Reps) with a range of 15-20 single issue senators (or independents) and a small evenly distributed number of Labour and Liberal senators with no clear voting block.

If this is the case then policy will need to be formulated differently in order to 

What does this have to do with business valuation?  It is all to do with risk and volatility.  The greater the uncertainty of change or status quo, the greater the risk of a negative or unplanned outcome for business investment.

This type of policy setting environment will need to be factored into business plans - along with the uncertainty of governments enacting new policy. Business leaders will be uncertain about direction (a good example is renewable energy targets, regardless of your position, at the moment no one knows what the future policy settings will be) and will greater returns needed to justify an investment.

In essence this will lead to lower valuations - a higher risk implies a higher cost of capital and lower valuations.

Over time, business owners will adjust their strategies and adopt practices that better manage the risk.  This is not a bad thing - a greater level of market and investment uncertainty will lead to a greater focus on planning and management.

At the moment most global markets are showing high volatility, and ultimately this will flow through to the privately owned small business market.  There are short term bull runs responding to news that supports business investment, and there are falls in equity prices in response to negative news.

Only time will fill in the picture of what this instability will lead to (and that may be anything from a better future to uncertain volatile times).  But the impact on business investment is likely to dampen investment in the short term and possibly lead to lower valuations (although this is not obvious at this point).

What we need to consider as business owners are:

What information do I need to make better investment decisions?

What risk management policies and practises do I need to put into place to reduce risk?

How do I make better investments in my business to increase the valuation?