What Are the 10 Economic Factors That Affect Your Business?
As much as one might believe the success of their business solely relies on the work they put into their business, there are many outside sources that come into play. Check out examples of external forces in this PESTLE analysis examples article. Inevitable economic factors, for instance, can make or break your company. Below are several examples of ways your business can be impacted by the state of the economy.
1. Supply & Demand
One of the top economic factors that affect business is consumer supply and demand. As the demand for certain products or services increases, the supply for such begins to decrease. This can lead to inflation, which increases the monetary value of such items until (and if and when) the demand decreases. Some businesses might struggle to keep up with the demand.
A recession can trigger layoffs, higher prices, a surge in unemployment, and as a result, lower consumer spending. In turn, businesses may struggle to bring in sales.
3. Minimum Wage
An increase in the current minimum wage increases how much a business must spend on staffing employees. As labor costs increase, this might lead to lay-offs. In severe cases, a business might have to shut down completely if they can’t keep up with the costs of labor and still bring in good profit.
4. Laws & Policies
Laws and policies set by the government surely affect businesses. If the government, for instance, decides to ban a certain product from being sold, this immediately impacts any business who’s selling it.
As consumer demand increases, this leads to the increased costs of goods. Inflation directly affects the money supply and purchasing power.
6. Tax Rate
The current tax rate, whether it be sales tax or a special tax levied on certain goods or services, can affect the total price a customer must pay when buying from a company.
7. Government Activity
Government activity such as promoting a certain industry or removing trade barriers can either decrease or increase a business’s overall success. Such activities can change consumer demand, increase competition, or lower/increase business expenditures.
8. Interest Rate
If loan interest rates increase, this decreases a nation’s cash flow and lowers its liquidity. The opposite is true if interest rates decrease.
The higher the unemployment rate, which often comes with a recession, the harder it will be for a business to keep up with supply and demand. In extreme scenarios, sometimes businesses have to increase wages/benefits to encourage more people to apply and to stay with the company.
10. Exchange Rate
The current exchange rate has a direct effect on international payment. Thus, it can change the prices of goods, as well as the demand for such goods to international customers.
The economy has an effect on each of us in some shape or form. Economic factors, from inflation, to unemployment, to a change in the tax rate, can impact businesses of all sizes. In the end, we must work with, not against, the current economic state if we wish to start or continue to run a successful company.
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