The economic factors of a company They are the elements that affect the performance of a company, having a positive or negative impact on it. Although these factors are not directly related to the business, they influence the achievement of the objectives set..
A change in the economy has an effect on the operation of a company. If an organization plans its strategy considering external conditions that it cannot control, then it will have to face minimal changes while implementing it..
It is wise to take calculated risks to ensure that the business runs smoothly. This can lead to business expansion when demand is high and there is a low interest rate..
There are a large number of internal and external economic factors that can make or break a business. Although internal factors can be controlled, the same cannot be done with external ones.
This is when companies must stand firm against the storm to overcome its consequences. Here are some common economic factors that have a significant effect on a business:
The economy plays a crucial role in the business world and also in its growth, because it helps to establish the general level of prices of raw materials.
The price of raw materials, the payment potential of consumers, the cost of production and the cost of transportation are some of the essential factors that influence the general level of prices and the lower profit margin of companies.
An increase in one of the components raises the total cost of the product and affects sales. For example, if there is a $ 10 increase in the price of pizzas, people may not order them as often as they used to. The number of pizzas usually ordered may also be reduced.
It occurs when there is an excess supply of money in the economy. This surplus money flow is not supported by the production of goods and services.
An obvious result of excess money in the economy is that the price of products increases in order to support businesses. This results in an increase in the price of the raw materials used to produce the goods, raising the price of the products in general..
That is, income remains constant, but the prices of products and services increase, resulting in a reduction in purchasing potential and gradually decreasing the demand for goods in the market..
It is the most important economic factor that affects companies. The most obvious reason is that companies must satisfy the demand of the economically active society. This defines the amount of money that society obtains in general..
Economic development defines the volume of money that is invested in the long term in different channels. If there is a recession, it affects the purchasing power of the consumer, forcing companies to lower the price of their goods or services..
For example, if the economy is going through a difficult stage, banks will change their fiscal and monetary policies, eventually affecting the business, because customers lose their purchasing power and market demand is unexpectedly reduced..
Through fiscal policy, the government can decrease or increase spending as a means of stabilizing prices or alleviating unemployment. In addition, the government can raise or lower taxes on business activities..
It is the amount that a lender charges a business for borrowing money. Some companies depend on bank loans as a source of financing. The government can raise or lower interest rates to control economic growth. This process is called monetary policy..
High interest rates result in higher total spending for companies with debt. They can also reduce consumer spending, because high rates make it more expensive for consumers to obtain loans to buy things like cars and houses..
Consumer Confidence an economic indicator that measures general consumer optimism about the state of the economy. Confident consumers are more willing to spend money than low-confidence consumers, making businesses more likely to prosper when consumer confidence is high..
Periods of high confidence can create opportunities for new companies to enter the market, while periods of low confidence can force companies to cut costs to maintain their profits..
It is a very important factor that affects the demand for goods in the market. The more people have a stable income and hope to continue having it, the more product purchases will be made.
Therefore, the periodic report of the level of employment is an economic indicator that provides good indications on the demand for consumer goods.
Average income is one of the best indicators of the salary status of workers. When wages keep rising, consumers will have more income to spend. However, if wages stagnate or decline, demand for consumer goods is likely to decline.
They are two basic pillars that affect any business structure. Demand can be defined as the ability of consumers to buy a product, while supply is the ability of companies to meet that demand.
For example, the latest model of a Smartphone will surely have a higher price because there is demand in the market. The price of the model will increase if the supply does not satisfy the demand, but could be reduced if the supply satisfies the estimated demand..
Another example happened in 2000. With Brazil being the world's largest sugar producer, climatic problems caused most of its crops to be lost, causing a supply shortage..
This resulted in high sugar prices, due to a large imbalance between supply and demand. Eventually, market forces ensured that they balanced out.
Finance, economics and business are part of a circle in which one has an effect on the other. So if there is any downside to a company's financial cash flow, the economy is likely to take a hit as well, either directly or indirectly..
Irregular cash flow financing can be a major obstacle to getting out of a situation, but additional outside financial help can help overcome these circumstances..
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