Understanding how the economy affects businesses is one of the key elements required to make sound business decisions which guide companies. The economy affects all types of businesses, whether big or small. Small businesses, however tend to feel the impacts of the economy much quicker than larger businesses A rising economy can provide new business opportunities and a downward economy can have severe impacts.
Goods, services and money are all aspects of businesses that are affected by changes in the economy and economic factors. Some examples of these economic factors include interest rates, recession, inflation, taxes and even supply & demand. The state of the economy in general helps with decisions directly related to taxes, asset values and consumer demand.
When the economy is strong, businesses of all sizes tend to see greater prosperity. Unemployment is lower, disposable income is higher and as a result, consumer confidence
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When a business spends more on inventory than it made on inventory that it just sold, there can be an inventory shortage. Price changes can also cause more expenses for a business during these times. If a company needs to reprice merchandise, it will incur the cost of reprinting catalogs or changing price tags to reflect the new prices. This would affect brick and mortar businesses more so than online retailers where pricing can be changed by the click of a button.
Decreases in profits make it more difficult for business owners to repay creditors, the impact of which will be negative. Businesses that face financial troubles are less likely to qualify for loans that they may need for capital expenditures and operations. This type of situation can limit a business’ opportunities for growth. Smaller business can be hit hardest during these times and are often forced to downsize during a slower economy, thereby limiting their ability to serve