How National Policies Can Affect Your Business
National policies are policies put in place in any given country where you operate your business. If you are doing business, it’s always a good practice to run your business within the national policies. Failure to abide by these policies may lead in many cases to risks like penalties by the relevant government authorities. For instance, failure to pay tax on time may result in a surcharge.
Before you start any business, it’s essential to understand the national policies of your country and countries where you intend to do business. It helps you to know how those policies will affect your business and how to run your business well. Do you already have a business? Have you ever bothered yourself to find out how the existing national policies affect the operation of your business? If not, it’s high time you focused on understanding their impact on your business.
Which aspects of national policies should you consider?
1. Fiscal policies
These are government policies that affect the amount of tax payable on either goods or the machines you import for your business. They change every year. The challenge is on you to understand them and to know how they affect your business.
For instance, when the tax payable on the importation of raw materials increases, it directly increases the costs of production. You may, therefore, have to increase the price of your products or service to recover the additional costs. It means that your customers may see your products more expensive than those of your competitors. As a result, they buy less of them, which finally affects your earnings. The opposite of this situation is also exact.
These are national policies that affect the amount of money available in the economy. They impact your business because they control the circulation of money and the cost of borrowing it, which is known as interest.
As you plan to start your business, you should ask yourself how easy it’s going to be to borrow money from the bank (if so needed). When interest rates are low, it becomes cheaper for banks to access capital and easier to lend it to businesses. But when the real interest rates are high, banks find it difficult to access the money. Therefore, your ability to borrow money from the bank depends mostly on how expensive or cheap it is for the banks to access the funds.
Another aspect to focus on is the amount of interest you pay on borrowed money. Many times, central banks control the interest rates for commercial banks to borrow money. The banks pass the cost to the borrowers. If the central banks set a low real interest rate, the consumer interest rates commercial banks charge to borrowers become low. It makes it possible to access loans. And when the interest rates are low, more money flows in the economy because more people find it easy to access it.
Propensity to spend
How much money do people have to expend? This aspect is so necessary to consider because it influences people’s desire for a given product or service. It also determines how much of that money is available to be spent on that given product or service.
Foreign exchange rates
It’s also important to focus on the implications of the foreign exchange rates and how they impact your business. The interest rate and the foreign exchange rate are closely related. When the cost of borrowing becomes cheaper, more money flows in the economy. For instance, when the interest rates are low, more dollars start flowing in. The more the dollars flow in the economy, the less the value of each. It implies that the value of the dollar drops and the imports become relatively cheaper. However, exports may decrease, which is not in favour of growth in jobs and business.
Inflation is another factor to consider because it affects your business directly. Low-interest rates and increased money flowing in the economy may lead to rising in case there is no proportionate increase in economic production and employment. Increased cash in circulation means that there is more money chasing fewer goods, which leads to inflation.
Finally, as you plan to start a business, it’s essential for you to identify the national policies that are in place in your country. Understand how they affect the operation of your business. They are some of the critical components of the business environment in which you run your business.
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Hello! My name is Charles Kiyimba, a creative engraver, a professional teacher, a passionate blogger, a confident graphic/web designer and the founder of Goleza Designers Ltd, an engraving business that turns images into real products. Through my hands-on experience, I share with you free helpful information on our products and services, business, marketing and personal development. Always dive in for more!