Economic factors and how theses affect businesses

Businesses can be affected by several aspects of the environment they are situated within. Some examples of this could include the recession, tax rates and the location of the business. Here are some economic factors and why the affect a business:

• Import/Export - If the exchange rate goes up then a business may not be able to afford to import and export products.
• Exchange rates - when the exchange rates are high, customers and sales will decrease making the profit go down.
• Trends - Trends change within a society and businesses try to match their products to suit the trend
• Location - If it is a very populated location then it is likely to receive more customer attention than others.

Sources of finance availiable

• Bank loans / Bank overdrafts

Bank loans are useful when a business is in need of a lot of money quickly, which they know they will be able to pay back. It is a quick source of finance. However, it has to be paid back of course and you can be at risk of unlimited liability which means you have to pay it back with your personal possessions. 

• Owners investments 

This is your own money and therefore you don't have to worry about paying someone back or becoming in debt. The only disadvantages is that if the money invested goes to waste and the business fails, then it is your own personal money which is at stake and goes to waste.

• Family and friends

This is good because your family and friends may not have as strict payment rules as a bank loan, for example the certain time it has to be paid for or the risk of unlimited liability. However this could lead you to argue with family/friends, especially if you struggle to pay them back. 

•  Government grants 

This is good because you don't have to pay the government back, they give it to you for free courtesy. On the other hand, you may be expected to help the government out as a return, and usually through the advantages of your business. An example could be: If there is low employment in the area the government might encourage you to offer more jobs as you are doing them a favour in return for the grant. 

• Retained profits

This is good because you do not have to worry about being in debt or paying back a loaner. However, this is your businesses profit that has been earned, and if the business fails then the profit money spent will have gone to waste. But this is overall good if you are investing it wisely because profit is the ADDITIONAL money earned after you have achieved all your expenses back. 

Cash Flow

Cash Flow is the movement of money that goes in and out of a Business.
Cash Inflow is the money that goes in to a business, whereas Cash Outflow is money going out of a business.


You can predict your Cash Flow activities by making a Cash Flow Forecast, which is: something that enables you to predict peaks and troughs in your cash balance. It helps you to plan how much and when to borrow and how much available cash you're likely to have at a given time. Many banks require Cash Flow forecasts before considering a loan.
Business keep track of their Cash Flow by creating a Cash Flow Statement. A Cash Flow Statement is a historical record of the Cash Inflows and Outflows that have taken place over a period of time.
The difference between the two is that the Cash Flow Statement has actually happened and if a fact, whereas a Cash Flow  Forecast has not actually happened, although it has a chance to happen; unlike the Statement, it has not happened, therefore not true.


Businesses use Cash Flow to know their financial activities and to be able to manage their incomes and outcomes which effectively allows them to determine whether their business is on a profit or a loss; for example: If the Cash Outflow are greater than the Inflows, then the business would be failing. On top of all this, they can also identify and predict 
problems within their business.


Positive Cash Flow is a normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily means profit and is usually due to a careful management of cash inflows and expenditure. Persistent and large positive cash flows may indicate the firm is not keeping enough stocks of raw materials or finished products, and might be losing sales due to shortages.


Negative Cash Flow is a situation where the cash outflows during a period are higher than the cash inflows during the same period. Negative cash flow does not necessarily means loss, and may be due only to a mismatch of expenditure and income. Chronic mismatch, however, may indicate ineffective credit management, leakage of funds through fraud, or actual loss. Temporary mismatch is covered usually by arranging an overdraft facility.

Batch Production

Batch Production is a method of production in which a group of similar products are made at the same time. In this process, products move down the production process together, and although they are in the same production line, they all may be slightly different.


Examples of Batch Production is: Bakeries, Wallpaper Manufacturers, Fast food joints and Pharmaceuticals.


This type of production is more likely to be used when businesses have factories to help them with the manufacturing. They us machinery to speed up and help with the production process.


Batch production where groups of items are made together. Each batch is finished before starting the next block of goods. 
For example, a baker first produces a batch of 50 white loaves. Only after they are completed will he or she start baking 50 loaves of brown bread.

Job Production

Job Method

With Job production, the complete task is handled by a single worker or group of workers. Jobs can be small-scale/low technology as well as complex/high technology. It meets the exact requirements of the customer rather than supplying standard products which customers can choose regularly. 

• Low technology jobs: here the organisation of production is extremely simply, with the required skills and equipment easily obtainable. This method enables customer's specific requirements to be included, often as the job progresses.
• High technology jobs: high technology jobs involve much greater complexity - and therefore present greater management challenge. The important ingredient in high-technology job production isproject management, or project control. 

Examples of high technology / complex jobs: film production; large construction projects (e.g. the Millennium Dome)

Examples of low technology jobs: Tailor, Restaurants and Gardening.

Levels of Distribution

Producers - A producer supplies goods and services. Secondary.

Wholesalers - They sell products in bulks and at smaller prices. Economies of sales to retailers. Can offer advice and transport to retailers. Sell in large quantities which reducers unit cost.

Retailers - Shops that sell goods and services to final customers. Tertiary.

Levels:
Zero Level - no intermediary between producer and the customer. Sells direct to final buyer.
One Level - only one intermediary between producer and customer. E.G. retailer.
Two Level - two intermediaries between producer and customer. E.G Producer -Wholesaler - Retailer - Customer.

Place

Distribution - It begins with the manufacturer (always the starting point), then to the retailer or wholesaler which are the distributors to the customers, and then finally to the customer where it always ends/

Place is the means by which products and services get from producer to consumer and where they can be assessed by a consumer.

E-commerce = Selling over the internet.

What affect does the internet have over business?
It has a positive affect on businesses as it allows them to promote and sell online, it has 24/7 avaliabilitiy, easier to access and direct postage to homes. However the internet can pose another rival/competitor to other stores.