External Influences - Economic

An economy is the collective business activity in an area; can be local, state, national, or global economy. The overall health of the economy affects individual business performance. Business owners must factor the state of the economy into their decision-making.

All economies aim for stability and growth (GDP, jobs); some grow faster than others. Economies can enter into cycles: boom or recessionary.

Boom cycle: higher employment levels, wages increase, level of spending increases, revenue levels at businesses lift, higher consumer and business confidence, leading to new business establishment and business expansion. This is the time to start a business and go big! Eventually, once the economy gets too hot from rapid growth, inflation can result. When inflation gets too high, interest rates go up and the whole thing slows down.

Recession: unemployment rises, wages income decreases, spending levels reduce, revenue levels at businesses decline (laying off employees), people have less to spend and have lower confidence in future, few new businesses established. This is NOT the time to make big plans to start a business, or expand.