When you are a small business owner, it can be easy to get caught up in the day to day running of your business, getting trapped in a little bubble. With a constant stream of emails, phone calls and work to complete, it might not seem like you have any time to catch up on the latest news or financial data. The truth is that what is going on in the global economy can dramatically affect the way that your business operates and the future success of your business.
One thing you definitely want to keep an eye on if you are a small business owner is the global economy. Regardless of the market your business operates in, the global economy underpins everything that your business does and how it operates. Remember gas prices in the US in 2008? They hit $4 a gallon and that had a ripple effect on the rest of the world. Airlines raised prices, restaurants raised prices, movie theatres raised prices, you get the idea.
1. Global Events
Your business operates in the global economy and real-world events can affect your business both positively and negatively. It’s important that you’re able to react and respond to them. There’s no such thing as “local business” anymore.
For example, if oil prices increase and you’re a business that offers a delivery service to your customers, it is likely to vastly affect the expenses of your business which will cut into your profits. By understanding the world of finance, including how the markets are reacting, you’ll be able to structure your business and make sure your profit stays safeguarded.
2. Currency Exchange
As we discussed above, if you own a business that operates overseas as well as domestically, you’ll need to know about any current global events as well as domestic events. It may seem unrelated to a paper distribution business in the UK, but a strike in France can affect your business massively. Not only can it disrupt supply lines and distribution, but it can also harm the value of the Euro. If you are shipping products abroad, you must be aware of the exchange rate variation and how it is going to affect your business.
Small changes in the exchange rate can have a big impact. But a colossal shift, such as the recent Brexit, will have huge repercussions for months and years to come. The morning after the vote, the British Pound hit a 31-year low. What affect will this have on the global economy? It’s too early to tell, but economist agree, it will almost certainly be negative. According to the Wall Street Journal, “The Brexit vote means companies large and small are in for a period of uncertainty. And such times are bad for the kinds of speculative investments that are the lifeblood of startups.”
3. Consumer Spending
According to Forbes, consumer spending is expected to increase in the coming years and the economy is showing signs of strengthening. That’s good news for large and small businesses, but that’s just the beginning. Knowing more about leading indicators in the global economy can also help you grow your existing finances. The more you know, the easier it becomes to control your expenses and learn about new tools and process to control cash flow.
When you invest your hard earned money you have to pay attention to the global economy to make sure that your investment is profitable. You don’t want your money just sitting somewhere and not earning a return. So you need to go talk with an investment advisor who can help you monitor the leading indicators if this isn’t something you are comfortable with. Global changes can affect stock markets around the world very quickly.
Some businesses may even choose to grow their investments through activities such as spread betting. This is also called market speculation and is certainly not for beginners and there are risks, but it can be a great way to improve profits if you have the right knowledge. You can speculate on the price of anything from gold to oil to currencies. Speculation is the act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing in expectation of a substantial gain.
As a business owner, understanding the global economy is vital. A firm understanding will help you recognize potential pitfalls and opportunities and react accordingly.
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