National policies are policies put in place in any country where you operate your business. It is always good 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 is essential to understand the national policies of your country and the countries where you intend to do business. It helps you 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 is high time you focus on understanding their impact on your business.
Which Aspects of National Policies Should You Consider?
1. Fiscal Policies
They are government policies that influence the amount of tax payable on goods or machines imported 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 production costs. 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 as more expensive than those of your competitors. As a result, they buy less of them, which affects your earnings. The opposite of this situation is also exact.
2. Monetary Policies
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.
Interest rates
Interest Rates
As you plan to start your business, you should ask yourself how easy it will be to borrow money from the bank (if so needed). When interest rates are low, it becomes cheaper for banks to access capital and much easier to lend it to businesses. But when the interest rates are high, banks find it difficult to access the money. 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 interest you pay on borrowed money. Central banks, many times, 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-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 into 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 necessary to consider because it influences people’s desire for a particular product or service. It also determines how much of that money is available for expenditure on that product or service.
Foreign exchange rates
Exchange Rates
It is also essential 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 borrowing cost is cheaper, more money flows into the economy. For instance, more dollars start flowing in when interest rates are low. The more the dollars flow into 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 does not favour the growth in jobs and business.
Inflation
Inflation is another factor to consider because it affects your business directly. Low-interest rates and increased money flowing into the economy may cause prices to rise if there is no proportionate increase in economic production and employment. Increased cash in circulation means more money chasing fewer goods, resulting in inflation.
Finally, as you plan to start a business, you need 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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