National Policies: How Do They Affect Your Home Business?
National policies are those policies established in a country where you run your business
. If you are operating a business, whether a conventional business or an online business, it's always a good practice to run your business within the national policies. Failure to abide by the policies may lead in many cases to risks of being penalized by the relevant national authorities. For instance, failure to pay tax on time may lead to a surcharge.As you start your business, it's always good to understand the national policies of your country and countries where you plan to do your business. This helps you to understand how those policies will affect your business and how to run your business well. If you already have a home business but you were not bothering yourself to find out how the existing national policies affect the operation of your business, 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 national policies that affect the amount of tax a producer has to pay, either on the sale of his/her goods or on the importation of machines to be used in the business. They change every year and the onus is on you to understand them and to know how they affect your business.
For instance, when the tax to be paid on the importation of raw materials increases, it has a direct effect of increasing the costs of production. You may therefore have to increase the price of your products or service with an aim of recovering the additional costs.
As a result, your customers may see your products or services as much more expensive than those of your competitors and they buy less of them. This finally affects your earnings. The opposite of this situation is also true.
2. Monetary policies
These are national policies that affect the amount of money available in the economy. They affect your small home business in many ways because they control the circulation of money and the cost of borrowing it known as interest.
As you plan to start your small home 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 lowered, it becomes cheaper for banks to access money and easier for them to lend it to businesses. But when the real interest rates are increased, banks find it difficult to access the money. It goes without saying that your ability to borrow money from the bank depends largely on how expensive or cheap it is for the banks to access the money.
Another aspect to focus on is the amount of interest charged 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 real interest rate is set low by the central bank, the consumer interest rates charged to borrowers become low making 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.
How much money do people have to spend? This is another important aspect to consider because it influences the 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. It's also important to focus on the implications of the foreign exchange rates and how they impact on your business.
The interest rate and the foreign exchange rate are closely related to each other in that when the cost of borrowing is made cheaper, more money flows in the economy. For instance, when the interest rates are lowered, more dollars start flowing in. The more dollars flow in the economy, the less the value of each. This implies that the value of the dollar drops and the imports become relatively cheaper. However, exports may decrease which does not favor growth in jobs and business.
Inflation is another factor to consider because it affects directly your business. Low interest rates and increased money flowing in the economy may lead to inflation in case there is no proportionate increase in the 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 home business, it's important for you to identify the national policies that are in place in your country and understand how they affect the operation of your business. National policies are some of the key components of the business environment in which you run your business.
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