Blog

How Does the Economy Affect Your Business Decisions?

economy and business decisions

We always hear a lot about the state of the economy but tend to only worry about it when it affects us directly.   We are amazing creatures that tend to adapt to change well, and this is often the case with our way of living.  We may find that financial times are tough but we automatically tighten our belts a little and settle into whatever the situation happens to be.  That doesn’t mean that we don’t grumble about it or all wish we had more money to spend.  What also happens is that we may tend to make our business decisions based on the current situation and not look ahead.

The economy is constantly changing and there are many factors that have an effect on it.  When it is bad of course people become tighter with their money spending.  Then businesses suffer and people lose their jobs.  In order to stimulate spending the financial institutions will lower their bank rates which makes easier for people to borrow money.

Borrowing money to get a new business going or expanding it seems to make sense when the bank rates are low.   While this may seem like a smart move at the time, it should only be done with keeping the future in mind.   Prior to your borrowing chances are you will sit down with your business accountant and take a good look at the financials of your business.   This will help you determine if you are going to be able to handle the payback of the principal and interest payments that will be required.  What you also need to determine is if the lending rates go up and you have the type of loan that has fluctuating interest is your business going to be able to handle it?  If inflation rises which it is predicted to do, then the lending rates will have to go up.

Even if you determine that yes your business could handle an increase in the payments, you have to be sure of this because there may be the chance that your source of income by sales or service could level off or decline if inflation were to rise.

The best approach would be to assume the loan with a plan in place in the event the economy changes, the inflation rises, and interest rates increase.   This way you are prepared for the future by projecting its outcome. If you get some positive financial reactions as the result of your borrowing, then making an effort to pay off the loan in a much shorter period of time, will allow you the best advantage of these lower interest rates.

 

Share Your Thoughts!

Contact

Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

Contact Sam today

The information provided here and throughout the site of TorontoAccountant.CA is intended for general tax information only, and should not be misconstrued as a legal source of information regarding your tax situation, or be used for any other purposes other than for general information.
Sam Seidman, Chartered Accountant - Copyright ©2013. All Rights Reserved.