Evaluating Economic Factors When Starting Your Own Business

This essay explores the essential economic factors that entrepreneurs must consider before launching a new business. These factors include strategic business location to minimize operational costs and ensure market access, the level of market competition and the need for differentiation or alternative business ventures, adequate capital resources and the implications of different funding sources, understanding the target population to tailor products and maximize sales, analyzing market demand to ensure product viability, and assessing overall economic performance indicators like inflation and recession to gauge business prospects. The essay concludes that a comprehensive consideration of these economic factors is crucial for the success and sustainability of any new business.

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Economic Factors to Consider When Starting your Own Business
Starting a business seems to be easy. However, there are many factors to consider before
venturing into any business. Different economic factors affect various businesses differently. It is
essential to address the issues before starting off to avoid unforeseen events that may ruin your
firm. There are significant factors that must be considered when starting your own business.
To begin with, the business location must be considered. The position of a business
determines its success. When venturing into a production business, one should locate the
business near the source of raw material (Prokop 201). Nearness to raw materials is vital in
reducing operational costs associated with transportation. Moreover, it helps to ensure
continuous operation of the business. Businesses should be located near the market. The
consumers can easily access the products which increase their satisfaction. Besides, close to the
market allocation is vital for perishable goods. The efficient allocation also helps to obtain the
labour required. Therefore, one must consider business allocation when starting a business.
Additionally, one must consider the competition. The level of competition in the market
is fundamental when starting a business (Rogerson 84). Low level of competition may mean
success while a high level of competition will require a lot of effort to thrive in the market. With
stiff competition in the market, it would be wise start a different business or produce
differentiated products. The high competition calls for investment in the advertisement. When
starting a business, the existing competitors may engage in price discrimination strategies to

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prevent entry of new firms. Hence, the level of completion in the market is a substantial factor
that should be looked into when starting your own business.
Furthermore, capital requirement is essential. Whether it is a small or a large business,
sufficient capital is required. There are different sources of funds in case one does not have
enough funds to run a business (Nour 2). External sources of funds should be carefully selected.
Entrepreneurs prefer sources that do not dilute ownership in the business. Dilution of ownership
leads to division of profits which reduces the returns. On the other hand, borrowing from
financial institutions is risky. Default increases the level of interest charged while failure to repay
a loan results to receivership as the lenders attempt to recover their funds. Therefore, capital
must be considered when beginning your business.
Another economic factor to consider is the target population. Target population are the
likely customers or buyers of a particular product in the market (Sekaran and Rogers 240). The
product must be tailored to fit the target market. Target customers influence the level of sales.
High level of sales reciprocates to higher revenue. For example, an insurance business should
target the working people. The reason for this is that the working class have an income to
purchase the insurance services. Also, the working persons make rational decisions concerning
their income. Target population cannot be ignored when starting a business.
Moreover, demand is central to starting a business. Demand is the quantity of goods
bought at various prices (Welch and Gerry 80). Consumer preference for a specific product
affects the amount a firm can sell in the market. Products with low demand lead to poor
performance in a business. A successful organisation produces goods or services with high
demand. Demand can be increased by improving the quality of goods. Product innovation and

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development can help to improve the quality of products. Consequently, it may raise consumer
preference for the good.
Finally, economic performance must be considered. Economies have indicators that
signal how well a business would do in the market (Tainer 87). For example, inflation is an
indicator of poor performance. With inflation, the cost of starting a business would be high.
Entrepreneurs find the net present value of the future incomes adjusted for inflation to find the
real value of their returns. During a recession, one would not start up a business because many
firms experience an economic downturn. The economic performance is a necessary consideration
when starting a business.
In conclusion, there are economic factors that must be considered when starting a
business. The factors include; location, level of competition, the source of capital, target
population, demand and the economic performance. Strategic location is vital as it enhances
continuous operations. New businesses should be in a position to effectively compete with other
firms. When starting a business, the source of capital must be available. Buyers are another
factor that should be undermined because of consumer power. The state of the economy gives a
prospect of what to expect in the future. A successful business must consider the economic
factors.

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Works Cited
Nour, David. The Entrepreneur's Guide to Raising Capital. Westport, Conn: Praeger Publishers,
2009.
Prokop, Darren. The Business of Transportation. , 2014. Internet resource.
Rogerson, Andrew. Successfully Start Your Business: Expert Advice from a Business Broker.
Sacramento, CA: Rogerson Business Services, 2009.
Sekaran, Uma, and Roger Bougie. Research Methods for Business: A Skill-Building Approach. ,
2016.
Tainer, Evelina M. Using Economic Indicators to Improve Investment Analysis. Hoboken:
Wiley, 2006.
Welch, Patrick J, and Gerry F. Welch. Economics, Theory & Practice. Hoboken, N.J: John
Wiley, 2010.