How Are Businesses Affected During Stock Market Variations?

Earlier businesses were either profitable or were in a loss and this depended on the basic few factors such as:

  1. The way how businesses were run
  2. The cost of the product or service
  3. Whether or not customers’ demand was met, if not exceeded
  4. Whether or not the product or service provided was satisfactory

Therefore, it may be summed up that cost, quality, and service of a business was the main factors that determined the success of a business. However, there is a fifth element that silently affects the success of a business and this is nothing other than the stock market. Today, it is quite important that a reputed business organization performs well in the stock market.

If however, you ask ‘Is it a safe area for your business to place your bets?’ Then the answer is no, not really. Businesses tend to perform differently at different times and the influence of a constantly changing environment such as the volatile stock markets adds to the risk factor.

Here are two important factors that project how market fluctuations affect businesses.

  1. Credit, a necessary evil – The present economy is run on the credit model. Consumers make purchases from dealers using their credit cards, dealers stock up on their inventory from manufacturers on credit, and manufacturers, in turn, produce goods by availing loans from banks. Hence, the process of credit forms a vicious circle, which forms an inevitable part of almost everyone’s lives. Thus, stock market fluctuations have a direct impact on the interest rates of the borrowed amount, which is how credit relates to the market volatility. If the market trend is progressing up, chances are that banks will charge you more but on the other hand, banks tend to encourage economies of sale by lowering the interest rates when the markets are down. This, in turn, affects the borrowing capacity of everyone involved in the business cycle.
  2. Consumers, the real Kings – Another factor that affects businesses is the consumer spending behavior. These days a lot of people are investing in the stock markets. Hence, it is only natural that when the market is booming, people tend to believe their investments are growing and hence have the urge to spend more. On the other hand, when the market is dull, people worry as they lose what has been invested and hence curb their spending, which in turn affects businesses as there is no sale of goods.

Hence, it is important that people involved in businesses learn the basics of stock market fluctuations and its impact on businesses by identifying the influencing elements, potential risk factors, and smart decisions.