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What is the Effect of Economic Growth on Business?

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Written by: Kade Wilcox

Posted on: November 12, 2019

Sometimes it feels like the only guarantee about the economy is that it is going to change. For the past few months, the economy has been in an upswing (with the exception of recent Dow performance*). Being a business owner means you need to understand the effect of economic growth on business, and also be prepared to weather the ups and downs of a changing economy.

Economic Growth Leads to Profitability

Business Growth

Hands down, the biggest effect of economic growth on business is the chance of increased profitability. Unless you are in one of the few industries that actually thrive during economic downturn (such as home foreclosures or vehicle repossessions), your business should experience growth that parallels that of the economy. Consumer confidence is high, people have greater disposable income, and unemployment rates are low. All of this leads to more people choosing to buy from businesses like yours.

Increased Opportunity for Expansion/Growth

This increased profitability results in greater opportunity for growth and expansion for your business. It means you can hire the additional personnel you’ve been needing, or you can move into a larger space that better meets your needs.

What’s really exciting about this growth and expansion is that it can pave the way for even more growth. Using an economic upturn to hire more talent allows you to better serve existing customers and have capacity to acquire new ones. Purchasing a larger space gives you room to grow and offer new services. Acquiring another business can allow you to expand your customer base, increase your team, and offer new services. Buying new software or tools can streamline your efforts, cut costs, and make your team more efficient. When you see the opportunity economic growth creates, you can position your business for a cycle of growth, expansion, and continued opportunity.

But, while opportunity is an effect of economic growth on business, it’s one that must be handled with care and wisdom.

Opportunity Requires Wisdom

Economic growth leads to increased revenue and profitability, which can create some great opportunities for your business. But, these opportunities must be considered carefully. As a business owner, you also need to be doing what you can to prepare your business for inevitable economic downturn as well. Before jumping at every opportunity that presents itself, you need to consider how it will affect your business should the economy take a turn for the worse. This is a conversation that needs to be made with trusted leadership at your business, such as financial advisors, shareholders or investors, and team leadership.

The effect of economic growth on business is incredibility positive: your business is likely to earn more customers, increase profitability, and experience great opportunities for further growth and expansion. When you approach these opportunities with wisdom and care, you are able to both grow your business and prepare it for any downturns that might be in the future.

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*Source for Dow performance