Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
When it comes to being a business manager. It is extremely important to have a strong understanding of economics. Understanding economics will help you determine and diagnose the cause for an increase or decrease in your company’s sales, volumes, and costs. Being able to make good business decisions based on past, present, and future trends, and whether or not those trends are positive or negative is a major trait of a successful business manager. Economics are a pretty accurate way to predict the future. A good business manager has a great grasp on the major overarching trends that affect sales the most.
Our economy goes through many different cycles and understanding those cycles in crucial when it comes to business management. The economy rises and falls in every sector, and you have to understand how long the ups will last, as well as how long the downs will last. The costs of a product crucial to your business will rise and fall and understanding when these changes will happen is also important. There are many differences between GDP and nominal GDP which will react differently to cycles in an economy.
Recessions and downturns are always inevitable. They are a natural part of our economy and business cycle. There are many different ways a recession is caused, but understanding how these recessions are started is important. They are often caused by an excess of goods with not enough buyers and not enough services. When unemployment goes up and the Fed slows the economy that is a good sign we may be going into a recession. You have to pay attention to credit and interest rates as these will help you anticipate more effectively.
In learning about recession triggers and profit squeezes we learned about the importance of monitoring major price inputs and outputs. There are multiple different measuring tools to monitor when it comes to inflation including CPI and PPI. When it comes to profit squeezes there are many important things to remember such as the fact that competitors of yours are more often than not facing the same cost increases affected by inflation. There are ways to help protect your bottom line such as including adjustment clauses in long term contracts, which are supposed to protect both sides of the deal when a recession occurs.
When a successful business manager prepares for a downturn, they first have to monitor their company’s vulnerability to said downturn. They do this by looking at their company’s past plans when they entered a downturn as well as looking at how sales will be affected and making sure their revenue flow is not hit too hard. They must build flexibility into a company’s daily operation, use these factors to build a solid contingency plan. I can’t stress the importance of flexibility enough, as most good business’s have flexibility built in which allows them to succeed through downturns. Being able to cut expenses is a crucial part of this process.
A good business manager stays on top of macroeconomic, warning signs, critical costs, and customer sales forecasts. Among other warning signals it is important to understand the end users ability to purchase your good. Watching the numbers and trends make the decisions made in this time much easier and clearer. When new products are added they must look at breakdowns of all of these factors. Pipeline forecasts can be useful, but mostly for one time purchases of large amounts. These companies need to be focused on how their sales are affected in their specific market by whatever the end user is going through.
When we enter into a recession or downturn a good business manager should already be prepared to take the necessary steps for their company to survive and sometimes thrive. The first steps include limiting new hires, reducing capital spending and inventory monitoring. The moderate and severe steps include more serious versions of the initial steps such as stopping hiring completely and cutting unnecessary spending and staff. Credit lines should be reviewed throughout this process. A good plan and good preparation pre recession will make this entire process easier, and that’s what a good business manager brings to the table.
Foreign economic cycles are more important to some companies than others, but they are still important to monitor. A good business manager understands their company’s position when it comes to reliability on other country’s economies. There are political occurrences overseas that may affect pricing on certain goods such as war and inflation rate changes. Exchange rates can fluctuate which can change how profitable it is to be exporting or importing goods with another country.
While the national overall economy will almost always be the most important cycle, a good business manager needs to know how their own regional cycle reacts with the national economy. A major telltale sign of how a regional economy is doing is population growth. People may be moving to an area because there are plenty of open jobs or people may be moving to an area because of the physical area with the expectation that jobs will be created. It is important to make note of whether your company’s market is in your own region or if you produce in your region in order to sell to a bigger and broader national market.
A good business manger understands that if they are operating in an capital intensive industry they are prone to factors such as price wars, over investment, and price weaknesses as these can cause fluctuation of prices and leave a company in a tough spot. The early warning system in these industries must have the ability to prepare for rising prices and new capacity from competitors. In capital intensive industries it is important to have a stockpile of cash for the inevitable downturns your company will face during the natural business cycle.