Companies must endure economic recessions, competing businesses stealing their market share and dips in their stock price. However, these external factors are not the only problems businesses face. Companies must deal with internal factors as well. Internal issues can create just as many problems as external ones. Sometimes, the two types of factors are linked.
The calibre, attitude and work ethic of a company's employees are internal issues. Finding people qualified for the job and training them appropriately are other employment-related issues. The quality of employees affects the company's ability to innovate, customer satisfaction, productivity and efficiency. Employees also are significant cost considerations. Companies spend considerable resources to hire, train and replace staff members.
A small pizza restaurant would love to install the most expensive, cutting-edge wood oven to create quality pies. Like all businesses, though, the restaurant must temper its wants with its available resources. A significant internal factor businesses must consider is the quality of their capital with respect to their available money. A company's capital, such as equipment, land and factories, can either limit or enhance its ability to compete with other businesses. For instance, Wal-Mart's large amounts of capital enable it to offer lower prices on its merchandise than the prices offered by small, local shops.
How well a company allocates its cash is an internal business issue. Cash flow refers to a company's ability to generate income and pay its bills as they come due. Businesses can jeopardise their cash flow by investing too much money in operations. A company also can mismanage its cash by accumulating too much of it and not investing it back into the business. Maintaining a steady cash flow is a balancing act.
External factors influence the company's well-being internally. For example, a steep recession could lower the company's profits and compel the business to issue layoffs. Similarly, the external threat of a competitor could cause the business to grow concerned about an impending hostile takeover. In this case, the business must take internal precautions and address its shareholders' concerns.