Constraints are the factors that affect the running of a business by restricting the business from reaching its full potential (reaching goal and targets/ aims and objectives it has set itself). There are two types of constraints internal and external. Internal constraints originate from the business itself such as from staff. Internal constraints unlike external constraints can be controlled and managed as they come from within the company. External constraints come from outside of the business they hinder the business from reaching its full potential.

External constraints can not be controlled or managed, as the problems do not arise from within the business. The types of internal constraints a business might face include, Finance, Staffing, Size of Premises and Equipment and technology. Financial problems can stop businesses from completing their aims and objectives. Finance is an important issue to help businesses succeed in all aspects of their company. Without finance the business would not be able to pay for bills, supplies and many other things. All businesses have accounts in a bank. The cash in the account is used to pay the businesses day-to-day bills by cheque.

A bank might also give the business an OVERDRAFT. An overdraft allows the business to take out more money than it has in the account. The maximum it can be overdrawn (borrowed) is called the OVERDRAFT LIMIT. The money borrowed is used to pay for the day- to- day running of the business, including paying for the materials. An advantage of an overdraft is that money is only borrowed when it is required, thus cutting down the interest bill. However this may cause a problem for Fit – for – Life, as overdrafts can be expensive. Banks make an arrangement fee.

Another disadvantage is that the bank can call in the money borrowed at any time. A company can also gain finance from TRADE CREDIT and FACTORING. Overdrafts, trade credit and factoring are different ways in which a business can increase the cash and working capital flowing. However they are not a good method of raising money for i?? 200 000 of outdated machinery, for this a bank loan would be required. With a bank loan a business borrows a fixed amount of money from the bank and repays it in regular fixed instalments. However Fit – for – Life will need to be aware that INTEREST is charged on the money that is borrowed.

The bank may also demand security on the loan. Meaning that Fit – for – Life will have to pledge some assets that the bank can sell if the business fails to repay the loan. Fit – for – Life could also ask the City of London to issue them a DEBENTURE, which is a long-term loan. A business can also overcome finance by retaining profit. This is the money that is received from selling profits that is put aside before the rest of the money is given to the shareholders. No interest or dividends have to be paid on retained profit as it is the business’ own money.

It also means that the business does not have to borrow money for investments. Fit – for – Life may also face the constraint of staffing. If the company expands then new staff has to be recruited. The new staff may need training as they might not be familiar with the equipment. Old staff may also need to be trained, as they will need to learn the skills associated with new technology. All of the staff will need to learn about new health and safety procedures. The buying team will also need to learn about new products available from suppliers. Employing new staff and arranging training will cost money and time.

Fit – for – Life will need to set up a training scheme rather than rely on schools and colleges as so many businesses do. Size of premises may also be a constraint that businesses face. The buildings the companies own may not be big enough as it would have expanded. Fit – for – Life will have to consider building new shops to allocate all of their products within the store, they may also think of making a department within a store. Building new shops and expanding (on the whole) will cost money. For the products to be made new equipment and technology may have to be introduced.

To make better use of time and to gain the best quality in products a new line of technology will probably have to be installed. Fit – for – Life might consider using CAD and CAM technology, they will also need to use and make new shop fittings. Installing new equipment and technology will cost money o make or buy but it will also mean that staff will have to be trained in using them. Fit – for – Life will also face a series of external constraints that can not be changed by them. Firstly they will face competition from other sports companies, like JJB, JD and First Sport.

In order for them to gain the most amount of customers they need to ensure that their prices are of reasonable price and are competitive, the staff are helpful and kind and that they offer the latest in designer goods. Fit – for – Life and all other businesses have to comprise with Government Laws. There are a number of government laws that all businesses have to deal with they include: The Consumer Protection Act 1987, The Consume Credit Act 1974, The Health and Safety Work Act 1974, The Trade Descriptions Act 1968, The Companies Act 1985 ;1989, Weights and Measures Act 1979, The Environmental Protection Act 1990 and The European Law.

Another constraint that Fit – for – Life will face is Government Taxation Policies. The government taxation policies include VAT, Income Tax, National Insurance and Corporation Tax. VAT (Value Added Tax) is at 17. 5% but was originally 12%. This tells us that there was an increase in VAT. Therefore VAT could increase at any point chosen by the government. Income Tax is another tax charged by the government. The employer must deduct some of the employee’s pay to send to the Inland Revenue (the department responsible for collecting Income Tax).

For workers to receive state benefits, such as state retirement pension deductions from pay have to be given to the government. These taxes can not be avoided and businesses would be very concerned over an increase in VAT. If VAT was to be increased people’s income goes down, meaning that the disposable income of people would also go down. Thus resulting in the public spending less money on luxury goods but the little money they have will be spent on essentials. The skiing sportswear industry can lose money as people will stop going on ski holidays and then they will have no need to buy ski clothes.