In everyday language, “constraint” might simply mean any inconvenience, limitation, setback, restriction or fluctuation in capacity. Sometimes it seems like constraints are lurking everywhere. But in Dr. George’s Theory of Constraints, the word “constraint” refers to something very specific.
What is a Business Constraint?
According to Dr George Friedman, a business constraint is anything that interferes with the profitability of a company or business endeavour. Improving profitability requires the removal or reduction of business constraints. Common business constraints include time, financial concerns, management and regulations.
Indeed, every businessperson with a vision of where they are going, and specific strategies and goals to get there, will face challenges or barriers that limit them from achieving success. Most times, when confronted with solving problems or making improvements, business owners or managers feel overwhelmed. They lack the time, money, or resources to correct the problems they are experiencing. They often feel like their hands are tied, and they don’t know where to begin.
In other words, every business operation has something limiting it from reaching its full potential. Note that some of these conditions exist to limit sales or production output. This limit or constraint determines the maximum capacity of the system. Have it in mind that by removing or improving the single constraint, the system is elevated to a higher level of performance.
A business plan needs to be realistic so it is important to set out in detail the constraints that are likely to act as limitations to business activity. Business plans, according to Investopedia, are important documents used to attract investment before a company has established a proven track record. They are also a good way for companies to keep themselves on target going forward.
Even though they are very useful for new businesses, every company is expected to have a business plan. Normally, the plan is reviewed and updated periodically to see if goals have been met or have changed and evolved. Sometimes, a new business plan is created for an established business that has decided to move in a new direction.
There are several constraints that can affect how well a business plan is implemented. The constraints that may affect the implantation of a successful business plan include;
What are the Types of Constraints That May Affect a Business Plan?
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Legal Constraint
Have it in mind that when a business is setting up a business plan, it is expected to abide by the laws to ensure that the business will not face any legal action against it. Legal changes tend to happen all the time over the course of a business’ running.
Legal changes can force the business to change the way it operates and also have an impact on how employees have to set up rules to ensure the safety of its employees. Also note that changes to tax laws and minimum wage can have a massive effect on the finance of a business.
The categories that legislation changes fall into are Health and safety. Health and safety can look at how the business is protected against fire and precautions that are taken for various dangers. Examples of laws that may affect these rules are food hygiene, environmental health – weights and measures. Employment laws also changes the way that businesses are allowed to handle employees and regulations that they are expected to follow to ensure that employees are chosen fairly.
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Financial Constraint
Note that to implement a business plan with success, having enough money to back up the business plan is imperative. Ideally, there are many things that can be considered as collateral, assets such as your house and car can be used as the backup strength behind your loan.
Banks are more likely to offer loan services to someone who has a good credit history. Funding may not just come from external sources, funding could also come from your own savings and inheritance, this type of finance providing may be a lot safer than taking out a loan as you do not stand to lose personal assets, as you are not in debt to a bank.
Additionally, as part of a successful business plan, considering financial implications is very crucial. Looking at finance required for the startup cost will allow you to analyze how much money you are going to need for start up and running costs.
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Technological Constraint
Many customers now opt to use the internet to buy products as it is an easier and more convenient way to shop, in many cases the internet is also cheaper. Businesses have adapted to this change by creating websites to visit and purchase items from. The younger generation prefers to use digital technology to shop online. Older people will perhaps stick to their traditional methods. You must also understand that these changing factors take a toll on businesses too.
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Environmental Constraint
The implementation of a business plan can be constrained by a host of factors in the business environment. For instance, legal constraints determine how they produce (e.g. Health and Safety and Product Safety laws). Social constraints determine the tastes and buying patterns of consumers.
For instance, in recent years consumers have turned increasingly to healthy foods as an alternative to ones that are heavily saturated in fats and contain high levels of sugar. During the process of putting together a business plan, you will need to be constantly aware of these environmental constraints and how they alter over time.
You may need to take what is termed an anticipatory approach i.e. to anticipate changes that are likely to take place in the future in the business environment. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.
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Competitive Constraint
When building a business, it is very much unlikely that you are going to have a product or service that does not already exist. Note that when there are existing similar products to your own this is called competition. Competitors will always have an effect on how much profit your business makes.
Therefore, when marketing your product you must ensure that you are showing how it is better than competitors in the sense of value for money and quality. The strength of the competition is a key constraint on business plan success. Businesses need to position themselves in such a way as to limit the effect of the competition.
Studying business constraints are important to businesses that want to plan ahead. Businesses that take a reactive approach i.e. which only change when or after the environment alters, will be left behind. By anticipating change, businesses are able to adjust the way they operate to be ahead of competitors.