What is business?
A business is any person or group involved in professional, commercial, or industrial work. These organisations are set up for business activities like making and selling goods or services. Most aim to make a profit, but some are non-profits working towards charitable goals or social change. This article explores everything there is to know about the term ‘business.’
Definition of business
Simply put, a business is an entity engaged in activities to earn profits by providing goods or services to others. It operates within a structured framework with specific goals and strategies for financial success and growth.
Business refers to earning a living or generating income through producing, purchasing, and selling goods and services. It encompasses any activity or enterprise undertaken to make a profit.
While “business” is often used informally to describe a company or organisation, it has specific legal and financial distinctions, particularly when compared to other entities like corporations or cooperatives.
Understanding a business
Understanding a business starts with an idea and a unique name. Turning this idea into a real business usually requires a lot of market research to see if there’s a demand for what you want to offer. However, a crucial part of preparing to start a business is creating a business plan. This document outlines what the company wants to do and how it plans to succeed. It’s not just a formality; it’s a roadmap to success, especially if you need to raise money to get started.
Business activities and efforts
Simply, a ‘business’ includes all the work done by people who want to make and sell goods and services to make money. This includes not just selling things but also all the planning, managing, and most importantly, the hard work that goes on behind the scenes. It’s this dedication and effort that drives the business world forward.
Business activities typically involve buying and selling goods and services. These transactions can happen anywhere—like a physical store, online, or even on the roadside. Anyone engaged in these activities and earning money from them must report their income to the Internal Revenue Service (IRS).
Industry classification
Companies often identify themselves with specific industries, which helps define their business activities. For instance, a business could be part of the real estate sector, the advertising industry, or mattress production. The term ‘business’ is frequently used to describe transactions related to a particular product or service. For example, ExxonMobil defines its business operations through the oil it provides.
What are the legal structure and requirements for a business?
Choosing the right legal structure for your business is a crucial decision that can significantly impact various aspects of your operation, from how you file taxes to your personal liability and the rules you need to follow.
The legal structure of a business influences everything, including the type of permits and licenses you need, how much paperwork you’ll have to deal with, and even how you can raise capital. This decision will also affect the long-term trajectory of your business, so it’s essential to carefully consider the options available to you.
For example, if you decide to operate as a sole proprietor, the business is considered an extension of you as the owner. In this setup, your personal and business assets are not legally separated, which means you are personally responsible for all business debts and obligations.
While a sole proprietorship is easy and inexpensive to establish, the lack of personal liability protection is a significant downside.
As your business grows and evolves, you may also find that changing the structure to better suit your needs is an option, but getting it right from the start can save you time, money, and effort down the road.
What are the 4 types of business?
When it comes to setting up a business, there are several structures to choose from, each with its own legal and tax implications:
- Sole proprietorship
A sole proprietorship is the most straightforward and common form of business structure, typically run by a single individual. In this model, there is no legal distinction between the owner and the business entity itself.
In the event that the business faces financial difficulties or legal claims, the owner’s personal assets, such as their home, savings, or other valuables, can be used to satisfy these obligations.
Sole proprietorships also have relatively low startup costs and fewer regulatory requirements compared to other business structures, making them attractive to small business owners, freelancers, and entrepreneurs who are just starting out.
- Partnership
In a partnership, two or more individuals join forces to operate and manage a business together. This type of business structure is often chosen when people want to combine their resources, skills, and expertise to achieve shared goals.
A key aspect of partnerships is the distribution of both profits and liabilities. Each partner’s share of the earnings and losses is typically based on the agreed-upon terms outlined in the partnership agreement.
One of the main advantages of forming a partnership is the ability to pool resources and leverage each partner’s expertise, which can lead to more efficient decision-making and the ability to scale the business more effectively.
However, partnerships also carry risks, particularly when it comes to shared liability. If the business faces financial difficulties or legal issues, each partner may be personally liable, depending on the type of partnership and the terms agreed upon.
- Corporation
A corporation is a more intricate and formal business structure in which the business exists as a separate legal entity, distinct from its owners, who are referred to as shareholders.
In this setup, shareholders invest in the corporation by purchasing shares of stock, effectively becoming partial owners of the company based on the number of shares they hold. This separation between the business and its owners offers one of the primary benefits of the corporate structure—limited liability.
Limited liability means that shareholders are not personally responsible for the debts, obligations, or legal actions taken against the corporation.
Additionally, setting up a corporation can be more time-consuming and costly compared to simpler structures like sole proprietorships or partnerships.
Despite these complexities, the advantages of a corporation—such as the ability to raise capital by issuing stock, the continuity of the business even if ownership changes, and the protection of personal assets—often outweigh the downsides for entrepreneurs and investors looking to grow their businesses on a larger scale.
- Limited Liability Company (LLC)
The Limited Liability Company (LLC), first introduced in Wyoming in 1977, represents a relatively modern approach to business structuring. This innovative business model began to gain popularity in other U.S. states during the 1990s, as more entrepreneurs and business owners recognized the unique advantages it offers.
An LLC combines the best features of both partnerships and corporations, making it an attractive option for many small to medium-sized businesses.
One of the primary benefits of an LLC is its flexibility in taxation. Like a partnership, an LLC allows for “pass-through” taxation, meaning that the profits and losses of the business are passed directly to the owners or members.
This avoids the double taxation typically associated with corporations, where both the company and its shareholders must pay taxes on earnings. At the same time, the LLC provides the liability protection of a corporation.
Furthermore, LLCs offer flexibility in management structure. They can be run either by the owners themselves (referred to as “member-managed”) or by a group of appointed managers (“manager-managed”). This allows business owners to structure the company in a way that best suits their needs and operational goals.
What are business sizes?
Businesses come in all shapes and sizes, each playing a distinct role in the economy. From small family-owned restaurants to large multinational corporations, there are different business sizes.
Small businesses
Small businesses, often started by an individual or a close-knit team, typically employ fewer than 100 people. These enterprises range from cozy family-owned restaurants and creative home-based ventures to boutique clothing shops and independent craft manufacturers.
The Small Business Administration (SBA) sets the criteria for what counts as a small business, considering factors like the number of employees and annual revenue, which vary across diverse industries such as engineering and food service.
These standards are revisited every five years, ensuring that small businesses that meet these criteria can tap into various support programs, including loans, grants, and exclusive federal contracting opportunities. This support helps them stay competitive and thrive in a bustling marketplace.
Mid-sized businesses
There needs to be a universally accepted definition for mid-sized companies. However, in most countries, a business is typically considered mid-sized if it has between 100 and 249 employees or makes $10 million to just under $1 billion in annual sales.
Large businesses
Large businesses are those that generally employ 250 or more individuals and generate over $1 billion in annual revenue. These businesses may be publicly traded, issuing stock to help finance their operations. Often internationally based with operations in multiple countries, large enterprises are usually structured into human resources, finance, marketing, sales, and research and development departments.
Unlike smaller businesses, large corporations often have a legal structure that separates the tax responsibilities from the owners. The daily management is not typically handled by the owners but by an elected board of directors who make most of the strategic decisions.
Examples of well-known businesses in the world
Apple
Founded in 1977 by Steve Jobs and Steve Wozniak, Apple has grown into a tech giant known for its innovative products, such as personal computers, smart devices, and streaming services.
It was the first publicly traded company to reach a $1 trillion market cap. As of May 2023, Apple’s market cap nearly hit $2.7 billion, employing over two million people, including 80,000 direct employees.
Walmart
Walmart, founded by Sam Walton in 1962 in Arkansas, is one of the world’s largest retailers. It has more than 10,500 stores in over 20 countries and employs more than 2.1 million people. Walmart went public in 1970 and, as of May 2023, traded at over $148 with a market cap of $399.79 billion.
Walmart’s revenue in 2022 reached $611.3 billion, a 6.7% increase from the previous year. The company’s success is attributed to its strong brand, competitive pricing, diverse product offerings, and efficient supply chain management.
IKEA
IKEA is a Swedish-founded multinational company that specializes in ready-to-assemble furniture, kitchen appliances, and home accessories. Founded in 1943 by Ingvar Kamprad, IKEA has grown to become synonymous with stylish, affordable home solutions. With hundreds of stores across the globe, it is renowned for its innovative flat-pack design furniture, which significantly reduces costs and makes shopping easier for customers.
How to start a business?
To start a business, you must conduct market research, develop a business plan, secure funding, choose a location and business structure, register your business, and obtain necessary permits and licences. Setting up a bank account to manage finances is also essential.
How to start an online business?
Starting an online business involves steps similar to those of a traditional one, but it focuses on choosing a digital platform and designing a website. Building a target market through digital marketing strategies is crucial.
What is a business plan?
A business plan is a document that outlines your business goals and how you plan to achieve them. It’s essential for getting investors, securing loans, and keeping your business on track.
How to write a business plan?
Keep it straightforward and focused. Your business plan is your roadmap to success, so make sure it’s clear and convincing. Here’s a simple guide to what should be included:
- Executive summary
A brief overview of your business, including your mission, products or services, and what you need from investors.
- Company description
Details about your business, what it does, and what makes it unique. Include the business location and owner information.
- Market analysis
Show that you understand your industry and target market. Include information about your competitors and how you plan to stand out.
- Organisation and management
Outline your business structure and introduce your management team, highlighting their skills and experience.
- Products or services
Describe what you’re selling or the services you offer. Explain how they’re made, their cost, and any unique features.
- Marketing and sales strategy
Explain how you plan to attract and keep customers. Include your sales tactics and marketing plans.
- Funding request
If you need money, specify how much, what it will be used for, and the type of funding you’re seeking.
- Financial projections
Provide an overview of your financial goals for the next few years, including expected income and expenses.
- Appendix
Add any additional information that supports your plan, like resumes, product pictures, or legal documents.
How do you choose a business name?
A business name should be original, memorable, and relevant to your services. It’s important to ensure it’s not already in use by conducting an online search.
How to get a business loan?
Loans can be obtained from traditional lenders or through government-backed programs like those from the Small Business Administration. A solid business plan and a good credit score are typically required to secure funding.
The bottom line
Businesses, varying in size and industry, form the backbone of the economy, providing essential products and services. From planning to execution, running a business requires thorough research, strategic planning, and continuous adaptation to succeed.
FAQs
What is a simple definition of a business?
A business is an organisation where people work together to sell goods or services to make a profit. Essentially, it’s any enterprise entered into for profit.
Which form of business is best?
The best form of business depends on your needs. A sole proprietorship is simple and gives you complete control; a partnership allows for shared responsibilities, and corporations offer liability protection. An LLC blends liability protection with simpler tax rules, making it popular for many.
What is the scope of the business?
The scope of a business includes its range of activities, the products or services it delivers, and its target market. It defines what the business does, who it serves, and how it aims to grow and respond to market demands.
What are the main characteristics of business?
Key characteristics of a business include the exchange of goods or services, the pursuit of profit, economic activity, and continuity in dealings. Businesses also involve risk and are inherently dynamic, adapting to changes in the market and economy.
What is the importance of business?
Businesses are crucial because they provide goods and services essential for daily life, create jobs, contribute to economic stability, and foster innovation and development. They also play a key role in the community by enhancing quality of life and catering to consumer needs and desires.
