Interestingly, many of us do not know exactly what business is. Yes, we all hear this word everyday, yet we find it difficult to define or explain it. So we are going to discuss what is business? Its concept, type, form and more. So if you are ready to learn something new today then stay tuned.
What is business?
A business is an undertaking or activity with the intention of making a profit. It may be in the form of a company, partnership, organization, sole proprietorship, business or any organization undertaking commercial, industrial, charitable or commercial activities for profit.
The word “profit” does not mean anything financial. It can be any form of non-monetary benefit that the business organization may consider/ask to be awarded. Furthermore, a business may be a “for profit” or “not for profit” entity and may be a separate entity from those who operate/control it.
A business concept is an essential idea for any type of business. It sets the foundation or direction that will shape the future operation of any business. For example, a business concept determines the vision, mission, business model and plan of a business entity.
To simplify this, let’s look at this example. The business concept behind Uber, an American corporation, was to aggregate taxi drivers under one platform and help them provide on-demand services. Subsequently, the company developed all its business strategies based on this concept.
A business may have different objectives depending on its financial status, products, industry etc. However, generally, we can categorize business objectives in four different ways.
- Financial objectives basically depend on the financial needs of any business entity. Financial objectives may include growth, profit, survival, etc.
- Human objectives generally target professional employees, their needs, personal growth, safety, satisfaction, motivation etc.
- Organic goals include anything and everything that focuses on business improvement. Common examples include improving brand reputation, strengthening business, raising capital, innovation, growth, etc.
- Social goals include everything that focuses on the betterment of society. Social objectives may include fair pricing policies, customer satisfaction, quality products, charitable organizations, fair employment practices, fair trade practices, environmental protection, etc.
Types of business
Business can be of different types, but in general, we can categorize business into four broad types.
In a manufacturing business, a manufacturer or producer produces one or more products and then sells them to end consumers for a profit. A manufacturer may sell directly to consumers or through intermediaries or middlemen. PepsiCo, Tesla, Coca-Cola, Pfizer, Nestle, Apple etc.
Merchandising is a form of business in which a seller/business sells tangible products to consumers/customers. In simple words, merchandising is basically a retail business where a seller buys products directly from manufacturers or wholesalers and then sells them to consumers at a higher price (retail price). Common examples include Walmart, Amazon, etc.
A service is a form of business where a seller offers intangible goods to other businesses or customers. For example, a remote professional may provide marketing management services to a firm. Similarly, many companies or business organizations provide services directly to consumers. Common examples include schools, universities, salons, massage centers, etc. However, it is not possible to separate the Service from the Service Provider and you may not store the Service.
Hybrid businesses are businesses where an organization practices two or more business types at the same time. This business practice is common in the food industry, such as restaurants or fast-food chains. For example, KFC makes its own recipes and sells them to customers. Apart from that they also buy soft drinks from PepsiCo and supply them to their customers. So basically, KFC undertakes manufacturing and merchandising activities at the same time.
Nature of business structure
We can classify business into different types based on objectives, ownership, liability etc. Here are some common types of business.
In a sole proprietorship, only one person owns and operates the business. Also, all profits and losses will also belong to the owner if the person is liable for any lawsuits and liabilities.
A sole proprietorship is usually easier to register and operate. There is no legal requirement for minimum capital, number of employees, registered office etc.
However, in a sole proprietorship, the owner has unlimited liability. That is, business creditors have the right to access the owner’s personal assets if the owner fails to settle the debt.
A partnership is a form of business where two or more persons enter into a formal agreement to run a business together. Partnership can be limited or general. However, as in a sole proprietorship, all partners in a partnership will have unlimited liability (unless otherwise agreed). However, in case of limited partnership, one or all the partners are liable to a limited extent.
A corporation is the most complex form of business. How is this;
- It has a separate legal identity. That is, it is a completely separate entity from its owners.
- Municipalities have to pay taxes; He can make a profit, start a lawsuit or even file a lawsuit.
- Corporations raise capital through stocks or shares, and shareholders own the corporation.
- Generally, owners have limited liability (unless otherwise agreed).
- Owners or shareholders do not necessarily run the business. Instead, they elect their representatives (Board of Directors) to run the corporation and make necessary decisions.
- Corporations have certain requirements to meet (depending on their local laws), such as
- Minimum amount of capital
- Minimum number of employees
- Organization Draft
- Articles of Association
It is a form of business in which a group of people (members) own and operate a private business for their mutual benefit. The members get their share in all the earnings or profits of the co-operative society. Generally, members have voting rights and can elect officers and board of directors to run the cooperative. Generally, the main objective of a co-operative society is to serve all the members rather than to earn a return on their investment.
LLC (Limited Liability Company)
A limited liability company is basically a combination of two different business structures – a partnership and a corporation. Members in limited liability companies have limited liability. Their personal assets cannot be used to pay the debts of the company. Furthermore, members of an LLC do not have to pay corporate taxes on their profits or losses from the company.
Challenges for business
Running a business is not a piece of cake, especially when it comes to corporations. Every business faces internal and external challenges, viz.
- Coping with future uncertainties like market trends, consumer trends, changing economic environment. A business needs to be proactive to stay competitive in the market.
- Effective and efficient monitoring of organizational performance is another challenge for any business. Management should assess what is working for them and what is not. They need to develop KPIs and have skills in interpreting and communicating metrics to make better decisions.
- Financial management is one of the most important and equally challenging aspects of business. Where to invest in a business (smart investment), when and how to cut costs, maintain good cash flow, how to increase profit margins, etc.
- The business has to follow all the rules or regulations set by the authorities. It may include corporate social responsibility, financial policies, legal obligations, etc.
- Another challenge for businesses is integrating business and technology on a consistent basis. Technological progress is faster than the speed of light. If you can’t keep up with them, you’ll fall behind in line.
- Hiring and managing skilled workers is always a difficult task for any business. Your employees can make or break your organization. Hiring the “wrong” people can destroy your organization in no time. People with professional skills, attitude and a friendly mindset are a real asset to your business.
- Data management may be a relatively new entrant to the business arena, but it has quickly become an integral part. Collecting data, classifying it, interpreting it and then using the data effectively is the key to success in the modern business world.
- If you don’t have strong customer service policies in place, everything in your business will fall apart. The customer is king, especially when there is so much competition around. Make no mistake, “angry customers” can ruin your brand’s reputation with the help of the Internet. After all, technology has advantages as well as disadvantages.