Interestingly, not many of us know what precisely the business is. Yes, we all hear this term daily, yet it seems difficult for us actually to define or explain it. That is why we are going to discuss what is business? Its concept, types, forms, and much more. So stay tuned if you are up for learning something new today.
What Is Business?
Business is an enterprise or activity with the intention to make profits. It can be in the form of a company, partnership, organization, sole proprietorship, occupation, or any entity that undertakes commercial, industrial, charitable, or professional activities to earn profits.
The term “profit” doesn’t necessarily mean anything monetary. It can be a non-monetary benefit in any form which a business entity may deem/consider rewarding. Moreover, a business can be a “for-profit” or “not-for-profit” entity and may have a separate existence from those who run/control it.
Concept Of Business
The business concept is a mandatory idea for any type of business. It sets the foundations or directions that shape the future operations of any business. For instance, the business concept determines the vision, mission, business model, and plan for a business entity.
To make it simpler, let’s have a look at this example. The business concept behind Uber, an American corporation, was to aggregate the taxi drivers under one platform and help them offer their services on demand. Then, the company developed all its business strategies on the basis of this concept.
Objectives of Business
A business may have different goals depending on its financial standing, products, industry, etc. However, generally, we can categorize business objectives in four different ways.
- Economic Objectives basically depend on the financial needs of any business entity. Economic objectives may include growth, profits, survival, etc.
- Human Objectives generally target the business employees, their needs, personal growth, security, satisfaction, motivation, etc.
- Organic Objectives include anything and everything that focuses on business improvement. Common examples include improving brand reputation, strengthening the business, raising capital, innovation, growth, etc.
- Social Objectives include everything that focuses on the betterment of society. Social objectives may include fair price policy, customer satisfaction, quality products, charities, fair employment practices, fair trade practices, environmental protection, etc.
Types Of Business
A business may be of different types, but generally, we can categorize business into four widespread types.
In a manufacturing business, the manufacturer or producer produces one or more products and then sells them to the end consumer to earn profits. A manufacturer may sell directly to the consumer or through intermediaries or middlemen. Common real-world examples include PepsiCo, Tesla, Coca-Cola, Pfizer, Nestle, Apple, etc.
Merchandizing is a type of business in which the seller/business sells tangible products to the customers/consumers. In simple words, merchandising is basically a retail business where the 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.
Services are a type of business where the seller offers intangible goods to other businesses or consumers. For example, a remote professional can provide marketing management services to a firm. Similarly, many firms or business entities offer services directly to the end consumers. Common examples include schools, universities, salons, massage centers, etc. However, it is not possible to separate services from the service provider, and you cannot store services either.
Hybrid businesses are those 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 its customers. Apart from that, they also buy cold drinks from PepsiCo and serve them to their customer base. So basically, KFC undertakes manufacturing and merchandising activities at the same time.
Form Of Business Structure
We can categorize business in different forms on the basis of objectives, ownership, liability, etc. Here are some common forms of business.
In a sole proprietorship, only one individual owns and runs the business. Also, the individual will be responsible for any lawsuits and liabilities while all the profits and losses also belong to the owner.
A sole proprietorship is usually easy to register and operate. There are no legal obligations for minimum capital, number of employees, registered office, etc.
However, in a sole proprietorship, the owner has unlimited responsibility. That is, the creditors of the business have the right to go for the owner’s personal assets in case the owner fails to settle the debts.
A partnership is a form of business where two or more individuals make a formal contract to run a business together. A partnership can be limited or general. However, just like the sole proprietorship, all the partners in a partnership will have unlimited liability (unless otherwise agreed). However, in the case of a limited partnership, one or all partners are liable to a limited extent.
A corporation is probably the most complex form of business. Here is how;
- It has a separate legal identity. i.e., it is a totally different entity than its owners.
- Corporation has to pay tax; it can make profits, initiate a lawsuit, or can be sued as well.
- Corporations raise capital through stocks or shares, and shareholders are the owners of the corporation.
- Generally, owners have limited liability (unless otherwise agreed).
- Owners or shareholders do not necessarily run the business. Rather, they select their representatives (board of directors) to run the corporation and make necessary decisions.
- Corporations have certain requirements to fulfill (depending on their local laws), such as
- A minimum amount of capital
- Minimum number of employees
- Memorandum of association
- Articles of association
It is a form of business in which a group of people (members) own and run a private business for their mutual benefits. The members get their share in all the earnings or profits of the cooperative. Generally, the members have voting rights, and they can elect officers and the board of directors to run the cooperative. Generally, the main objective of a cooperative is to offer services to all members rather than just offering returns on their investments.
LLC (Limited Liability Company)
A limited liability company is basically a combination of two different business structures- partnership and corporation. The members in Limited Liability companies have limited responsibility. Their personal assets cannot be used to pay the debts of the company. Moreover, the members of an LLC don’t have to pay corporate taxes on their profits or losses from the company.
Challenges to a Business
Running a business is not a piece of cake, especially when it comes to corporations. Every business has to face internal and external challenges, such as.
- Coping with the future uncertainty such as market trends, customer trends, changing economic environment. A business has to be proactive to stay competitive in the market.
- Monitoring organizational performance effectively and efficiently is another challenge for any business. Management has to evaluate what is working for them and what is not. They need to develop KPIs and expertise in interpreting and communicating metrics for better decision-making.
- Financial management is one of the most important elements in a business and equally challenging. A business needs to know where to invest (smart investments), when and how to reduce costs, maintain a good cash flow, how to increase profits margins, etc.
- A business has to comply with all the regulations or rules set by the authorities. It may include corporate social responsibility, economic policies, legal obligations, etc.
- Integration between the business and technology on a consistent basis is another challenge for businesses. Technological advancements are even faster than the speed of light. You will fall behind in line if you cannot keep up with them.
- Hiring and managing a skilled workforce is always a herculean task for any business. Your workforce can make or break your organization. Hiring “Wrong” people can demolish your organization within no time. People with professional skills, attitudes, and adaptive mindsets are the actual assets of your business.
- Data management may be a relatively new entrant in the business arena, but it has become an integral part very quickly. Collecting, categorizing, interpreting, and then using the data effectively is the key to success in the modern business world.
- Everything in your business will fall apart if you don’t have strong customer service strategies in order. Customer is the king, especially when there is so much competition around. Make no mistake, “angry customers” can ruin your brand reputation just like that with the help of the internet. After all, technology has its pros as well as its cons.