Business is an economic activity of sale and purchase of goods and services; which a business person performs to make his living out of it. The gape or margin between sale and purchase is profit; which is usually the main concern of any business person. The bigger the profit margin is, the more interesting it would be for the businessman.
We can also say that business is the process of adding value into something as an input and the output is our final product or service. A barber provides the service of haircutting and adds some value to customer’s life; people pay him for his services. Factories buy raw material and add some value and produce the final product. People pay a much higher price for the final product.
Definition of Business
According to many business authors like Hughes and Kapoor, Griffin and Ebert, business can be defined as organized efforts of individuals and groups to produce and sell goods or services to make a profit and satisfy the human needs.
Objectives of Business
We can divide the business objectives into two main categories; economic objectives and social objectives.
Economic Objectives of Business
A business runs within the economic environment, it has its economic objectives which are as follows;
- Profit generation. Big or small, whatever the size is, generating maximum profit is the main objective of every business. It is because profit covers all the business expenses, its survival won’t be possible without it.
- Employment creation. When the business expands, then it needs more people to manage its operation. In other words, more employment opportunities for people, therefore, survival of business is necessary for the economy.
- Risk-taking. Starting a new venture is always risky, if it is a calculated risk, then it’ll pay off good.
- Contributing the main country’s economy. If the business runs smoothly and keeps making a profit, then it’ll keep on contributing it to the country’s economy in the form of taxes.
- Customer demand creation. Businesses must make sure that their product or service should be in great demand by customers.
Social Objectives of Business
According to Dayton Hudson, business is not only making money but also serving society.
- Business demands the market to react and customer’s feedback which works both ways consequently.
- Business creates employment opportunities for the local people to earn their livelihood.
- Business environment promotes innovation and creativity to compete in the market.
- Business activity circulates the wealth in society and everyone gets part of its share.
Types of Business
Some of the important types of business are as follows;
It is a skill-oriented type of business that offers intangible value to its customers, it is something which is not physical but you see and feel it. For instance, service businesses and professions are hospitals, banks, school, teacher, barber, mason, electrician, accounting and law firm, etc
Manufacturing is a type of business which buys raw material from different sources, then combine it with service of experts and other factory overhead. Then finally produce something as a result of all the efforts.
Merchandising is a type of business which buys products from the manufacturers and distributors at a wholesale price, and then sells it to the customers at a retails price.
Grocery stores, shopping malls, distributors, convenient stores usually under this category.
As the name implies, hybrid businesses perform multiple, different and unrelated activities under the single umbrella. Hotels and restaurants are very good examples of hybrid business because they prepared the meal for their customer by using raw materials (manufacturing), then they offer them bottles and drinks (merchandising). Customer service, a completely separate field and they also have to perform it.
Forms of Business Organization
When we talk about business formation and management, then there are generally five forms or kinds of businesses; which are given below.
Sole proprietorship means single ownership; one person owns the whole business and manages different operation of the business. Setting up of sole proprietorship is very simple and easy because you can start it anytime, it doesn’t matter if you have fewer resources or more.
If it works well, then you’ll enjoy the whole profit without sharing it with anyone. If it doesn’t work out, then you can pull your resources without anyone’s approval. You have a complete authority over all the operations of the business. it has a tax advantage, you don’t have to pay the taxes twice on your income and your income and business profit is the same thing.
The downfall of this business is that you have the unlimited liability of your whole business. If it runs into losses, then it would make you bankrupt.
Two or more people partner up to start the business; the primary advantage of partnership is that liability of business operations is equally divided among partners. If the business runs into losses, then you don’t have to bear the burden alone. Your partners will be there to share it with you. The same goes for taxes, all the partners will share the taxes equally.
If you want to make some changes in the operations of the business or want to launch some new product, then you’ll need permission and approval from the partners. You can’t make a decision solely. If the business makes a profit because of your efforts, then you have to share the profit and credit with partners as well.
Red Bull & GoPro, Uber & Spotify, and West Elm & Casper are some of the well-known brand which are in the partnership business.
Corporation itself is a personality and a legal entity completely separated from its owners; owners of corporations are in the form of shareholders and stockholders. By a separate personality and legal entity means that it acts like a person and it’s also treated like an individual legally; the government applies taxes on corporations and holds her responsible for her actions. If the company goes bankrupt, you’ll only lose a percentage of your share. You don’t have to liquidate your assets to pay for everything.
You don’t have to worry about the operations of the business; you’ll get your return of investment when the company makes a profit. Corporation puts a very less liability on individuals.
Maintaining the record of corporations is very costly, you can’t do anything without a chain of command, and you must follow a certain protocol. Double taxation is another problem; first taxes on the profit of the corporate, and then on the individual income and profit.
Amway, Newman Owns, and eBay are the prominent corporations in the world.
Limited Liability Company (LLC)
Limited Liability Company is the mixture of both partnership and corporation; where you enjoy the freedom and less responsibility of a corporation without paying any double taxes for it.
In LLC, you act like a corporate person and pay taxes like a partner. It is a very flexible form of business which protects personal assets of individual.
Blockbuster and Westinghouse are in the business of limited liability companies.
It also goes by the name of cooperative societies, where a group of people work together for the mutual benefit of its participants. The person who brings all the people together and initiates it, they call him a member.
Credit union, electricity and water utility cooperatives, banking cooperative and housing cooperative are some of the examples of cooperative business.
How to Choose a Right Business Structure
The question comes to our mind after our discussion that what type of business we should start; we have to keep in minds numbers of things which are following;
Legal Liability Concerns
The first you should ask yourself to what extent you’re capable of managing the legal obligation of your business. Or you’re going to rely on the consultation of professional because hiring a legal firm costs a lot of resources to look after your business.
If you have a lower understanding of legal issue and also fewer resources to hire a lawyer, then sole proprietorship and partnership is a very good choice for you.
The government imposes different percentages of tax rates on different types of business; for instance, double taxes on corporation. If you fail to comply with the tax return; then the government would seize your accounts and you won’t be able to perform any financial transaction.
If you have big ideas and stakeholders to finance it and to cover up taxes, then corporations are good options. Otherwise, choose LLC, partnership or proprietorship.
Formation and Administrative Cost
Formation of a corporate company requires a lot of legal and administrative work like registering a company’s name, location, office, phones number, company’s account, number of stakeholder, their details, sending an invitation letter to all of its members for the meetings, keeping a record of all the procurement, and documentation of all the costs.
When you have hundreds of daily transactions and shareholders keep on changing, then you need a separate department to manage it all. Having an admin department is very costly; it should also be kept in mind.
Proprietorship and partnership have almost unlimited liability. If you have a lot of resources, but not the time to manage the minor details of your business; then going for the corporate business or LLC would be the most suitable choice.
It is normal to think for the profit, but the future also lies ahead. What is profitable today, perhaps it’ll be out of business tomorrow. It is also a possibility that a business which is struggling today, it’ll be the next big thing tomorrow.
One should also keep in mind the growing trends and the new big ideas; because the time doesn’t stay the same. It keeps on changing, people needs and demands are also changing along with it.
Before jumping into the new business venture, one should keep in mind the resources, time flexibility, growing trends in the market and demands of the customers. Most importantly, your understanding of the business and managing its operation; if you know, then good. Otherwise, either partner up or hire someone who has the skill and abilities to fill in the blank.