What Is Business? – Definition, Concept & Types
Business is either your occupation, profession, or trade, or is a commercial activity which involves providing goods or services in exchange for profits.
Profits in business are not necessarily money. It can be a benefit in any form which is acknowledged by the business (entity) involved in the business (activity).
To make things clearer, let us divide the business definition into business entity definition and business activity definition.
A business (entity) is an organisation or any other entity engaged in commercial, professional, charitable or industrial activities. It can be a for-profit entity or a not-for-profit entity and may or may not have a separate existence from the people/person controlling it.
A business (activity) is a commercial activity which involves providing goods or services with a primary motive of earning profits.
Concept Of Business
The business concept is the fundamental idea behind the business. The business model, plan, vision, and mission are developed based on this concept. Uber, for example, was started on the concept of aggregating taxi drivers and providing their services on demand under one brand. Every other business strategy was developed based on this concept.
Objective Of The Business
The business objective is what makes the business go on and conduct its activities in a long run. It is the reason why the business exists. While most of the people argue that profit making is the core objective of every business. Few have come up with the new underlying objective.
According to the traditional concept, business exists only to earn profits by providing the goods and services to the customers.
According to the modern concept, the underlying objective of every business is customer satisfaction as this is what results in most profits. If the customer is satisfied, business excels.
Types Of Business
Businesses can be classified into but are not limited to 4 types. These are –
Manufacturing businesses are the producers who develop the product and sell it either directly to the customer or the middlemen to conduct sales. Examples of manufacturing businesses are steel factories, plastic factories, etc.
This type of business deals in selling intangible goods to the consumers. Unlike tangible goods, services cannot be stored or separated from the provider.
Service firms offer professional services, expertise, commission-based promotions, etc. Examples include salons, schools, consultancy etc.
Merchandising is a middlemen business strategy where the business buys products from a manufacturer, wholesaler, or other partners, and sells the same at the retail price. It is usually known as a ‘buy and sell’ business as they make profits by selling the products at a price higher than their cost price.
Examples of a merchandising business are grocery stores, supermarkets, distributors etc.
Hybrid businesses have the characteristics of two or more types of businesses explained above. For example, a restaurant develops its own dishes (manufacturing), sells the products like cold drinks which are manufactured by other businesses (merchandising), and provide service to the customers (service).
Forms of Business Ownership
Business ownership comes in many forms based on the number of owners, the liability of the owners, representation, and motives. These are –
Sole proprietorship is a business owned and operated by a single individual. It is easy to set-up, operate, and register. All the profits of the business belong to the owner and he’s also liable for all the liabilities incurred.
The biggest drawback of this business that the owner faces unlimited liability. This means that the creditors of the business can go after the personal assets of the owner if the business is unable to pay them.
When two or more persons join hands to run a business, they usually come into partnership. Partnerships come in two forms – general and limited. A general partnership is like sole proprietorship but with more than one owner where all the owners face unlimited liability. In limited partnerships, some or all of the partners have limited liability.
A corporation is a business which has a separate legal identity from the people who own or run it. Ownership is usually represented in the form of shares of the stock.
Owners enjoy limited liability but are not necessarily involved in running the business. The business is operated by a group (board of directors) elected by the shareholders.
Limited Liability Company
A limited liability company is a hybrid form of business which has characteristics of both a corporation and a partnership. A partnership because it is not incorporated and a corporation because all of the partners/owners enjoy limited liability.
Cooperative is a private business organisation owned and controlled by people for their mutual benefits. These people are called members and are benefitted by the goods and services offered by the cooperative. All members are expected to help run the business as the main motive of the cooperative is to provide service to all the members rather than a return on investment.
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