What does a business really mean? Simply put, a business is defined according to the law as an enterprising entity or body charged with managing business affairs. The head of any such body is called a company officer and he has to report to the board of directors which appoint him.
The motive of any company in its day to day activities is determined by the nature of the business it undertakes. A manufacturer produces goods for sale and gets paid when they are sold. He does not get paid when they are purchased but only when they are resold. In both cases the manufacturer and the retailer have an economic activity.
Profits and losses in such cases are calculated on the basis of the value of good sold minus the value of good purchased. A sole proprietor does not have to calculate any profit or loss. His earning only depends on his production and the profit on the same depends solely on the demand for his product. Many businesses are conducted on the basis of cooperative action by the different partners. Such businesses are called co-operative businesses.
Business enterprises employ people who produce the goods and earn income out of them. Production may take place in the form of output may be physical as well as logical. Means of employment opportunities include all those engaged in producing the goods and who earn by employing other people to work in their firm. Employment opportunities in natural resource and natural resources enterprises are numerous.
Distribution is another important function of all businesses. It involves making available to the consuming public the goods manufactured by the firm. Distribution can take the form of retail sales, sale to producers through markets, and use by individuals either for private consumption or for profit. An entrepreneur who produces goods to be sold also has a distribution function. In a socialist economy, distribution functions tend to be carried out through the state.
The earning of income is the main objective of all business activities. It includes the sale of goods to be consumed, the amount received from the sale, the value of the invested capital and the earnings from the sale. If there are no consumers and if no investment has been made to create employment opportunities, the total earning of the firm is zero.
Distribution can be categorised into two types: primary and secondary distribution. Primary distribution takes the form of the products bought by the consuming public. Secondary distribution takes the form of the value of the services produced by the producer. Business enterprises that have large scale of primary distribution activities usually sell more goods than those having small scale distribution activities. The primary producers sell raw materials, intermediate goods and finished goods to the consumers. Business enterprises having primary distribution activities earn more income than those having secondary distribution activities.
The success of a business organization depends upon its profit margins. A firm can enjoy a higher profit margin when its business activities generate more income for the consumers. A firm can increase its profit by increasing the rate of production of the output per input. The volume or quality of a firm’s output also plays an important role in determining its profit margins.
Many small business enterprises and limited liability companies are usually run on a profit motive. In these businesses the owners generally do not participate in the management of the business. They are called sole proprietors. These businesses have one or two corporate owners, and they conduct their businesses in the same way as other businesses do.
A large number of businesses today are family owned and operated businesses. Many businesses today were started by one or more people who were deeply involved in the day to day activities of the business. Family owned businesses provide excellent family values and many businesses that have been started by a family are highly successful. In order to run a successful business, it is important that the owner has a thorough knowledge of his business, including finance, marketing, production, distribution and financing. Without proper knowledge of his business, the owner cannot deliver value to his customers.
Small scale businesses and sole proprietorships are relatively new concepts. In this day and age many businesses are corporation. A corporation is a separate legal entity from its stockholders. Corporations are allowed to have many shareholders. It is also important to understand that corporations are completely dependent on their owners for their continued operation. In order for a corporation to continue to prosper, its owners must continually make their businesses profitable.