What is a Business and why do they exist? Explained by Digimagg
Discover the essence of businesses and their significance in the economy, from providing goods/services to driving innovation and economic growth.
What is a Business?
A business denotes an entity involved in commercial, industrial, or professional endeavors, aimed at organizing economic production of goods or services. Entities can operate for-profit or serve charitable or social causes. Businesses vary in size and reach, from sole proprietorships to multinational corporations. Additionally, the term encompasses the endeavors of individuals engaged in profit-driven activities to produce and sell goods and services.
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Here are the main points to remember: - A business is an organization or entity involved in commercial, industrial, or professional activities. |
Understanding a Business
The term "business" typically denotes an entity engaged in commercial, industrial, or professional pursuits. The journey starts with conceptualization and nomenclature, often necessitating thorough market analysis to assess the viability of transforming the concept into a business.
Businesses commonly mandate the creation of business plans prior to commencement of operations. A business plan serves as a formal blueprint detailing the company's aspirations, strategies, and tactics to achieve its goals and objectives. Such plans are indispensable, particularly when seeking financial backing to initiate operations.
Deciding on the business's legal framework holds significance as owners may need to obtain permits, licenses, and adhere to registration prerequisites to commence lawful operations.
In numerous countries, corporations are recognized as legal entities, granting them the ability to own assets, incur debts, and be subject to litigation.
Most businesses aim to generate profit, termed for-profit. Conversely, some businesses operate with a goal to advance a cause rather than profit, known as not-for-profit or nonprofit. These entities encompass charities, arts and cultural organizations, educational institutions, recreational enterprises, political and advocacy groups, and social services organizations.
Business operations commonly entail the exchange of goods and services, occurring in various settings such as physical storefronts, online platforms, or roadside setups. Individuals engaged in business activities yielding financial gains are required to report their income to the Internal Revenue Service (IRS).
Businesses often delineate their operations by industry. For instance, real estate, advertising, and mattress production represent distinct industries. The term "business" frequently denotes transactions related to a specific product or service; for instance, ExxonMobil conducts its business by supplying oil.
Types of Businesses
Various legal and tax structures correspond with different ways of organizing a business, with common classifications and structures including:
Sole Proprietorship: Owned and operated by a single individual, with no legal distinction between the business and its owner, leading to the owner's sole responsibility for tax and legal liabilities.
- Partnership: Involves a business relationship between two or more individuals who collectively conduct business, with each partner contributing resources and finances, and sharing profits and losses, which are recorded on each partner's tax return.
- Corporation: Functions as a single entity with ownership represented by shareholders who acquire the corporation's common stock, resulting in owners being relieved of financial liability for business obligations. However, corporations are subject to unfavorable taxation regulations for owners.
- Limited Liability Company (LLC): A relatively recent business structure, combining the tax advantages of pass-through taxation from partnerships with the limited liability protection of corporations, first introduced in Wyoming in 1977 and subsequently in other states during the 1990s.
Business sizes
Large Businesses
Large businesses typically employ 250 or more workers and generate over $1 billion in gross receipts. They may opt to issue corporate stock for operational financing as publicly-traded entities.
Such enterprises often have a presence in multiple countries and are structured into various departments like human resources, finance, marketing, sales, and research and development.
In contrast to small and mid-sized enterprises, which are usually owned and managed by individuals or a small group, large organizations often dissociate their tax obligations from their owners. Instead, an elected board of directors typically oversees most business decisions.
Small Businesses
Small businesses, also known as owner-operated enterprises, are typically managed by one individual or a small group and employ fewer than 100 workers. These businesses span various sectors, including family-owned restaurants, home-based ventures, apparel and bookstores, as well as small-scale manufacturers.
As of 2021, the United States housed an estimated 33.2 million small businesses, collectively employing 61.7 million individuals.
The Small Business Administration (SBA) utilizes employee count and annual revenue to formally categorize a business as small. Across 229 industry sectors, ranging from engineering and manufacturing to food services and real estate, the SBA establishes size standards every five years.
Businesses meeting the SBA's criteria are eligible for loans, grants, and special "small business set-asides," wherein the federal government restricts competition to facilitate small businesses' participation in and success with federal contracts.
Mid-Sized enterprises
In the United States, there isn't a universally accepted definition for a mid-sized or medium-sized company. However, in major cities like Philadelphia, Baltimore, and Boston, when assessing the business environment, a medium-sized company is typically classified as one employing 100 to 249 individuals or generating annual gross sales ranging from $10 million to less than $1 billion.
Illustrations of recognizable enterprises
Apple
Apple (AAPL) is renowned for its cutting-edge products, spanning personal computers, smart devices, and music and video streaming services. Established in 1977 by Steve Jobs and Steve Wozniak, Apple achieved the milestone of becoming the first publicly-traded company valued at $1 trillion.
Employing over two million individuals, including 80,000 direct Apple employees, the company's workforce extends to suppliers, manufacturers, and affiliated personnel.
Apple's success stems from its product lineup and innovation prowess. Prioritizing design and quality, integral to Jobs' corporate ethos, Apple ensures seamless integration across its product ecosystem, reducing operational costs. Its capacity to conceive, develop, and market novel offerings positions it as an industry leader.
Walmart
Walmart (WMT) stands as one of the globe's largest retailers, operating as a multinational corporation since its inception in 1962 by Sam Walton in Arkansas.
With a presence in over 20 countries through more than 10,500 locations, Walmart boasts a workforce exceeding 2.1 million individuals.Going public in 1970, Walmart is listed on the New York Stock Exchange (NYSE). As of May 23, 2023, Walmart's stock traded above $148, commanding a market capitalization of $399.79 billion. Notably, the company generated $611.3 billion in revenue for the full year of 2022, marking a 6.7% increase from the previous fiscal year.
Walmart's triumph is underpinned by various factors, including its renowned brand name, competitive pricing strategies, diversification efforts—particularly evident with its online marketplace—effective supply chain management, and robust financial standing.
How do you start a Business?
Starting a business involves several essential steps. These include conducting market research, crafting a business plan, securing funding, selecting a location and business structure, choosing a suitable name, completing registration paperwork, obtaining necessary tax documents and permits, and establishing a bank account for financial operations.
How can one initiate the launch of an Online Business?
Launching an online business follows many of the same steps as starting a traditional one, but with some differences. Initial steps include conducting market research, crafting a business plan, selecting a business name and structure, and completing registration paperwork. Instead of a physical location, you'll design a website on a chosen platform. Building your target market through various marketing strategies, including social media, is crucial before the official launch.
What is the process for generating a Business name?
Choose a business name that aligns with your organization's nature and is memorable, appealing, and unique. Ensure it resonates with your offerings and identity. Verify its availability online to avoid conflicts with existing businesses.
How to draft a Business plan?
Crafting a business plan is crucial for your enterprise and can aid in obtaining the necessary funding. You can opt for either a conventional or lean approach.
Traditional plans encompass comprehensive elements like company summaries, strategies for success, market analysis, managerial structure, product/service descriptions, marketing strategies, and sales forecasts.
On the other hand, lean formats are streamlined, focusing on pertinent details such as partnership outlines, business activities, customer relationships, cost structures, and revenue streams.
Templates are accessible online, or you can tailor your own plan to suit your needs.
How can one secure a Business loan?
Businesses typically secure funding through loans, which can be obtained from traditional lenders or government-backed programs like the Small Business Administration. Lenders typically require detailed business plans, especially for startups. It's crucial to have a well-prepared business plan outlining costs and revenue projections, along with a strong credit score. Additionally, collateral may be necessary to secure the loan if approved.
In summary, businesses play a crucial role in driving economies, offering products and services to both individuals and other businesses. They span various sizes and industries, from small enterprises to large corporations, each with distinct ownership structures. To start a business successfully, thorough research and a well-developed business plan are essential for securing the necessary funding to launch operations.
