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Business enterprise meaning
To understand the meaning of the term business enterprise, you first have to understand the difference between a social enterprise and a business enterprise.
An enterprise can be defined as undertaking an activity that requires a lot of effort to develop.
A social enterprise involves helping others without receiving a commercial benefit in return. On the other hand, a business enterprise consists of producing goods or services in exchange for commercial and financial benefits.
Examples of business enterprises include all the companies you pay to receive a good or service from. These may include your local shop or your Netflix subscription, both of which are business enterprises.
A business provides goods and services to what we call customers. Goods refer to physical goods that usually go through a production process. This may involve bicycles, chocolate, or whatever item you pay to receive.
Other businesses provide services instead of physical goods; this involves intangible products, such as a private lesson from a math teacher or personal trainer.
All these goods and services are delivered to customers. A customer refers to anyone who purchases these products. Consumers use the product or service but do not necessarily buy them.
For instance, if your parents pay for your Netflix subscription, you are the consumer and your parents are the customer. If they also watch Netflix with you, they become consumers and customers simultaneously.
The business enterprise depends on customers, goods, and services for its very existence. These three components are intrinsically linked to the meaning of business.
Types of business enterprises
There are many types of business enterprises providing a wide variety of services or products. Business enterprises can be classified into three main categories, according to the production stage:
Business Enterprise: Primary sector
The primary sector involves businesses that are at the beginning of the production processes. These businesses make sure that the raw materials are created and produced to be used later by other companies.
Primary companies are mostly made of business-to-business (B2B) models, where you have one business supplying to the other. For example, oil exploration companies produce oil that retail companies sell, or other businesses use for production processes. Restaurants use agricultural goods produced by this sector to provide meals to their customers.
Primary sector example - Oil Pump, Wikimedia Commons
Business Enterprise: Secondary sector
The secondary sector consists of business enterprises at the second step of the production process. These businesses use raw materials produced from the primary sector to develop into new goods and services. For example, car manufacturers use raw materials to build new cars, which they later supply to customers.
Secondary sector example - Manufactured car, Wikimedia Commons
Business Enterprise: Tertiary sector
The tertiary sector involves business enterprises concerned with providing services to individuals.
Examples of companies in the tertiary sector include banks that help individuals get loans or airline companies that enable one to fly around the world.
Keep in mind that a business enterprise can offer goods, services, or both. You could buy a car provided by Tesla, go to a travel agency for your next trip to Europe, or go to a restaurant and receive goods and services combined.
Tertiary sector example - Travel agency, Wikimedia Commons
Functions of a business enterprise
The four basic functions of a business enterprise are Finance, Operations, Human Resources, and Marketing.
Business Enterprise: Finance
One of the essential functions of a business is raising and managing money. A business enterprise may use internal or external sources of finance to raise the funds needed to get the business going. Internal sources of finance involve the money that business owners invest in their own business.
In contrast, external sources of finance involve cash from outside sources, such as money from family, banks loans, and investors. After the money starts moving around the business, the business managers should manage it cautiously so they don’t have too many costs, thereby failing to make any sales.
Business Enterprise: Operations
An important function of a business enterprise is the use of raw materials to produce new goods that will be served to customers. A business also uses its resources to provide services to customers. A business enterprise is always concerned with producing types of goods or offering services that meet the needs and demands of customers. If this need or demand is not met or is relatively small, there is no real purpose for production.
Business Enterprise: Human Resources
Another important function of a business enterprise is that of human resources. A business needs to get the right human capital to provide goods or services. This entails hiring people with the necessary expertise and skillset that the production process requires.
Business Enterprise: Marketing
Marketing is concerned with commercializing the goods and services a business offers. This includes pricing strategies, strategising the way customers are approached, and determining why someone would want to buy the good or service.
Importance of business enterprise
Amazon's market capitalization is slightly above $1.5 trillion. Jeff Bezos owns just under 10% of the company. This implies that Jeff Bezos has earned over $150 billion from Amazon. However, the rest of Amazon's market capitalisation value lies in the economy and is shared among investors, consumers, and the rest of the population.
To further illustrate the importance of a business enterprise, think about how many jobs Amazon has created, how many needs it has met for customers, and how much easier it has made our shopping life, especially throughout the COVID-19 pandemic.
Business enterprises are crucial to the economy for the following reasons:
Business Enterprise: Economic development
Business enterprises are critical to the advancement of the economy. Industries use people, money, resources, procedures, and machinery, all of which contribute to creating jobs. They also aid in earning foreign cash via the export of goods.
The development of industries aids in better use of natural resources, which is advantageous for society as a whole. These natural elements contribute to the growth of the country's economy and therefore to its overall well-being.
Business Enterprise: Solving problems
Business enterprises serve the function of meeting human needs and solving problems for the betterment of society. These companies have the incentive to develop innovative products that through this problem-solving improve our lives, a goal that any entrepreneurial start-up aims to achieve.
Business Enterprise: Creating jobs
Business enterprises are a vital source of jobs in an economy. As most business processes depend on labour, this gives job seekers opportunities for work. Economies with fewer enterprises tend to struggle with higher levels of unemployment.
Business Enterprise: Investment opportunities
The establishment of new industries and businesses is important for people looking to invest and become part of the growth of a company or an industry. Think how many early investors in Facebook or Amazon, or Apple benefited from investing in these business enterprises.
Furthermore, the profit earned by the investors as a result of the company's successful operation contributes to the accumulation of a greater quantity of savings, which may be used to fund future businesses. As a result, business is crucial in creating investment possibilities.
To sum up, business enterprises produce goods and services in exchange for commercial benefits. As drivers of innovation and investment, problem solvers, creators of jobs, and stimulants to the overall economy, these enterprises serve a vital function in our society.
Business Enterprise - Key takeaways
- A business enterprise consists of the production of goods or services in exchange for commercial and financial benefits.
- Business enterprises include all the companies one pays money to in exchange for goods or services. These could include a local shop or a Netflix subscription.
Types of business enterprises include the primary sector, secondary sector, and tertiary sector.
Functions of a business enterprise include Finance, Operations, Human Resources, and Marketing.
Reasons why business enterprises are important: economic development, solving problems, creating jobs, and investment opportunities.
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Frequently Asked Questions about Business Enterprise
What is a business enterprise?
An enterprise can be defined as undertaking an activity that requires a lot of effort to develop, and a business enterprise consists of producing goods or services in exchange for commercial and financial benefits.
What are examples of business enterprise?
Examples of business enterprises include all the companies you pay to receive a good or service from. These may include your local shop or your Netflix subscription, both of which are business enterprises.
What is the role of business enterprise?
A business enterprise consists of producing goods or services in exchange for commercial and financial benefits.
A business provides goods and services to customers. Goods refer to physical goods that usually go through a production process such as clothes.
Other businesses provide services instead of physical goods; this involves intangible products, such as a private lesson from a math teacher or personal trainer.
What are the three types of enterprise?
Business enterprises can be classified into three main categories, according to the production stage:
- Primary sector - businesses make sure that the raw materials are created and produced to be used later by other companies.
- Secondary sector - use raw materials produced from the primary sector to develop into new goods and services.
- Tertiary sector - involves business enterprises concerned with providing services to individuals.
Why is enterprise important to a business?
Economic development, solving problems, creating jobs, and investment opportunities are a few reasons why an enterprise is important.
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