Nature of Business

Business meaning

Business is a broad term but is usually referred to as the profit-generating activities which include the provision of goods or services wanted or needed by people in exchange for a profit. Profit does not necessarily mean cash payments. It can also mean other securities such as stocks or the classic barter system. All business organisations have a few common characteristics: the formal structure, aim to achieve objectives, use of resources, the requirement of direction, and the legal regulations controlling them. Based on the factors such as the degree of liability, regulation on tax exemptions, business organisations are divided into the following: sole-proprietorship, partnership, corporations, and limited liability companies.

What is a business concept?

A business concept is a statement representing a business idea. It includes all the key elements – what it offers, target market, Unique Selling Proposition (USP), and feasibility of succeeding. It explains why the businesses’ USP provides itself with a competitive advantage in the market. A developed business concept is then added to the business plan for the successful implementation of the concept.

What is the purpose of business?

The purpose of every business is to offer/add value to their customers’ lives through the products or services they offer. Every business markets its offerings with the promise of making its consumers’ lives a bit better by adding value. And the purpose of business is to act on this promise. Businesses should make sure that their corporate vision reflects their purpose.

Different stakeholders may have different answers as to what the purpose of business is. A shareholder might say that the purpose of business is to create profit, as it would only benefit him when the business grows financially. A politician may believe that the purpose of a business is to create long-term jobs. But profit and job creation are means to run a business, as businesses cannot generally be sustained without profits and employees combined.

What is the nature of business?

The nature of a business describes the type of business it is and what its overall goals are. It describes its legal structure, industry, products or services, and everything a business does to reach its goals. It depicts the business’s problem and the main focus of the company’s offerings. A company’s vision and mission statement also provide an insight into its nature.

A mission statement provides an overview of the overall purpose of an organisation. It is a short statement that describes what the company does, who they do it for, and what its benefits are. The company vision describes what it aims to achieve in the future, to fulfil its mission. It should provide guidance and inspiration to employees.

The following aspects determine the nature of business:

• Regular process – the profit-generating processes that are regularly repeated.

• Economic activity – activities that maximise profit.

• Utility creation – a kind of utility the goods or services create for the consumer, such as time utility, place utility, etc.

• Capital requirement – the amount of funding required for the business.

• Goods or Services – types of goods (tangible or intangible) offered by the business.

• Risk – the risk factor related to the business.

• Profit earning motive – the businesses’ profit-earning motive.

• Satisfaction of consumers’ needs – based on the consumers’ satisfaction.

• Buyers and sellers – the type of buyers and sellers involved in the business.

• Social obligations – all businesses have corporate social responsibilities to undertake.

List of natures of businesses

The characteristics grouped in the following categories help to describe the nature of businesses:

Figure 1. List of Natures of Business, StudySmarter Originals.

Types of businesses explained

The meaning of the various natures of business is explained below.

• Public sector: this sector consists of only the government and companies controlled by the Government. Examples are The National Health Service (NHS), The British Broadcasting Company (BBC).

• Private sector: this sector consists of privately (individually or collectively) run businesses that are run for profit. Examples are Greenergy (fuel), Reed (recruitment).

• International sector: this sector includes exports from foreign countries. Examples are McDonald’s and Coca-Cola.

• Technological sector: this sector relates to the research, development, or distribution of technologically based goods and services. Examples are Apple Inc. and Microsoft Corporation.

• Sole proprietorship: this sector includes businesses run by a single person. There is no legal distinction between the owner and the business entity. Examples are local food joints and grocery stores.

• Partnership: this sector includes businesses run by two or more people under a legal agreement. Examples are Microsoft (Bill Gates and Paul Allen) and Apple (Steve Jobs, Ronald Wayne, and Steve Wozniak). These started as partnerships.

• Corporation: this sector includes a large company or a group of companies acting like one. Examples are Amazon and JP Morgan Chase.

• Limited liability company: this sector includes a business structure wherein the owners are not personally liable for the debts or liabilities of the business.

• Limited liability partnership: business structure wherein all partners have limited liability towards the business. Examples are Brake Bros Ltd and Virgin Atlantic.

• Service business: this sector includes businesses that offer intangible products to their customers. They cater to their customers by providing professional advice, skills and expertise. Services may be business services (accounting, law, taxation, programming, etc.), personal services (laundry, cleaning, etc.), public services (recreational parks, fitness centres, banks, etc.), and many more.

• Merchandising business: this sector includes businesses that buy products at wholesale prices and sell them at retail prices. Such businesses earn profit by selling products at a price higher than their cost price. Examples include all retail stores (stores selling clothes, drugs, appliances, etc.).

• Manufacturing business: this sector includes businesses that buy products and use them as raw materials to produce their end product. The end product is then sold to the customer– for example, the purchase of eggs for cake production by a food manufacturer.

• Hybrid business: this sector includes businesses practising all three activities. For example, a car manufacturer sells cars, buys old cars and sells them for a higher price after repair, and offers repairs for faulty car parts.

• For-profit organisations: this sector includes businesses that aim to create a profit through their operations. Such businesses are privately owned.

• Non-profit organisations: such organisations use the money they receive towards the betterment of the organisation. They are publicly owned.

Do businesses exist only to make a profit?

It is a common misperception that businesses exist only to make a profit. Although this was the previous understanding of business, this does not stand true anymore. Profit-creation is not a core reason for businesses to exist but is a means for a businesses’ existence - it can be considered a means to an end. Profits help a business to do better and improve its quality. Businesses will not survive in the market without making a profit; thus, this is considered a business objective. So businesses do not just exist to make a profit.