What Is a Business?
The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfill a charitable mission or further a social cause. Businesses range in scale from sole proprietorships to international corporations and can range in size from small to large.
The term business can also be used to define the efforts and activities of individuals to produce and sell goods and services for profit.
- A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities.
- Businesses can be for-profit entities or non-profit organizations.
- Business types range from limited liability companies, sole proprietorships, corporations, and partnerships.
- There are businesses that run as small operations in a single industry while others are large operations that spread across many industries around the world.
- Apple and Walmart are two examples of well-known, successful businesses.
Understanding a Business
The term business can take on two different meanings. The first refers to an entity that operates for commercial, industrial, or professional reasons. The entity generally begins with a concept (the idea) and a name. Extensive market research may be required to determine how feasible it is to turn the idea into a business.
Businesses often require business plans before operations begin. A business plan is a formal document that outlines the company's goals and objectives. It also lists the strategies and ways it plans to achieve these goals and objectives to succeed. Business plans are almost always essential when you want to borrow capital in order to begin operations.
Determining the legal structure of the business is another important factor to consider. Business owners may need to secure permits and licenses and follow registration requirements in order to begin legal operations. Corporations are considered to be juridical persons in many countries, meaning that the business can own property, take on debt, and be sued in court.
Most businesses operate with the purpose of generating a profit. But that isn't necessarily an essential requirement of running a business. Some businesses have a goal to advance a certain cause. As such, these entities are referred to as for-profit businesses. Organizations that aren't profit-based are referred to as not-for-profit or nonprofits. These entities may operate as:
- Arts, culture, educational, and recreational enterprises
- Political and advocacy groups
- Social services organizations
The second definition of business refers to all of the activities involved with the sale and purchase of goods and services. Business activity can take place anywhere, whether that's in a physical storefront, online, or even on a roadside. Anyone who conducts business activity to earn a living must report this income to the Internal Revenue Service (IRS).
A name is often one of the most valuable assets of a business, so it's important that business owners choose their name wisely.
Types of Businesses
Many businesses organize themselves around some sort of hierarchy or bureaucracy, where positions in a company have established roles and responsibilities. The most common structures include:
- Sole proprietorships: As the name suggests, a sole proprietorship is owned and operated by a single natural person. There is no legal separation between the business and the owner, which means the tax and legal liabilities of the business fall on the owner.
- Partnerships: A partnership is a business relationship between two or more people who join forces to conduct business. Each partner contributes resources and money to the business and shares in the profits and losses of the business. The shared profits and losses are recorded on each partner's tax return.
- Corporations: A corporation is a business in which a group of people acts together as a single entity. Owners are commonly referred to as shareholders who exchange consideration for the corporation's common stock. Incorporating a business releases owners of the financial liability of business obligations. A corporation comes with unfavorable taxation rules for the owners of the business.
- Limited liability companies (LLCs): This is a relatively new business structure and was first available in Wyoming in 1977 and other states in the 1990s. A limited liability company combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation.
Several lines of theory are engaged with understanding business administration including organizational behavior, organization theory, and strategic management.
Business sizes vary. Small owner-operated companies are called small businesses. They are normally run by one person or a small group of people. These companies include family restaurants, home-based companies, clothing, books and publishing companies, dog walking businesses, and people who run trades. Profits are generally low, but enough to sustain the operations, as long as the business owner(s) are able to run in the black.
Mid-sized businesses are classified as those that usually earn between $50 million and $1 billion in revenue. These companies are more established than small businesses, with an employee base that ranges between 100 to 999 people. Forbes listed Fair Isaac, the company behind FICO, as the top mid-sized employer in the United States in 2021. The company had more than 4,000 employees and earned $1.295 billion in revenue in 2020.
Larger businesses, which commonly operate as corporations, are those that employ more than 1,000 people and generate more than $1 billion in revenue. They may issue corporate stock to finance operations. In this case, the company is publicly traded and has certain reporting and operating restrictions, unlike smaller businesses that can operate independently of regulators. Multinational conglomerates like General Electric and Walmart are examples of corporations.
A company may describe its business by communicating the industry in which it operates. For example, the real estate business, advertising business, or mattress production business are industries in which a business can exist.
Because the term business can be interchanged with day-to-day operations as well as the overall formation of a company, the term is often used to indicate transactions regarding an underlying product or service. For example, ExxonMobil conducts its business by providing oil.
Examples of Businesses
Apple is well known around the world for its innovative products, including its personal computers, and range of smart devices, as well as its range of services, such as music and video streaming, and production services.
Founded in 1977 by Steve Jobs and Steve Wozniak, Apple became the first publicly traded company whose value hit $1 trillion. The company's stock trades under the ticker symbol AAPL on the Nasdaq. Intraday trading as of Sept. 17, 2021, ranged around $145, while the market capitalization for the company hit $2.42 trillion.
The company employs more than two million people, including 80,000 individuals who work as direct Apple employees. The remaining jobs include suppliers, manufacturers, and others who are supported through the Apple store. The company reported net sales of $274 billion in 2020, driven primarily by its product segment.
Apple's key to success lies in its family of products and its ability to innovate. The company focuses on design and quality—two key elements that were a key part of Jobs' corporate vision. The products that Apple creates and markets can be used under the same operating system, which allows consumers to sync them together, thus lowering corporate costs. Apple's ability to create, develop, and market new products and services also put it ahead of its competition.
Walmart is one of the world's largest retailers and operates as a multinational corporation. The company was founded in 1962 by Sam Walton in Arkansas. It has more than 10,500 locations in more than 24 different countries and employs over 2.3 million people.
The company went public in 1970 and trades on the New York Stock Exchange (NYSE) under the ticker symbol WMT. As of Sept. 17, 2021, Walmart stock traded around $145 per share and its market cap was $405.92 billion.
Walmart earned $559.2 billion in revenue for the full year of 2021. This figure was driven by online sales through its ecommerce segment and international sales, which were primarily recorded in Mexico and Canada.
Walmart's success can be attributed to several factors, including its brand name, pricing, diversification (especially with the addition of its online marketplace), efficient supply chain management, and its financial strength.
How Do You Start a Business?
There are a number of steps you need to go through in order to start a business. This includes conducting market research, developing a business plan, seeking capital or other forms of funding, choosing a location and business structure, picking the right name, submitting registration paperwork, obtaining tax documents (employer and taxpayer IDs), and pulling permits and licenses. It's also a good idea to set up a bank account with a financial institution to facilitate your everyday banking needs.
How Do You Start an Online Business?
Starting an online business involves some of the same steps as a traditional business—with a few exceptions.
You still need to do your market research and develop a business plan before anything else. Once that's done, choose a name and structure for your business, then file any paperwork to register your organization.
Rather than finding a physical location, choose a platform and design your website. Before launching your business, you should find a way to build up your target market, whether that's through traditional marketing means or more creative ways like social media.
How Do You Come Up With a Business Name?
Your business name should fit the type of organization you plan to run and it should be catchy—something that people will gravitate toward and remember, not to mention associate with you as well as the products and services you plan to sell. Originality is key. And most importantly, it should be a name that isn't already in use by someone else. Go online and do a business name search to see if it's available or already registered.
How Do You Write a Business Plan?
Business plans are essential to run your business and can help you secure the funding you need to start your operations. You can choose between a traditional or a lean business plan.
A traditional business plan is very comprehensive with a lot of details. This includes a summary of the company and the ways it will succeed. It also includes information about your market, management, products and services, marketing, and sales projections.
Lean formats are shorter but still contain very useful information such as partnership details, outlines of the business activities and customer relationships, cost structures, and revenue streams.
You can find templates online or come up with your own business plan document.
How Do You Get a Business Loan?
Not everyone has the funds to start their own business, which is where loans come into play.
Decide what kind of loan you want. You can go to a traditional lender or one that operates online. Or you may want to consider a government-backed loan, such as those offered through the Small Business Administration.
Regardless of what option you choose, prospective lenders want to see details on paper, especially if and when you're just starting out. Make sure you have your business plan ready, including outlines of costs and revenue streams.
As a new business owner, ensure you have a good credit score (since your business isn't off the ground yet) and you may need to put down some collateral to secure the loan if you're approved.
The Bottom Line
Businesses are a very important part of the economy. They provide products and services that can be purchased by individuals and other companies. Businesses range in size from small to large and operate in many different industries. Business structures also vary from sole partnerships to major corporations that provide shareholder equity to their owners.
If you're looking to start your own business, make sure you do your research and develop a business plan. This allows you to raise the money you need to start your operations. If you keep it simple in the beginning, you may end up with an idea that can help you develop your business and reach the same heights as Apple and Walmart.