A business is an organization or entity involved in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to provide service to customers for profit.
Business administration is also a social science that studies business operations. A business is legally recognized as a separate entity from its owners.
What is a Business?
Businesses are organizations or enterprising entities engaged in commercial, industrial, or professional activities.
Businesses is an organization that provides value to its customers through services or products they produce and or distribute.
The Case for a Business
The Economic Problem
The economic problem is that there are a finite amount of resources that cannot satisfy all needs and unlimited wants in a given country. Simply put, there is a scarcity of factors of production.
The Factors of Business Production
Land
Land includes all-natural resources such as fields, gas, oil, trees, metals, and other minerals.
Capital
Capital comes in different forms, but it is the resources needed to manufacture or deliver goods and services. These include finances, equipment, machines, vehicles, and other types of assets.
Labor
Labor is represented by people who deliver the efforts needed to make products or provide services.
Enterprise
This is the skill of bringing all the other factors of production together to produce goods and services. This involves risk-taking ability and is usually associated with entrepreneurs.
Business Objectives
Business objectives depend on the type of business. Businesses are founded by people and others by the government, the motivations and purposes usually differ.
Individuals are usually profit-focused and governments are usually motivated to deliver community service. Businesses are usually started around these objectives:
- To increase market share
- To make a profit
- To increase add value
- For Business growth (expansion)
- For business survival
- To provide a public service (community service)
Profit
A privately-owned business exists to deliver a profit for its shareholders. At the end of the accounting year, shareholders are entitled to their percentage share in the amount of the profits (after tax and interest).
A profit-motivated business always tries to optimize its return on investment. This is also regulated by the market forces of supply and demand which prevent any type of negative behavior such as overpricing.
Value Added
Value add is adding value by bringing materials together to make a final product. If you are assembling a car with material that costs $2500 and selling it for $5500, the Added Value is $3000.
Business Growth
Company directors may seek to invest profits in a new business venture to keep the main business growing. Expansion my take please for other reasons such as:
- To increase market share
- To gain a cost advantage by adding a business in their value chain
- To open up new opportunities
- To reduce business risk depending on a limited income stream
Survival
A scenario when sales are declining and the businesses are under pressure to uphold income above costs is a race to survival. A business may be kicked into survival mode because of:
- Economy is experiencing a recession
- Raw material costs have gone up or are volatile
- New competitors threaten the business
- Loss of market share
- Sales are declining
Provide a Public Service
Some services are essential and are provided by the government in to keep the prices low and affordable for the general public. These public goods are not delivered with a financial profit motivation, they include:
- Electricity
- Water
- Street lighting
- Roads
- Public hospital
- bridges
Business Stakeholders
Business activities involve and impact different groups of people. These people are defined as stakeholders. A stakeholder is anybody who is interested in the performance and activities of a business. Stakeholders of a business mainly fall into these categories:
- Business owners
- Directors
- Employees
- Customers
- Government
- The Local Community
Business Owners
A business owner is the capital investor in a business. They bear the risk of the performance of the business, however, if the risk pays of they get rewards with profits distributed to shareholders.
Directors
A director is part of a board of directors. The board of directors is made up of people nominated by the business owners whose main interest is to grow the business.
Employees
They are employed by the business and are generally led by their superiors to attain business goals and objectives.
Customers
A customer is the main reason the business exists in the first place. They buy the goods and services produced by the business.
Government
The government is the custodian of the economy in which the business operates. The government regulates and licenses businesses according to its laws and statutes.
The Local Community
The community is made up of people who live in the location in which the business operated. They benefit in the form of jobs