Business

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A business, also known as an enterprise or a firm, is an organization involved in the trade of goods, services, or both to consumers.[1] Businesses are prevalent in capitalist economies, where most of them are privately owned and provide goods and services to customers in exchange for other goods, services, or money. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company.

Business can refer to a particular organization or, more generally, to an entire market sector, e.g. "the music business". Compound forms such as agribusiness represent subsets of the word's broader meaning, which encompasses all activity by suppliers of goods and services. The goal is for sales to be more than expenditures resulting in a profit.

Basic forms of ownership[edit]

Forms of business ownership vary by jurisdiction, but several common forms exist:

Classifications[edit]

  • Agriculture and mining businesses produce raw material, such as plants or minerals.
  • Financial businesses include banks and other companies that generate profits through investment and management of the capital.
  • Information businesses generate profits primarily from the sale of intellectual property and include movie studios, publishers and internet and software companies.
  • Manufacturers produce products, from raw materials or from component parts, then sell their products at a profit. Companies that make tangible goods such as cars, clothing or pipes are considered manufacturers.
  • Real estate businesses sell, rent, and develop properties including land, residential homes, and other buildings.
  • Retailers and distributors act as middlemen and get goods produced by manufacturers to the intended consumers, and make their profits by marking up their price. Most stores and catalog companies are distributors or retailers.
  • Service businesses offer intangible goods or services and typically charge for labor or other services provided to government, consumers, or other businesses. Interior decorators, consulting firms and even entertainers are service businesses.
  • Transportation businesses deliver goods and individuals to their destinations for a fee.
  • Utilities produce public services such as electricity or sewage treatment, usually under a government charter.

Management[edit]

Main article: Management

The efficient and effective operation of a business, and study of this subject, is called management. The major branches of management are financial management, marketing management, human resource management, strategic management, production management, operations management, service management and information technology management.[citation needed] MD Tarek Owners may administer their businesses themselves, or employ managers to do this for them. Whether they are owners or employees, managers administer three primary components of the business' value: its financial resources, capital or tangible resources, and human resources. These resources are administered in at least five functional areas: legal contracting, manufacturing or service production, marketing, accounting, financing, and human resources.[citation needed]

Restructuring state enterprises[edit]

In recent decades, various states modeled some of their assets and enterprises after business enterprises. In 2003, for example, the People's Republic of China modeled 80% of its state-owned enterprises on a company-type management system.[2] Many state institutions and enterprises in China and Russia have transformed into joint-stock companies, with part of their shares being listed on public stock markets.

Business process management (BPM) is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to improve processes continuously. It can therefore be described as a "process optimization process." It is argued that BPM enables organizations to be more efficient, effective and capable of change than a functionally focused, traditional hierarchical management approach.[who?]

Maintaining business continuity[edit]

The identifying of vulnerable areas of operation, setting priorities, an awareness of dependencies, as well as planning for development, all form part of continuity in a business enterprise. A comprehensive business continuity plan should be designed and implemented, to ensure the maintaining of operational continuity in the event of abnormal conditions prevailing. As in major institutions, any type or size of business can prepare plans that promote rapid recovery, from the after effects of adverse events or conditions. Impacts are minimized, with provisions made to facilitate functioning during and after emergency situations.

It is a development process generally founded on a single framework, involving key individuals in determined functional areas. The plans are based on risk assessment, a potential business impact analysis and include procedures for regular maintenance; for example, testing/drills, training and updates. This is added to with integrated protection of information and privacy factors, within the plan. The concept of such a contingency plan should be based on:

  • Extent of the plan
  • Plan structure and planned cycle
  • Risk management
  • Business continuity
  • Plan development and implementation
  • Personnel training
  • Maintaining the plan and re-assessment periods,

Planning and forecasting[edit]

The process of planning requires the management of a business to determine numerical goals, generally related to the forthcoming 12 months; or for a long-term plan, for three years or over. An action plan is then decided upon by company management and mapped out, with an associated time frame, for goals and objectives to be achieved. The factor of finance becomes influential, on the action stages being converted to the forecasting of numbers in respect of revenues and expenses. Those managers with financial planning expertise have the capacity to generate forecasts that although aggressive, are also attainable. A financial management team must understand the company operating procedures sufficiently, for them to structure financial models, based on realistic projections.

Business finance is a function utilizing numbers and analytical tools, designed to help managers towards making the best possible decisions. It is an advantage for any business owner to be aware of at least the basic principles of business finance[3], in order to effectively control their company. Finance is an integral aspect of a business operation, providing vital statistics that help executive management review the current financial position, especially with regard to the profitability factor. Companies, irrespective of their size, benefit from dedicated financial planning, which is a guideline towards future growth potential.

Decision making analysis[edit]

Within the factors of business management, the aspect of finance can be regarded as being similar to the hub of a wheel. It is the mechanism around which various decisions related to company applications are based. Irrespective of the size and nature of the decisions to be made during the final analysis, it is the financial position and/or committment, or gain that will determine the result. The gathering of relevant data and on occasions, the complex financial modeling utilized in business finance, provides the motivation and confirmation to ensure the maximum, efficient utilization of its resources. These can include its capital, productive capacity and human resources.

Budgets in relation to any type of business are made with the best available projections and with a budget variance analysis, compares actual performance to those projected. Potential problem areas can be determined, as well as opportunities, based on the solid facts generated. Analyzing a departmental or master budget each month, or a minimum, quarterly, enables a quantitative analysis of expenses, revenues, production costs and overheads. In addition, it creates an awareness of any impact from servicing debt service and business receivables.

Business operating data and results[edit]

A critical factor in the operation of any business is the recording of financial data and the generating of financial statements, which reveal the operating results of a business and other critical aspects; for example, tax compliance. The accounting function of finance is tasked with the recording of financial information and the presentation of results, termed Generally Accepted Accounting Principles (GAAP.) Strict compliance with determined standards gives company management the assurance that the statements they receive are final and accurate. A variance analysis is conducted to compare the actual results, with those forecasted and determine the reasons for any discrepancies. Financial expertise is then used to compare these financial results, with those of competitors, for indications of performance levels.

For any business, especially the smaller enterprises that do not have the advantages provided by large cash reserves or borrowing options, their cash position can be one that requires constant surveillance and review, regarding monetary inflows and outflows. This is a financial aspect that revolves around the forecasting of cash flow, designed to prevent potentially disruptive shortages of liquid funds. Within a small or cash-strapped company, this is situation that could entail serious problems; for example, not being able to pay employees at the end of a week, or worse, a month!

The investing of surplus cash to achieve a maximum return is also a financial function that requires particular expertise. In the larger organizations, these types of business investment activities occur on a daily basis. Constant monitoring of the financial markets is conducted to determine the most lucrative investment vehicles, in which to entrust such entities as company employees retirement plans.

Business communications[edit]

In all aspects of business, communication facilities in their various forms are a critical factor and the greatest possible care should be taken to protect them and how they are utilized; for example, a single carelessly chosen word could lead to a lawsuit, or a lost contract! It is to be assumed, that the majority of professional business people communicate with an aware integrity and honest consideration for irresponsibility. However, the Internet has been a motivator in periodic changing and amending of laws related to communications, justified primarily by the changes in business and social conditions. In this respect, the following areas for communicators are amongst those that should be treated with an inherent caution:

Organization and government regulation[edit]

Most legal jurisdictions specify the forms of ownership that a business can take, creating a body of commercial law for each type.

The major factors affecting how a business is organized are usually:

  • The size and scope of the business firm and its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or (less often) partnerships. In addition, a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.
  • The sector and country. Private profit-making businesses are different from government-owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.
  • Limited Liability Companies (LLC), limited liability partnerships, and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.
  • Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
  • Disclosure and compliance requirements. Different business structures may be required to make less or more information public (or report it to relevant authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person". This means that unless there is misconduct, the owner's own possessions are strongly protected in law if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located. A single person who owns and runs a business is commonly known as a sole proprietor, whether that person owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

  1. General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.
  2. Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.
  3. In most countries, there are laws which treat small corporations differently from large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.
  4. "Going public" through a process known as an initial public offering (IPO) means that part of the business will be owned by members of the public. This requires organization as a distinct entity, and compliance with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well, such as, for example, real estate investment trusts in the USA, and unit trusts in the UK. A general partnership cannot "go public."

Commercial law[edit]

Main article: Commercial law
Offices in the Los Angeles Downtown Financial District

A very detailed and well-established body of rules that evolved over a very long period of time applies to commercial transactions. The need to regulate trade and commerce and resolve business disputes helped shape the creation of law and courts. The Code of Hammurabi dates back to about 1772 BC for example, and contains provisions that relate, among other matters, to shipping costs and dealings between merchants and brokers.[4] The word "corporation" derives from the Latin corpus, meaning body, and the Maurya Empire in Iron-Age India accorded legal rights to business entities.[5]

In many countries it is difficult to compile all the laws that can affect a business into a single reference source. Laws can govern treatment of labour and employee relations, worker protection and safety, discrimination on the basis of age, gender, disability, race, and in some jurisdictions, sexual orientation, and the minimum wage, as well as unions, worker compensation, and working hours and leave.

Some specialized businesses may also require licenses, either due to laws governing entry into certain trades, occupations or professions, that require special education, or to raise revenue for local governments. Professions that require special licenses include law, medicine, piloting aircraft, selling liquor, radio broadcasting, selling investment securities, selling used cars, and roofing. Local jurisdictions may also require special licenses and taxes just to operate a business.

Some businesses are subject to ongoing special regulation, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can affect many businesses.

Capital[edit]

When businesses need to raise money (called capital), they sometimes offer securities for sale.

Capital may be raised through private means, by an initial public offering or IPO on a stock exchange, or in other ways.

Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and Bombay Stock Exchange (India). Most countries with capital markets have at least one.

Businesses that have gone public are subject to regulations concerning their internal governance, such as how executive officers' compensation is determined, and when and how information is disclosed to shareholders and to the public. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC) in China. In Singapore, the regulation authority is the Monetary Authority of Singapore (MAS), and in Hong Kong, it is the Securities and Futures Commission (SFC).

The proliferation and increasing complexity of the laws governing business have forced increasing specialization in corporate law. It is not unheard of for certain kinds of corporate transactions to require a team of five to ten attorneys due to sprawling regulation. Commercial law spans general corporate law, employment and labor law, health-care law, securities law, mergers and acquisitions, tax law, employee benefit plans, food and drug regulation, intellectual property law on copyrights, patents, trademarks and such, telecommunications law, financing.

Other types of capital sourcing includes crowd sourcing on the internet, venture capital, bank loans and debentures.

Intellectual property[edit]

Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents, copyrights, trademarks or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties. In order to protect trade secrets, companies may require employees to sign non-compete clauses which will impose limitations on an employee's interactions with stakeholders, and competitors.

See also[edit]

Main article: Outline of business

References[edit]

  1. ^ Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 29. ISBN 0-13-063085-3. 
  2. ^ Major Industries. People.com
  3. ^ "The Basic Principles of Business Finance". Businesses2sell. Retrieved 16 February 2015. 
  4. ^ "Law Code of Hammurabi". 
  5. ^ Vikramaditya S. Khanna. "The Economic History of the Corporate Form in Ancient India".