Introduction and Forms of Business

Introduction to Business

Business is an economic activities starts with the need of the people. The need can be fulfilled by doing activities. Activities may be two types; one is economic and another is non-economic activities. The economic activities concern with business and its forms. Business is an economic activities established for the purpose of making profit by fulfilling the need of the customers.

Types or Nature of Business

Business has basically two broad categories presented in the following diagram as bellows:

 

1. Agriculture Business: It is also known as agribusiness. These businesses refer to farming and farming-related commercial activities such as seed producing, agrichemical medicine making etc.

2. Manufacturing Business: It produces new product by using various raw materials, labors, factory overheads costs etc. to make a finished products.

3. Service Business: It provides intangible products. It includes any skills, expertise or advice. Saloon, Banks, Repairs shops, Schools & Colleges, Accounting firms etc. are some of the example of this business.

4. Trading (Merchandising) Business: It provides finished goods to its customers. It includes food and accessories products, electronic products, clothes, cosmetics etc.  Supermarket, Hypermarket, Malls, Retails shops etc. are some of the example of this business.

The main objective of industries is to convert the raw material into finished goods or services by manufacturing or producing the goods or services while the main objective of commerce is trade through buying or selling of goods or services with the help of business.

What is a Business Model?

A business model is a conceptual structure that supports the various activities of the business and answers the following questions such as:

1. Who is the customer?

2. What value does the business deliver to the customers?

3. How does the business operate?

4. How does the business make money?

According to management guru Peter Drucker: A business model is supposed to answer who your customer is, what value you can create/add for the customer and how you can do that at reasonable costs.

Components of Business Model

A general business model usually covers four key aspects (also known as key components) of the business which are customers, value proposition, operating model, and revenue model.

 

Fig: Components of Business Model

1. Customers: The customers are the person who buys the product (rendered the services). The company should understand about the following things like who are our customers? What is our target market? etc.

2. Value Proposition: The value proposition is the value of company promises to deliver to its customers should they choose to buy their product. It is a statement that answers the question “why” someone should buy the product from you.

3. Operating Model: It is a visual or abstract structure of delivering process to its customers. It answers how an organization delivers value to its customers. It includes various processes like resource accumulation and allocation, process of activities etc.

4. Revenue Model: It is a strategy of generating the revenue by addressing the various questions like what’s paid?, for what is paid?, how are you paid?, how much is paid? And who pays?

Table: Some Example for Types of Business Model

What is Business Process?

A business process is the combination of various steps that solves a particular business activity. The business activities are all those activities which help to runs the business smoothly and achieve the business goals. The business process involved various business activities process presented in the table below:

Table: Business Activities and Its Process

 Legal Forms of Business Entity

Basically, the whole business entities can be categorized into two broad categories as one person and Multiple Person Entities. Each category has further divided into following types presented as bellows.

Fig: Legal Forms of Business Entity

• Sole Proprietorship Business: In this type of legal entity, there is only one or one family are involved to run the business and get profit. 
• Partnership Business: This type of legal entity requires more than one person to run the business and get the profit based on capital contribution. 
• Limited Liability Partnership (LLP): This entity also requires the group of partners that makes the LLC agreement to work with business and get profit proportionally. It is the hybrid nature of business entities that combine the characteristics of partnership and private limited company. 
• Corporations: Under this legal entity the people are working together to achieve to achieve a common goal. It involves various stakeholders such as promoters, BOD, Management team, employees, other staffs, shareholders, other various stakeholders etc. It has various forms such as private limited, limited or c-corporation, limited liability company (LLC) and s-corporation. 

• Private Limited Company (Pvt. Ltd.): This type of legal entity requires minimum seven and maximum forty nine members to establish the business and restrict public trading. This legal entity requires MOA and AOA of the company.

• Limited Company (Ltd.): This type of legal entity must have more than fifty numbers of members to establish the business and public trading. This legal entity requires MOA, AOA, and Prospectus of the company. It is also generally known as C-corporation because the tax rate is applicable on both company’s and shareholder’s taxable incomes.

• Limited Liability Company (LLC): Under this legal entity, the owners are not liable in the company’s debts. It is the hybrid nature of entities that combine the characteristics of corporation and partnership or sole proprietorship. 
• S- Corporation: This type of legal entity is applicable for U.S. citizen that requires less than 100 members. Profits are not taxed under this entity. 

• Cooperatives: It involves any group or individuals and is operated for mutual benefit. NGOs, INGOs, Cooperatives financial institutions etc. are some of the example of this form of business.

Stages of Business

Basically, there are four stages of all types of business that are considered as types of business based on product life cycle approach listed as bellows:

1. Startup Business: This is a new business which comes initially in the market.

2. Growth Business: This business is neither new nor old business like SMEs.

3. Mature Business: This business is a large business having sufficient reserves and making continuously optimum profit.

4. Decline Business: This business could be large, medium and small that recently down in the market due to low volume incomes as compared to expenses.

Conclusion

Business is an economic activities starts with the need of the people. It is an economic activities established for the purpose of making profit by fulfilling the need of the customers. Basically there four types of business include agriculture, manufacturing, service and trading business. A business model is a description of how a company creates, delivers, and captures value for the customer as well as itself.  A general business model usually covers four key aspects such are customers, value proposition, operating model, and revenue model. Distributors, Network Marking, SAAS, and Auction etc. are some of the example of business model. A business process is the combination of various steps that solves a particular business activity for example: employment recruitment and selection process. The whole business entities can be categorized into two broad categories one is One Person Entities and another is Multiple Person Entities. The multiple person entities include partnership, LLP, private limited, limited, LLC, s-corporation and cooperatives. There are four stages (include startup, growth, mature and decline business) of all types of business that are considered as types of business based on product life cycle approach.

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