Business
An entity or commercial
organization is established to earn profit is known as business or business entity. There are two
important factors in business definition i.e. separate entity and profit
earning. These concepts have been explained below
Business Entity
Business is a separate
entity, and therefore affair of business should not be mix with personal affair
of the owner, otherwise financial performance of the business cannot be judged.
Business profit
Core objective of every
business is profit earning, thus any activity is carried out for a
nonprofit objective cannot be regarded as business. A school established for a
profit earning objective is a business, but a school established with a core
objective for promoting literacy is not a business.
Types of business
Business can be broadly
classified into three Types i.e. trading business, manufacturing business, and
service provision.
1. Trading Business
In
Trading business , goods are purchased and resold on profit. This is very common business
practice, and we can observe this practice in our markets. All shops in the market
doing the trading activities. Shopkeeper purchase goods from distributor or
manufacturing unit and resale those goods to the customers at profit. Characteristics
of trading business are
§ Easier
to start the business (this is the reasons many people are doing).
§ Free
Financing available (you can buy goods on credit).
§ Low
or limited Risk. (You buy only those goods which can be sold in market).
2. Manufacturing Business
In
manufacturing business goods are manufactured and sold in the market. In
manufacturing business raw material is purchase from market, raw material is
converted into finished goods by applying some process, and finally finished
goods are sold in market.
§ Huge
investment is required.
§ High
risk of damaged or spoilage goods.
§ Skilled
labour is required.
§ Experience
of manufacturing is required.
3. Service Provision Business
Many
businesses are established for service provision. Examples of such business are
law firms, air conditioning repairing firms, hospital for profit etc.
Characteristics of service industry are
§ Perish
ability (Service cannot be stored).
§ Intangibility
(Service can be felt only).
§ Heterogeneity
(Service cannot be standard).
Types
of Business organizations
Types
of business organization or way of doing business can be classified into sole
proprietor ship, partnership and companies. These business organizations have
been explained below;
1. Sole Proprietorship
Sole proprietorship is a business owned by
a single person. The sole proprietorship has advantages like decision making power
in one hand, no profit sharing with others, easy to setup and limited
regulatory and documentation formalities. There are also some limitations of
sole proprietorship like difficulty in arranging fund, unlimited liability etc.
Characteristics of Sole proprietorship are listed below
Characteristics of Sole proprietorship are listed below
§ Managed
by single person.
§ All
profit is shared by single owner.
§ Decision
making by owner.
§ Difficult
to arrange financing
§ Unlimited
liability (Owner is personally liable).
2. Partnership
A partnership is an extension of sole
proprietorship. The business is owned & managed by few people. Partners normally share profit in proportion to
their investment or as per partnership agreement. Like sole proprietorship
liability is unlimited for the partners. Partnership concept is popular for
medium size of business. Basic purpose of creating partnership is to provide
more capital to business.
Characteristics of Partnership are listed below
Characteristics of Partnership are listed below
§ Few
owner share profit.
§ Liability
is unlimited like sole proprietorship.
§ More
Financing is available.
§ Some
legal formalities.
§ No
succession (Cease to exist on death of partner)
3. Company
Company
is a legal entity and has limited liability. In company shareholder and company
are twp different legal persons, therefore shareholder have limited responsibility
(up to paid up capital). Main advantages of company are limited liability, more
financing options, and succession. Disadvantages of company includes is profit
sharing among a number of shareholders, shareholder are not in control of business, and
many legal formalities.
Characteristics of a company are listed below
Characteristics of a company are listed below
§ Liability
is limited.
§ Separate
legal entity.
§ Profit
shared by many shareholders.
§ Decision
making are in hand of board of director.
§ Subject
to many formalities.
Advantages of business
There are number of
advantages of doing own business, some of these advantages has been listed
below;
§ You
are the boss (Give you independence).
§ Income
will grow at great speed than salary.
§ Plan
your life more effectively.
§ You
are the decision maker (You Can introduce creativity and innovation).
§ Reward
for hard work (You can earn more profit for more work).
Disadvantages of Business
There are number of disadvantages of doing own business.Theses disadvantages have been listed below;
§ Profit
are not Guaranteed.
§ You
need investment.
§ Small
business will give you small profits.
§ Huge
losses can ruin your life.
§ A
lot of management skills are required.
