Business: Definition, Main Purpose, and Types

Business: Definition, Main Purpose, and Types

An organized economic activity through which goods and services are exchanged for profit is called business. What is a business? Business is a means to make goods and services available to consumers. The main purpose of business is to generate profit, whether in a material sense or any other. There are different types of business, such as sole proprietorship, corporation, franchise, partnership, and others.

A sole proprietorship is a type or form of business that is owned by a single individual. It offers the least financial and legal security for the owner but is best for those people who want to keep full control of their business to themselves. Partnership, as the name suggests, is about a business that is owned by two or more people. There are different types of partnerships in a business, such as general and limited partnerships.

A corporation is different from a sole proprietorship as well as a partnership since in a corporation, the company stands as a separate legal entity. The stakeholders have a percentage of share in the profit but are not responsible for the company’s debts and legal disputes. It is more complicated to create.

What Is Business?

Business is defined as an organized commercial activity carried out by an individual entity or an organization in order to generate profit. Some businesses solely focus on selling or exchanging goods of some kind, while others offer services, such as counseling, coaching, or teaching. There are businesses that offer a combination of goods and services, and present their product in an effective manner catering to consumer needs. An example of such a business is an educational institute that has its own brand of school dress or stationery.

What is business and how to define business meaning? Business means any activity that makes available what is needed in society in an effective way in order to have a satisfied and happy customer, which ultimately maximizes the profit. So, the term business encompasses more than simply exchanging goods and services. The primary goal of any business is to turn a profit. Profit is essential for businesses to thrive and expand.

What Is the Other Term for Business?

The other term for business is commerce. The term commerce is used to describe a subset of business that does not involve marketing, sourcing, or manufacturing of a certain product. Instead, commerce involves just the buying and selling of finished and unfinished products between two parties. Exchanging a single item for money or something equally valuable is a transaction while a collection of several transactions is referred to as commerce.

What Is the Importance of Business?

The importance of business lies in the fact that it plays a crucial role in developing and stabilizing the economy of a country. Businesses are important because they are the source of goods and services that consumers and they create employment opportunities. Businesses give people a way to invest their hard-earned money successfully. Businesses inspire progress and innovation. Industries always strive to reach new heights in an extremely competitive business world, which leads them to think out of the box and invent.

So, why is business important? Business is important because it forms the backbone of a country’s economy. Businesses facilitate the proper and full use of a country’s resources and in the 21st century, the most powerful countries are the ones that are more advanced in business. Every business supports several other businesses, and this leads to the development of a country’s transport system as well, since the better the transport is, the easier it is to transfer goods from one place to another.

What Is the Main Purpose of Business?

The purpose of business is to provide value by offering useful products and services that a society needs, in order to create satisfied customers. A business does not exist without its customers so it is not a great way to look at business as something only that generates profit, although it is not wrong to have a profit mindset. Businesses exist to serve consumers, fulfill a particular need, and provide a specific service. Therefore, the real purpose of a business must be to add value to the lives of its customers or consumers with the help of its product or service.

So, what is the main purpose of the business? The main purpose of a business or a company is to be of use to society, no matter how unreal it sounds. Profit is an important result a business seeks, but the real purpose of a company’s existence must be deeper than just making money. The purpose must lie outside the business itself; that is to create sustainable means to generate value.

Business Definition

What Are the Different Types of Business? 

There are different types of businesses that determine how much tax the owner pays, the ability of the business to raise money, the legal technicalities you have to take care of, and your personal liability. The types include sole proprietorship, corporation, franchise, partnership, small businesses, cooperative, non-profit organizations, large businesses, limited liability companies, and mid-sized enterprises.

1. Sole Proprietorship

A sole proprietorship is a type of business that is ideal for you if you want to keep full control of your business to yourself. A sole proprietorship does not stand as a separate legal entity; it means that the assets and liabilities of your business are not separate from your personal liabilities and assets so you are responsible for your business’s debts and other legal problems. A sole proprietorship works well if you intend to run a low-risk business or want to test your idea first before turning it into a formal company. However, you need to be aware that banks are hesitant to lend to sole proprietors and you are not able to raise a lot of money from a sole proprietorship because you are not legally allowed to sell stocks.

2. Corporation

A corporation is the most common type of business structure which is chosen when stakeholders want to build a big company. Corporations have a separate legal identity and offer the strongest protection to their owners from personal liability, but the cost to build a corporation is relatively higher than other business types.

Corporations have their own profit and are held accountable for their debts. The downside to creating a corporation is that it is a complex structure for which one must follow an intricate operational process that includes extensive record-keeping, forming bylaws, making a board of directors, and intensive filing.

3. Franchise

A franchise is when an already established business sells the right to use its name and business structure to another relatively smaller business in exchange for an ongoing fee. The owner of the parent company is called a franchisor while the one who runs the business in exchange for money is called a franchisee.

There are several benefits of running a business in the form of a franchise. To name a few, the startup cost of a franchise is low, the franchisee does not have to spend time and money on hiring the staff since it is provided by the parent company, and the franchisee is able to use the relationships already built by the franchisor in order to expand their business. However, the ongoing fee of running a franchise affects the long-term profit.

4. Partnership

A partnership is a type of business in which multiple people own a certain business, contribute and invest financially, and share in profit and loss. There are two types of partnership: general partnership and limited partnership. A general partnership is relatively simpler, with the partners in a business assuming responsibility for running the business and managing debts. A limited partnership requires complex filing and record keeping because it includes one or more investors who assume no responsibility for debt-paying and play no part in managing the company.  

The benefits of having a business in the partnership include shared responsibility which saves time and energy, decreases pressure, and allows more people to take care of the finances. However, a partnership becomes hard to manage when a partner feels that another partner is getting a disproportionate amount out of the profit or there is a partner who puts in considerably less effort than the other.

5. Small Business

A small business is a type of business that requires less investment, has fewer employees than a large company, and generates less revenue. A small business takes many forms, such as a corporation, a franchise, a sole proprietorship, or a partnership. To determine whether or not a business qualifies as a small business, one has to use size standards according to the industry and the place where the business is located.

The pros of having a small business are that small businesses are easily manageable and thus more adaptable, more customer-focused since each customer is important for their success, and are known for their creativity and innovation. Some of the cons of a small business include difficulty in borrowing money from the banks and being able to focus on a small area only where the business is located since as a small business owner you do not have enough capital to expand your business a lot. However, the cons are minimized by getting small business coaching services if you want your small business to succeed.

6. Cooperative

A cooperative business or co-op is a different type of business than all the other types of businesses which exist to serve the specific needs of those who own the business. A co-op is a jointly owned and democratically controlled enterprise which is mutually created by a group of individuals to fulfill a particular economic, social, or cultural need. The people who benefit from the product or service of a cooperative are usually those who share ownership of that particular cooperative. However, some cooperatives allow other people to buy their products or use their services as well.

There are several benefits of a cooperative for people who own the cooperative, as well as for society. Cooperatives make certain products and services available to the market to meet the needs of a specific group of people that is otherwise unavailable. Cooperatives guarantee the social and financial security of their workers since it exists for them only.

However, a cooperative does not suit an investor-driven business since every member has an equal right to vote in a cooperative, which is a disadvantage. Cooperatives have fewer investment incentives to offer except for making a particular product or service available, which is considered another disadvantage.  

7. Nonprofit Organization

Nonprofit organizations are corporations that follow the same structure as a C corp but are exempted from paying the government tax because they are formed for a philanthropic purpose and benefit society in some way. The word ‘nonprofit’ describes essentially the tax status of a nonprofit organization as it is just a corporation with some extra rules regarding tax and profit.

The main benefit of a nonprofit organization is not having to pay the tax. However, these organizations are extremely limited when it comes to choosing the industry to pursue. Additionally, nonprofit organizations are allowed to use just as much profit as it takes to run the business.

8. Large Business

Large businesses are above-average corporations with a large number of labor and generate above-average revenue. They have over 1000 employees and are able to garner 50 million or more in gross profit. Large businesses have different departments to manage different things in the company, use advanced resources, and have a higher competitive capability than small businesses. Large businesses supply their goods or provide services to a relatively bigger market as well. Their market covers a large part of the local market or even the international market in some cases.

Large businesses have more resources to grow and expand their business. Additionally, big companies are more structured and relatively more stable. However, large businesses do not have a lot of room for experimentation because of having a firm structure that discourages creativity and innovation in the long run. It is really hard for employees to have an identity of their own and to contribute according to their potential in a big company since they are just lost in the crowd and work like another part of a machine.

9. Limited Liability Company (LLC)

Limited Liability Company (LLC) is a popular business structure among startups and small businesses because of its simplicity and flexibility. An LLC is a mixture of partnership and corporation which is owned by many owners but managed by only one managing member. LLCs are taxed like sole proprietorships but act as separate legal entities, which means that owners are not liable for the debts or lawsuits of the company.

There are many benefits of running your business in the form of an LLC; such as having limited liability for the company’s debts, being able to take advantage of pass-through taxation in which owners are able to avoid corporate taxes and only pay tax on personal profit, and flexible management due to a not-that-rigid structure, so owners are able to take decisions freely.

The disadvantages of LLCs include the limitation of having this structure available only for certain types of industries, such as lawyers, and LLCs being more expensive than a sole proprietorship or a partnership.

10. Mid-Sized Enterprise

A mid-sized enterprise is a company that is not big enough to be qualified as a large business and not small enough to be counted as a small business. The parameters to classify a company as a mid-sized enterprise varies from place to place. An enterprise comprising 250 to 499 employees and generating annual revenue up to $50 million is classified as a mid-sized enterprise in the US. They work the same as any other corporation does.

Mid-sized companies are not that rigid when it comes to their operating system and structure, therefore, the employees get more chances to showcase their skills. Less paperwork is involved in forming a mid-sized enterprise, and customers are given more value compared to a large business.

Some of the disadvantages of a mid-sized enterprise include less opportunity for the employees to move up the corporate ladder. Large businesses are able to offer discounts while mid-sized businesses are unable to offer them due to limited resources, which makes it hard for them to compete in the market effectively. 

Business Definition

What Are the Tips to Become Successful in Business?

The five tips to become successful in business include getting more organized, keeping records of your finances, analyzing your competitors, taking calculated risks, and staying focused. The five tips to become successful in business are given below.

  1. Get more organized. Prioritize the tasks that are the most important and make a to-do list on a daily basis. 
  2. Do extensive record-keeping of your finances. Keeping a record of your finances ensures that you are aware of where your company stands financially, what challenges you face in managing your finances, and what strategies you must use to overcome those challenges.  
  3. Analyze your competitors. Analyzing your competitors to understand what they are doing right is the third tip that leads you to success in the long run. Collect as much information as you are able to lay your hands on about your competitors and learn from what you get to know about them. Don’t be hesitant to follow if you find something useful.
  4. Take calculated risks. Taking a calculated risk is the fourth valuable tip for becoming successful in business. Think about the possible worst-case scenario before deciding to take a risk and be prepared with a plan B if things do not work out as you expected them to. 
  5. Stay focused. Lastly, the fifth tip is to stay focused and be ready to make sacrifices in order to see your business succeed.

How Does Business Coaching Help Businesses Become Successful? 

Business coaching helps businesses to become successful by creating sales strategies for them, helping their brand to develop, making effective marketing strategies, helping the owners to get more organized and encouraging them to take action, challenging the business owners, and holding them accountable where needed.

So, what is business coaching? Business coaching helps business owners to clarify their vision, set achievable goals, stay focused, and take their business from where it is to where they want it to be. Business owners get to have third-party insight with the help of business coaching and are able to discuss their issues with someone outside of their company.

What Type of Business Is Business Coaching?

Coaching businesses are advised to set up as either a sole proprietorship or a limited liability company (LLC). Setting up a coaching business as a sole proprietorship allows the coach or the business owner to have more control over their business, pay less tax, and enjoy freedom. A sole proprietorship is less complicated as well and involves not as much paperwork. Setting up your coaching business as an LLC provides asset protection in case of a company going bankrupt, therefore it involves less risk even though annual filing is required of the LLCs by the state in most places.

Is It Hard to Become a Business Coach?

Yes, it is hard to become a business coach. You need to undergo extensive training, earn a certification, have a minimum of 500 hours of coaching experience, go through 10 hours of mentoring, take a test, and then you are eligible to call yourself a business coach. 

Keep in mind that you need a lot of time and experience in order to get fully equipped with the skills that are necessary to become an effective business coach. Additionally, in order to keep yourself acquainted with the latest trends in the market and to keep learning, you must focus on continuous professional development. Therefore, it’s not easy to become a business coach.

Is It Difficult to Start a Business Coaching Course?

Yes, it is difficult to start a business coaching course. You need to deal with a lot of firsts when you switch from being a coach to a coaching course seller which is essentially a business. The revenue of selling a business coaching course is unpredictable at the start, and you feel lonely while trying to deal with the ups and downs of your business.

Additionally, it is hard to juggle between your client’s needs and the needs of your business coaching course. Some coaches find it hard to market their business coaching course, which makes it difficult to transform themselves into a business person from a coach. Therefore, it is not easy to start a business coaching course.  

What Are the Challenges That Businesses Face?

Some of the most common challenges that businesses face in the competitive world of today include planning, problem-solving, keeping up with market trends, maintaining a good relationship with customers, managing finances, and monitoring the performance of workers.

Business Definition

What Are Some Examples of Successful Businesses? 

Some examples of successful businesses include big names such as Apple, Alibaba, Google, Coca-Cola, and Netflix. The secret of the success of all these business examples is adaptability and innovation. These successful businesses coach and train their employees with the help of professional trainers and effective business coaches in order to help them to keep up with the newest market trends and equip them with the necessary skills.

Alexis Fedor

Founder & CEO

Alexis Fedor

Founder & CEO

Alexis Fedor is an award winning performance artist and writer from New York City. She is the founder of Artists In Business, a company focused on helping artists create online businesses with their art through online courses and group coaching. Alexis is the creator of the renowned Profit Canvas Mentorship, which has helped hundreds of artists create profitable businesses with their art, and the AIB Jumpstart, a membership experience designed to help artists get their businesses prepped for profitability. Alexis lives in New York City among many friends, family, and two cats.