Definition, Types and Importance of a Business

Definition, Types and Importance of a Business

Business is a regular process of earning a profit by satisfying consumer’s needs through the manufacturing of goods, reselling of products, providing services or carrying out all three together.

It is an occupation which requires a particular set of skills and expertise to derive maximum profit out of it.

It also includes those activities which indirectly help in production and exchange of goods such as transport, insurance, banking, warehousing etc. Every business enterprise whether it is carried on a small or a large scale deals in goods and services for earning of money.

If an enterprise is to survive, grow and expand, it must yield profit. So it includes all the commercial and industrial activities that provide goods and services to the people with an objective to earn profit.

Types of Business

Types of Business

The previous instancehas made it clear that business involves goods or services or both. Aperson has first to select the kind of business line he wants tooperate.

Thus, it can be broadly classified as into the following types:

  • Service: An activity performed to earn money through customer satisfaction is known as a service. It involves professional skills and expertise.
    E.g. A professional teacher earns money by taking tuition class
  • Merchandising: Merchandising means procurement of goods from manufacturers or wholesalers, at a low price and selling it at a higher price to make a profit. It is also known as a retail business.
    E.g. A florist selling flowers
  • Manufacturing: Making profit through production or creation of goods from raw material in such a way that it derives some utility to the consumer is known as a manufacturing business.
    E.g. Processing of sugarcane in a sugar mill to get fine sugar
  • Hybrid: A business which involves all the three activities, i.e. manufacturing of goods, merchandising of products and delivering service falls under the hybrid category.
    E.g. A furniture seller, who manufactures furniture, buys old furniture and sells it at a higher price after repairing and also provides services for polishing old furniture.

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Importance of Business

Importance of Business

Business is aself-employment opportunity for a person to become self-independentand master of his ideas. It is not only beneficial to the owner butalso makes an impact on society.

To get a detailedunderstanding of the importance of trading activities to the ownerand the society, let us go through the following points:

  • Revenue Generation: It is the key to revenue generation for the business owner since it brings in profit and proves to be a source of income for the owner.
  • Economic Growth: It is essential for the economic growth of a country since high revenue means higher tax collection.
  • Improves Standard of Living: A country with more industrial units and companies experience a higher rate of employment and better living standards.
  • Bulk Production: Manufacturing units involve large-scale production, which ultimately reduces the cost of production, and people get a continuous supply of goods at a reasonable price.
  • Innovation: It involves brainstorming and generation of new ideas which opens up the way for innovation and creativity.
  • Generates Employment: It is a long-term process which requires the human resource to function correctly. Therefore, it creates job opportunities.
  • Market Expansion: A good strategy and high customer satisfaction lead to a strong customer base aiming at market expansion.
  • Provision of credit by banks: The Commercial banks and specialized institutions are providing credit facility to the traders for producing goods and doing business on large scale.
  • Communication and Transport: The fast developed means of Communication and transport helping the traders in these days in providing goods to the customers at the right times, right place and right price.
  • Business supplies Services: Services occupy an important role in modern business life. The major services which are growing in importance are banking and finance, insurance, medical and health, education, legal, domestic servants, engineering and other professionals etc. All the services which perform simple or difficult task for earning profit are regarded an important part of business.
  • Insurance: The various types of business risks which may happen due to fire , theft, flood, earthquake, strikes etc. can be insured and the loss if any arising out of the risks an be recovered. So insurance has given stability to the business.

Conclusion

In the modern world, all the above mentioned elements play important role in business. It has increased the comforts of life of the people by mass production and distribution of goods.

The banking sector, insurance companies, the fast means of communication and transport play a vital role in business in the present day of world.

Related: 8 Steps on How to Turn Your Skills into a Lucrative Side Hustle

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