A business is defined by Wikipedia as a corporation or informal association organized for the purpose of earning profits. Businesses may be either for-profit or non-profitable entities that conduct business to meet a specific social cause or further a particular social agenda. Although small business is considered as the backbone of most modern economies, there are still hundreds of thousands of small businesses across the globe. Small businesses are usually family enterprises or small firms run by one or two individuals. The scope and variety of a business are vast, since it covers a broad spectrum from simple services to retailing to information technology. All these aspects help business owners and managers to meet the ever-growing needs of their customers.
A business has different structures like a sole proprietorship, partnership, limited liability partnership, and corporation. A sole proprietorship is when the business owner controls all the assets personally. On the other hand, a partnership is when two or more persons share in the business assets. Limited liability partnerships (LLPs) and corporations are examples of sole proprietorship.
Small businesses have many categories like production, distribution, retailing, advertising, and financial services. Distribution includes sales of tangible goods such as plants, machinery, and inventory and supplies used in production processes. Retailing refers to selling consumer and institutional products such as books, newspapers, and magazines. Financial services provide financial services such as mortgages, savings accounts, credit cards, loans, and insurance. Examples of other services provided include law, engineering, medical, architecture, and management accounting.
Apart from providing goods and services, businesses also deal with money and finances. Banks are the most common financial institutions that a business owns. A bank can either be private or public.
In partnership, profits are shared between partners and the owners are taxed on their partnership income. The tax rate for this is the difference between the total profits and the owners’ share. The owner’s share is taxed as ordinary income by the partnership. For instance, if a corporation has twenty partners, then they will be taxed on half of their partnership income. There are no corporate tax deductions available in this case.
Many businesses may start out by selling goods or by producing goods and later sell them. Manufacturing involves mass production of the same goods and can be very profitable. Profits from manufacturing may be higher than retail sales. However, profit margins are lower than from retail sales. A business that makes and sells goods can potentially earn more profits through the sale of its products than through the production of them.
The primary reason why a business has to keep accounts is to enable it to keep track of its expenses and its profits. The process enables entrepreneurs to make informed decisions about changes in business activities and about future planning. The way the business organization accounts is important because it tells creditors and suppliers how much money the company earns. It also provides information to investors about how much money the business organization can expect to generate in the future. Business owners use the method so they can understand where their resources should be spent most efficiently.
When a business combines with other enterprises, it is often called a partnership. A partnership is a legal entity separate from the owners of the business itself. Partnerships may have different property structures. Some partnerships use a sole proprietorship to keep their books, while others use a limited liability company or an LLC. Limited liability companies are the best option for many small businesses because they protect the owners’ assets in the event that the business is sued.