1.1 Defining what a business is

The very fact that business is all around us, can actually make it harder to give the word a precise meaning that also distinguishes it from other terms, such as organisation, company, enterprise or firm.

The key characteristic of a business is that it offers goods or services to customers for payment and that it expects to make an income from these activities. Mostly, when we think of business, we think of privately owned firms that provide goods and services to customers for profit. However, businesses do not have to be privately owned or run for profit. They may also be not-for-profit or state owned organisations, but still provide goods and services to customers for payment and be expected to provide an income to the owner. In the case of a not-for-profit business, this income may be used to support a charitable purpose, for example.

The terms ‘business’, ‘firm’ and ‘enterprise’ are generally used as synonyms (they mean the same thing). This is not true for ‘company’, though.

The word ‘company’ is also often used as a synonym for business but – under English law – it has a specific legal definition as ‘an incorporated company registered under Section 1 of the Companies Act’ (UK Government, 2006). If a business has not been formed in accordance with the Companies Act 2006 [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] , then it should not be referred to as 'a company'.

Activity 2

Timing: Allow about 15 minutes

This exercise will help you start thinking about different types of business and what characterises them.

Think about a recent visit to your local town centre, what various businesses do you remember?

Think about how you might group the different businesses. Make a note of how you grouped them and any examples you have thought of.

Comment

You may have grouped them by: size, type of business they do, where they are located, who owns them, etc. Here are some commonly used criteria for grouping businesses:

  • Size – this is fairly obvious but important. A local greengrocer’s store, run by the owner and employing perhaps two further people (often family members), would be an example of a so-called micro-business. A large supermarket chain with stores in multiple locations in several countries and employing dozens of people in each store, as well as many more in its headquarters, warehouses and transportation fleet, would be an example of a large multinational business. And then there are many medium-sized enterprises in between.

  • Industry sector – a fashion retailer, a hairdresser, someone running a market stall, a farm, a machine tool manufacturer and a commercial cleaning business are all very different businesses, and what they do to a large extent influences how they operate.

  • Ownership – this is not always obvious but businesses often have very different ownership structures. Some are owned by private individuals, others by groups of shareholders, others are owned by the state, and some have yet different types of owners, such as their own employees or customers, or charitable foundations.

There are other ways of classifying businesses but size, industry sector and ownership structure are some of the more obvious categories to start with.

1 What is a business?

2 Starting a business