Factors such as size of the business, nature of the business, competition, infrastructures, etc. directly and indirectly impacts your business. To understand about any business, you must first understand the meaning of the nature of business. This blog is a complete guide to understanding nature of business, its components, types, examples and more. Keep reading!
Nature of Business Meaning
Nature of business means the way a business operates and how different factors work in sync to ensure that everything runs smoothly. It helps in understanding the primary goal of the business and is identified through the type of business and its objectives.
Nature of business describes its legal structures, industry, products & services, and everything else involved that can help it fulfil its objectives in the long run. This is also one of the reasons why many businesses have a mission & vision statement that illustrates their objectives to all major stakeholders.
This statement of purpose provides an outline of the work that goes behind the scenes of an organization. It also helps paint a clearer picture of the nature of business.
Also Read: Impact of GST on Business Loan Interest & Processing Fee
Components of Nature of Business
There are various components of the nature of business such:
- Purpose: A purpose of a business is described by what business is incepted for. Some businesses are involved in sales, while others are involved in providing services. This defines as the purpose of the business.
- Activities: Activities includes day to day activities of a business is involved in. For example, a manufacturing business has a different set of activities as compared to a marketing or sales business.
- Scale: A business can be of any scale and size. Each scale and size define how it operates, functions, challenges it faces, etc.
- Stakeholders: A business involves several stakeholders such as owners, employees, customers, suppliers, and other stakeholders, etc. These stakeholders have different interests in the business.
- Economic Contributions: Your business must contribute towards society, not just owners and employees. These contributions include job creation, taxes, motivation to innovate, boosting trade, etc.
- Risk and Challenges: There are various risk and challenges that a business is affected by both external and internal factors. These factors include competition, change in market trends, and other factors.
- Legal Structure: It defines the legal structure of the business such as legal responsibilities, benefits and its limitations, etc.
Elements of Nature of Business
Let us look at what elements influences the nature of business of an organization based on its activities:
- Regular Process – This refers to business activities that are performed on day-to-day base to generate profits for the company.
- Economic Decisions & Actions – The sole purpose of this activity is to maximize the profits of a business through the optimum utilization of available resources.
- Value & Effectiveness of the Product or Service – The goods and/or services provided by the business must meet the highest standards of quality and be made available when required. For example, this could involve converting raw materials into consumables and ensuring that they are available at the right time and place to the end user, i.e., consumers.
- Working Capital – This refers to the monetary reserves of a business that help it run efficiently by meeting its daily capital requirements.
- Production of Goods & Services – This relates to the assembling, manufacturing, and sales of goods and services.
- Risk Factor – All businesses have to factor in risk at various levels of operations to be prepared for any loss or failure.
- Fulfillment of the Customer's Needs – A business should be able to fulfil the needs and demands of its end user or target customer. The nature of business can be categorized based on the needs that are being fulfilled for example, basic needs, financial needs, luxury needs, etc. Failing to do so defeats the purpose of a business.
- Value Chain of the Service or Product – It always boils down to a seller and a buyer in any business. The value chain of the product or service also determines the nature of its business.
- Social Responsibilities – One of the key stakeholders of a business is the people and societies it impacts with its operations. It becomes the responsibility of a business to serve the community by creating more job opportunities, taking up social causes, and more.
Categories of Nature of Business
A nature of business is majorly defined by the following categories:
- Operating Sector: This involves sectors like technological, private, public, and international.
- Organisational Structure: This covers partnerships, corporations, sole proprietorships, and LLPs.
- Product Type Offered: Encompasses the tangible and intangible goods provided by the business.
- Operation Nature: Describing the nature of the operation as service, merchandise, manufacturing, and hybrid businesses.
Types of Business Nature
Here is an explanation of various types of business entities:
- Public Sector: It comprises government entities and government-backed companies, such as The National Health Service (NHS) and The British Broadcasting Company (BBC).
- Private Sector: It consists of privately run businesses operated for profit, either individually or collectively. Examples include Greenergy (fuel) and Reed (recruitment).
- International Sector: It involves businesses engaged in foreign exports, like McDonald's and Coca-Cola.
- Technological Sector: It encompasses businesses focused on the research, development, or distribution of technologically based goods and services, such as Apple Inc. and Microsoft Corporation.
- Sole Proprietorship: Businesses in this sector are run by a single person with no legal distinction between the owner and the business entity. Examples include local food joints and grocery stores.
- Partnership: It includes businesses run by two or more people under a legal agreement.
- Corporation: It involves large companies or a group of companies acting as a single entity.
- Limited Liability Partnership: This business structure provides limited liability to all partners involved.
- Service Business: It comprises businesses offering intangible products and professional services, including business services, personal services, and public services.
- Merchandising Business: Businesses in this sector buy products at wholesale prices and sell them at retail prices, making a profit on the margin. Examples include retail stores selling clothes, drugs, and appliances.
- Manufacturing Business: This sector involves businesses that purchase raw materials to produce end products, which are then sold to customers. For example, a food manufacturer buys eggs for cake production.
- Hybrid Business: Businesses in this sector engage in a combination of activities, such as selling products, buying and reselling items, and offering repair services.
- Non-Profit Organisations: These organisations utilise received funds for social welfare purposes.
Nature of Business Example
Here are examples that illustrate the functions of various business natures:
- Transportation - Provide transportation service to people and for goods.
- Manufacturing - It involves in manufacturing products.
- Agriculture - Cultivates crops and raises animals.
- Entertainment - Creates and distributes creative content.
- Construction - Constructs buildings and other infrastructure.
- Services - Provides intangible offerings.
- Freelancing - Provides services as an independent contractor.
- Real Estate - Buys, sells, and leases properties.
- Research & Development - Conducts research and develops new products/processes.
- Hospitality - Runs lodging, food/beverage, events, and tourism.
- Education - Provides teaching and training.
- Healthcare - Offers medical treatment and promotes health.
How a Business Loan is Helpful in Starting Different Types of Businesses?
A Business Loan is helpful for starting different types of businesses in India in the following way:
- Amount for investment like office spaces, equipment, inventories, licences, etc.
- For growth and expansion of the business like hiring more staff.
- To adopt new technology and innovations.
- For managing adequate inventory.
How to Apply for a Business Loan?
You can apply for a Business Loan by following these three simple steps:
- Step 1: Click on the ‘Apply Now’ button.
- Step 2: Fill in the required details on the loan application form.
- Step 3: Upload necessary documents.
On successful verification, the loan amount will be disbursed into your bank account instantly.
Also Read - What is a Credit Score? How it Helps in Personal & Business Loan Approval
To Conclude
Understanding the nature of business helps you gain enough knowledge to explore different types of businesses. Ultimately, you can make an informed decision to know which businesses can be profitable. With Poonawalla Fincorp, you can avail a Business Loan to expand your businesses and meet other business financial needs at attractive interest rates.
Frequently Asked Questions
1. Does the nature of business change over time?
Yes, the nature of business changes over time when you want to diversify your business because of changes in market conditions, advancements in technology, regulatory shifts, etc.
2. How will I identify the nature of a business?
You will be able to identify the nature of a business through its characteristics like organizational structures, operating sectors and the types of products or services.
3. What are the internal factors that influence the nature of business?
The following points the internal factors that may influence the nature of business:
- Ownership model
- Size of the company
- Management culture
- Usage of technology
- Staffs