All businesses can be defined as organizations that provide customers with the goods and services they want. Most businesses attempt to make a profit, that is, to make more money than it takes to run the business. Some businesses, however, attempt only to make enough money to cover their operating expenses. These businesses, which are often social service agencies, hospitals, foundations, or advocacy groups, are called nonprofits or not-for-profits.
There are three main types of businesses in the U.S. economy: manufacturers, merchandisers, and service providers. Manufacturers produce products of all kinds. From skateboards to limousines, from paper plates to soda, from shoelaces to designer suits, virtually everything around you comes from a manufacturer of some sort. Many manufacturers make only small parts, rather than complete, finished products. These manufacturers, often called suppliers, provide their parts to larger manufacturing firms, who use them to construct finished products. For example, an airplane manufacturer purchases the parts needed to make an airplane from a number of other manufacturers, who specialize in making those parts.
Merchandisers are businesses that help move products through a channel of distribution to the consumer or end-user. There are two types of merchandisers: retailers and wholesalers. Wholesalers purchase goods from manufacturers and then sell them to buyers, who then resell them to consumers. Retailers are the businesses that actually sell the goods directly to the consumer. Grocery stores, office supply stores, and mall stores are all examples of retailers.
The third main type of business is the service provider. Service providers are businesses that do not sell an actual product but rather perform a service for a fee. Common examples of service providers are banks, restaurants, dry cleaners, hotels, and hairstylists.
Many U.S. businesses are defined as small businesses, businesses with fewer than 500 employees. According to statistics from the U.S. Small Business Administration, there are more than 30 million small businesses in the United States. These businesses employ nearly 48 percent of the private workforce and pay almost 41 percent of the total U.S. private payroll. Small businesses are usually started by an individual or group of individuals with an idea for a product or a talent or expertise in a certain area. Typically, these entrepreneurs fund a new business partly with their own savings. They may also get a small business loan from a financial institution, such as a bank or a venture capital group. Venture capital groups are investment groups who invest in new or growing businesses that show promise.
Many of these small businesses are privately owned, which means that an individual or a small group of individuals own and operate the entire company, and are solely responsible for making its decisions. Other companies, especially larger ones, are publicly owned. Publicly owned companies are owned not by one or a few individuals, but by hundreds or thousands of individuals called shareholders. Each shareholder in a public company owns a part, or share, of that company. The amount of the company each shareholder owns is determined by how many shares of the company's stock he or she owns. Each shareholder gets to cast votes on certain company decisions in proportion to how many shares of stock he or she owns. Publicly held companies are governed by an elected board of directors, who have the power to hire or fire the top-level management of the company. The board of directors has the responsibility of overseeing the company's operations and its performance in the marketplace.
Frequently, small privately owned companies become publicly owned companies. For this to happen, the company's owners decide to sell off part of their ownership to interested buyers in an initial public offering, or IPO. In an IPO, buyers purchase shares of the company's stock. Shares of publicly held companies are bought and sold on the stock market. The increase or decrease in price of a company's shares of stock is very important to a company's value.
Although this is primarily a look at how business as a whole is structured, it is important to realize that there are certain structures in place within each individual business as well. There is a wide variety of corporate structures, but almost every successful company's structure contains four main components: production, marketing, finance, and human resources.
Production includes the conceptualizing, designing, and creating of products and services. Depending upon the size of the company and the type of product or service it produces, production subcategories might include a research and development department, which develops and tests new products; and a quality control department, which monitors products or services for consistency and quality. Production also includes the actual workers and equipment used to produce the product. For example, the factories and factory workers who make automobiles are a part of production.
The second of the four components is marketing. Marketing is the process of distributing and promoting the company's product to the right people at the right time. For example, a company's marketing department might determine which magazine advertisements or television commercial time slots would best reach a particular product's target consumer group. Marketing departments may develop marketing campaigns designed to catch consumers' attention and interest, like Dairy Management's "Got Milk?" and Nike's "Just Do It" campaigns. A company's marketing department is supported by advertising, public relations, and sales personnel.
The finance department of a company handles the management of money. Financial decisions, such as when to acquire new property, when to borrow capital, and when to raise or lower prices, are typically the responsibility of top-level management. In privately owned companies, the owners often oversee the finances. In larger, publicly held companies, a highly trained finance professional or staff may handle financial decisions.
Human resources management is the branch of a company that deals with employees. Recruiting, hiring, training, evaluating, disciplining, administering benefits packages, and firing employees are all activities that fall into this category. Many smaller companies do not have a specific department to handle human resources, while almost all larger companies do.