Grandad, what’s a business? This kind of is a basic question but like many simple questions the answer is somewhat more complicated than you might expect. Complicated but easy to understand if you let Grandad describe.
Simply put, a business is a group of men and women who are joined together to sell something to bring in money, referred to as “income”. Agil
A business can be extremely small, even just one person. This small business can have a legal form or the person can just consider himself (or herself) to be “self-employed”. Even an one-man business must bring in enough money to pay for his living costs. Otherwise he will need to get a career in another business or go on social security paid out by the federal government and that is no fun whatsoever.
The size of business that we meet most often is as small as two or three up to as many as blend. These companies are often referred to as small , medium-sized enterprises (SMEs). They will normally have a legal status such as “partnership” or “limited company”.
The big beasts in the commercial new world can be very large indeed, often with hundreds of employees and many millions of pounds income and are usually “Public Limited Companies” (PLCs). Most these businesses are important and Grandad will notify you more about all these businesses in the next couple of days.
Let me personally tell you now about the cash earned by a business, called “income”. This kind of money must be enough to cover what are called costs or “expenditure”. Costs are all the expenses that the business incurs: the materials the business might have bought, rents, wages and money paid to other people. Costs range from a total lot of other things such as computer cost, telephone bills, insurance, heat, transport etc.
The idea of a business is the fact income should be more than costs, If income is better than expenditure, the big difference is named a “profit”. In the event that income is less than expenditure then the business is said to make a “loss”.
Making a loss is a poor ISSUE. If losses continue then the business cannot continue to keep is said to be bankrupt. The business does not have money to pay its bills.
Income therefore must be a GOOD THING. Not everyone agrees but Grandad will describe as we go on why profit is a VERY GOOD POINT.
There is certainly an in-between end result which is sometimes called “break-even”, which is not a loss and not a profit. Normally an enterprise can survive in a break-even state but it brings problems that we can speak about later.
Grandad has not yet pointed out the greatest contribution that businesses make to all existence – TAXATION. Businesses are a rich source of TAX, which our government needs to pay money for schools, the National Wellness Service, roads, police, firemen, the Army, Navy and Air Force, old time pensions and so on Our politicians have great ideas how to spend money nonetheless they have no money to spend unless of course businesses create TAX.
We have a tax called CORPORATION DUTY which is charged as a percentage of the profit the business enterprise makes. On the other hand businesses create tax for the government in many other ways. Everyone who gets wages or an income from a business pays TAX and the business pay NATIONAL INSURANCE for each and every person earning a living for the business. No business, no wages, no income taxes, no national insurance. Businesses charge VAT (Value added tax) on most things they sell They pay what they acquire (less what VAT they have paid to other businesses) to the government. Owners of a business can take money out of the business in the form of what are called “dividends”: INCOME TAXES is paid as a percentage of these benefits. Finally owners can sell a business to someone else and if they do, they pay CAPITAL GAINS TAX on the sale. If a business buys insurance, it will pay INSURANCE TAX. If it buys goods from in foreign countries, it often must pay TARIFFS to the us government.