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How Business Works – Beginners Guide 101

Do you know how business works? It’s important you understand the basics of business before starting one. You should not venture into a business if you are not grounded on the simple knowledge of how a business work.

The failures associated with businesses can be avoided if only the starters understood the terrain they ventured into. Business, like every other thing that we do, follows a principle and a concept. They guide you into knowing what works, what to do, how to do it and to whom you should do it for.

Business is more like construction work. When you are building a house, you are not guessing if it would eventually become a house. You surely know it would be a house. Those reasons that made you believe that you are building a house, and that you don’t expect it to become something else than a house, can be applied in the same way to building a business.

That implies, if you follow how business works, it doesn’t matter what business you are building, it will surely become successful, if not very successful.

The Principles Of Business

Also, you need to go by the principles of business. There are no mysteries in how business works than just doing business the very way it should be done. These principles lays out what you need to put in place or in consideration when starting or running a business.

Business principles provides us with ideas of what makes business work. That means, you are to be guided by the principles of business if you hope to make your business succeed. These guiding principles of business work for every type of business, and anywhere in the world.

According to American National University, there are 8 fundamental principles of business you need to Know if you must succeed in business anywhere in the world. These principles would work for any kind of business, wether small, medium or large scale business. If you follow these 8 principles correctly, you can beat your chest and say, I know what I’m doing Works!

how business works

Here are the 8 principles for you:

  1. Have a Quality Product.
  2. Know Your Industry and Competitors
  3. Promote Your Products and Services
  4. Build a Great Staff
  5. Understand Organizational Structure and Design.
  6. Use Capital and Cash Flow Wisely
  7. Understand the Fundamental Principles of Accounting and Finance
  8. Respect Your Customers

In a simple way, the principles can be better understood as Product, market and competition, marketing, workers, structure and design, money, report and customers. All these are what make business to work. If you carefully learn about each one, how they work in the overall plan of the business, and how to utilize them collectively to achieve your set objective, you would have known how business works more than anybody else.

Understanding How Business Works

The idea of business is derived from a product or service aimed at target consumers with a promise of value, in exchange for monetary compensation. However, the concept may involve a new product or just a novel approach to marketing or delivering an existing product to a target audience. This idea can be better expressed as follows:

  • Service or product
  • Target demographic
  • Unique selling proposition (USP)
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So, for the concept to work it must include all the three basic information of a business idea. That’s even the first steps of the principles of business.

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What Is Business?

Business is better defined as a regular occupation, trade, or profession that a person engages in, as a commercial activity. If you have any occupation that you engage as a commercial activity you are already involved in a business.

What makes a business is the idea of service or product that is offered in exchange for value. It’s an organization where people work together to make or sell products or services. The word “business” is derived from the word “busy”, and that means doing things. This business or doing things should earn you a profit for the products and services it offers.

However, to have a business it should have these characteristics:

  • It should have individuals working together
  • It must satisfy a societal need
  • It must seek to make a profit

Where a business is not designed to make profit, it’s categorized under another label; non-profit organization or not for profit organization. These kind of business meets the two characteristics of a business but willingly reversed the third one, which is to make profit.

The Types Of Business

There are three major types of businesses one can engage in that represents a commercial activity. These 3 are:

  1. Service business
  2. Merchandising business
  3. Manufacturing business

Service Business

It’s a kind of business that one offers services that are intangible. The products have no physical form or shape. They simply provide some form of professional services, like skills, expertise, advice, etcetera. Some examples include, salons, repair shops, banks, hospitals, law firms, etcetera.

Merchandising Business

This kind of business is also known as “buy and sell” business. It’s a kind of business that deals on physical products, but primarily as in a trade transaction. It involves buying products at wholesale price and offering the same to the consumers at retail prices. Some examples include, resellers, distributors, eCommerce stores, convenience stores, grocery stores, etcetera.

Manufacturing Business

A Manufacturing Business transforms raw materials or other existing goods into new products. The primary role is transforming already existing products into better products for the consumers.

Note: Some businesses may fall into more than one classification. Some may be engaged in Manufacturing and also merchandising of the products. In that case, such business could be classified into multiple types of business. That makes them hybrid business. A very good example is a restaurant, being a food ‘manufacturing outfit’, also engages in the direct sale of the food to consumers.

How Do You Start A Business?

Starting a business is not entirely different from building a house. Once you decide on the kind of house you want to build, which is like doing your research, wisdom demands that you design a building plan. A building plan is akin to business plan. It’s how to put into imagery what you want to build, and in the case of a building how you want to build it.

Now, with the building plan you can start the foundation. This stage is where you dig for solid ground and you lay strong iron with concrete mixture. You can relate this with the principles of business. For without a solid foundation your business might collapse if you begin to add the building blocks, and it gets heavier with each blocks added.

Moreover, you need to take care of all the legal requirements of starting a business, which include:

  • Register Your Business Name
  • Apply for a Tax ID Number
  • Obtain necessary business permits and licenses
  • Protect your business with insurance policy
  • Open a business bank account
  • Consult the professionals
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What Are The Forms of Business Ownership

When you talk about forms of business, it refers mostly to ownership structure than the organizational structure. You can form a business in any of these 3 ownership structures. These are the basic forms of business ownership:

  • Sole proprietorship
  • Partnership
  • Cooperation

Sole Proprietorship

This kind of business is registered as owned by only one person. It’s the least formation of a business, also with the least ownership structure. It’s liability is unlimited, and it’s faced by the owner, but it’s limited to the personal assets if the business cannot pay.

Business Partnership

This type of business is owned by more than one person, with contributed resources in form of equity. They also divide the profits from the business among each of the partners. However, there are 2 types of business partnership; a general partnership and limited partnership. While general partnership attracts unlimited liability, which puts their personal assets at risk, the limited partnership enjoys protection against their personal assets.


A corporation is a legal business entity that’s separate from its owners. The ownership of a corporation is represented by shares of stock. However, the board of directors, which the stockholders elect, are mandated with control of the corporation activities.

What’s A Business Plan?

Wikipedia describes a business plan as a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved.

That makes a business plan an essential part of starting any business. However, it’s necessary while writing a business plan, for you to understand the main purpose of having one. Here are just a few:

  • It helps to maintaining business focus
  • It helps to securing outside financing
  • It can help in fueling ambitions and mapping growth

Your business plan serves as your company’s resume to investors, partners, vendors and employees, in explaining your objectives. It’s effective in defining your goals and explaining the steps needed to be taken to reach them. It’s also in your business plan that you can detail out your purpose, the company’s vision, as well as your means of operation.

how business works

What Are The Types Of Financing Business?

In business you need money. The power of money in business cannot be over emphasized. Money is the life of every business. Without money, your product cannot spread better than the competition.

Finding money for business is one of fundamental principles of business. That’s how important it is for your business. It’s not an optional decision to find money for your business, it’s how business works. Your money is the oxygen that keeps the business alive.

There are two main types of financing business, and they are:

  1. Debt finance
  2. Equity finance.
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Debt financing deals with funds borrowed from a lender that is repaid with interest, while equity financing is about capital exchanged for part ownership or for the shares of the company.

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What’s The Purpose Of Business?

One thing is clear about business, it must have a purpose. A business purpose is the reason the business is formed. This reason is distinguished from the company vision or mission. Business purpose can be industry specific or general, and includes support services and future business activities.

Therefore, the purpose of a business can be better described as a value proposition offered through products or services to customers, who in return pay for the value with cash or its equivalent. In order words, the purpose of business activity is the provision of goods and services that customers want, at a price they are also willing to pay.

Interestingly, you have to define your own purpose of starting a business. Your purpose should be based on your personal goals, starting from whether the business is for profit or non profit organization. You can start from these three generally accepted reasons, and they are:

  1. To make money
  2. To gain satisfaction from working in a field of interest
  3. To benefit others

What Is Business Models?

A business model is simply your business way of doing things. It describes the rationale behind how your business creates value, delivers value and captures value, in the context of economic, social or cultural values. This model forms part of your business strategy.

However, here are simple steps you can follow to define a strong business model.

  • Identify your specific audience
  • Establish business processes
  • Record key business resources
  • Develop a strong value proposition.
  • Determine key business partners
  • Create a demand generation strategy

Also, business models are broadly divided into four basic types that any class of business falls within. They are:

  1. Manufacturer
  2. Distributor
  3. Retailer
  4. Franchise


There’s so much you need to know about business. This entire article is just to help you get on with the basics. How much success you can achieve in business would depend on this three simple factors, which are, wisdom, knowledge and understanding. You may not know how much those three words could mean to your business until you are in business.

Finally, you also need to understand this simple fact. There’s a huge difference between being a business person and being an entrepreneur. A lot of times these qualities are used interchangeably, but they are nit really the same. A business person merely flips items for marginal profit, while an entrepreneur creates things for maximum profit.

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