A business is also known as an enterprise, a company, a corporation or a firm. It is a decision-making organization that is involved in the production process of goods and/or services and trading them to consumers. The production process is the process of turning inputs into outputs. Inputs are resources and outputs are final products: goods and services.
Businesses provide goods and services for consumptions, not only to private individuals, but also to other firms or governments, such as transportation services, security guards or storage services.
Inputs are all the resources that a business uses in the production process, e.g. land, raw materials, components, machinery, equipment, labor, etc. Outputs are final tangible goods such as cars, clothes or furniture, or intangible services such as education, business consulting and healthcare.
When the inputs are being processed into outputs, the business incurs Fixed Costs (FC) and Variable Costs (VC). Fixed Costs (FC) added to Variable Costs (VC) give Total Costs (TC):
Total Costs (TC) = Fixed Costs (FC) + Variable Costs (VC)
After the outputs are sold out to final customers, the business generates Sales Revenue:
Sales Revenue = Price x Quantity
By subtracting Total Costs (TC) from Sales Revenue, the company generates Profit, the ultimate goal of most of the businesses:
Profit = Sales Revenue – Total Costs (TC)
The success of a business will depend on many factors, but most importantly, whether the business supplies products and services that consumers desire to buy. In the end, businesses must satisfy needs and wants of consumers profitably to be successful. Otherwise, they will get out of business.
