Grandad, what’s a business? This is a simple question but like many simple questions, the answer is a bit more complicated than you might expect. Complicated but easy to understand if you let Grandad explain. aquasafe
Quite simply, a business is a group of people who are joined together to sell something to bring in money, referred to as “income”.
A business can be very 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 a one-man business must bring in enough money to pay for his living costs. Otherwise, he will need to get a job in another business or live on social security paid out by the government and that is no fun at all.
The size of business that we meet most often is as small as 2 or 3 up to as many as several hundred. These companies are often referred to as small and medium-sized enterprises (SMEs). They normally have a legal status such as “partnership” or “limited company”. buycbdonline
The big beasts in the business jungle can be very large indeed, often with thousands of employees and many millions of pounds in income, and are usually “Public Limited Companies” (PLCs). All these businesses are important and Grandad will tell you more about all these businesses in the next few days.
Let me tell you now about the money earned by a business, called “income”. This money must be enough to cover what are called costs or “expenditures”. 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 can include a whole lot of other things such as computer costs, telephone bills, insurance, heating, transport, etc.
The idea of a business is that income should be more than expenditure, If income is greater than expenditure, the difference is called a “profit”. If income is less than expenditure then the business is said to make a “loss”.
Making a loss is a BAD THING. If losses continue then the business cannot carry on and is said to be bankrupt. The business has no money to pay its bills.
Profit therefore must be a GOOD THING. Not everyone agrees but Grandad will explain as we go on why profit is a VERY GOOD THING.
There is an in-between result which is called “break-even”, which is not a loss and not a profit. Normally a business can survive in a break-even state but it brings problems that we can talk about later.
Grandad has not yet mentioned the greatest contribution that businesses make to all our lives – TAXATION. Businesses are a rich source of TAX, which our government needs to pay for schools, wikipout the National Health Service, roads, police, firemen, the Army, Navy and Air Force, old age pensions, etc. Our politicians have great ideas on how to spend money but they have no money to spend unless businesses create TAX.
There is a tax called CORPORATION TAX which is charged as a percentage of the profit the business makes. However, businesses create a tax for the government in many other ways. Everyone who gets wages or a salary from a business pays INCOME TAX and the business pay NATIONAL INSURANCE for each person working for the business. No business, no wages, no income tax, no national insurance. Businesses charge VAT (Value added tax) on most things they sell They pay what they collect (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 TAX is paid as a percentage of these dividends. Finally, owners can sell a business to somebody else and if they do, they pay CAPITAL GAINS TAX on the sale. If a business buys insurance, it pays INSURANCE TAX. If it buys goods from abroad, it often has to pay TARIFFS to the government.