Nature of Business: Definition, Importance, and How It Works

Introduction

Businesses produce goods and services that every individual requires. Each business has a purpose, and its nature relies on what it does. Some MSME businesses offer products, while others offer services. Knowing the nature of business informs you about how business functions and what it aims to achieve.

In this article, we will discuss the meaning, types, and examples of the nature of business.

Also read: 7 Ways Working Capital Loans Can Boost Your Small Business

Nature of Business Meaning

The nature of business is the kind of activities an MSME business undertakes to make money. It includes all that a business does to provide goods or services to customers. The nature of business may vary for every company. Some companies make products, while others provide services.

The main aim of a business is to make a profit, these businesses are really handy for society because they generate jobs, they help grow the economy and they supply a variety of useful things and services as well. Understanding the nature of a business helps one identify the type of business one wants to start or invest in.

Types of Business Nature

1. Manufacturing Business

A manufacturing business produces goods using raw materials. These MSMEs manufacture goods that individuals or other MSMEs use for their business purposes. They sell these goods to wholesalers, retailers, or consumers directly.

Examples: Tata Motors (produces cars), Amul (produces dairy products), and Bajaj (produces motorcycles).

2. Trading Business

A trading firm purchases goods and sells them without producing them. Such trading MSMEs work as a mediator between consumers and producers. They buy commodities at a lower price and sell them at a higher price to gain profit.

Examples: Flipkart (internet-based), Reliance Retail (hypermarkets), and local grocery stores.

3. Service Business

A service company sells services rather than physical products. Such firms help people in different aspects like education, healthcare, banking, and entertainment.

Examples: Tata Consultancy Services (computer services), Apollo Hospitals (healthcare), and ICICI Bank (banking).

Also read: How to Get an Unsecured Business Loan: The Definitive Guide

4. Hybrid Business

A hybrid company does both manufacturing and service. Such companies produce goods and also offer services on such goods for an additional cost.

Examples: Apple (produces mobile phones and offers software services), Maruti Suzuki (produces cars and offers maintenance services).

The business nature can be classified into various types depending on what the business does and above are the primary types of business nature. Additionally, several banks and NBFCs support these business models by providing business loan for them to grow which will help the economy overall.

Example of Nature of Business

Let us consider an example to understand the nature of business

Example: Let’s say a company named “Fresh Farm” which sells organic vegetables. What is the nature of its business?

• If Fresh Farm produces and sells vegetables, it is a manufacturing business (agriculture-based).
• If Fresh Farm purchases vegetables from farmers and sells them in the market, it is a trading business.
• If Fresh Farm distributes vegetables to households and has online ordering, it is a service business.
• If Fresh Farm does all of the above operations, it is a hybrid business.

This illustration demonstrates how a business may be of various natures based on its activities.

Conclusion

The nature of a business describes what business they do and how they do it. They might work with making products and trading things, but they also can combine manufacturing and service. There’s a clear line between what companies do and how they conduct their activities based on what their business is. Knowing this is important because picking the right kind of business to invest in or start is very crucial. Choosing wisely can make a huge difference so it’s valuable to think about this carefully. It ensures that smart decisions are made and that successful results come through.
NBFCs are very important in assisting MSMEs in India by offering secured and unsecured business loan. They facilitate lending with easy eligibility terms and less documentation. It can be a manufacturing unit, trading sector, service sector, or a hybrid business model; they assist any MSMEs in applying for loans and help them utilize those funds effectively.