What is a Business?

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A Business is an organization or economic system where goods and services are exchanged for one another or for money.

Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit.

Businesses can be privately Or Publicly owned

How Business Start

Generally, a business begins with a business concept (the idea) and a name. Depending on the nature of the business, extensive market research may be necessary to determine whether turning the idea into a business is feasible and if the business can deliver value to consumers. The business name can be one of the most valuable assets of a firm; careful consideration should thus be given when choosing it. Businesses operating under fictitious names must be registered with the state.

Businesses most often form after developing a business plan, which is a formal document detailing a business’s goals and objectives, and its strategies of how it will achieve the goals and objectives. Business plans are almost essential when borrowing capital to begin operations.

It is also important to determine the legal structure of the business. Depending on the type of business, it may need to secure permits, adhere to registration requirements, and obtain licenses to legally operate. In many countries, corporations are considered to be juridical persons, meaning that the business can own property, take on debt, and be sued in court.

What is An Investment?

An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.

Investing is putting money to work to start or expand a project – or to purchase an asset or interest – where those funds are then put to work, with the goal of income and increased value over time. The term “investment” can refer to any mechanism used for generating future income. In the financial sense, this includes the purchase of bonds, stocks or real estate property among several others. Additionally, a constructed building or other facility used to produce goods can be seen as an investment. The production of goods required to produce other goods may also be seen as investing.

Taking an action in the hopes of raising future revenue can also be considered an investment. For example, when choosing to pursue additional education, the goal is often to increase knowledge and improve skills in the hopes of ultimately producing more income. This is also the main goal of reading articles on Investopedia. Because investing is oriented toward future growth or income, there is risk associated with the investment in the case that it does not pan out or falls short. For instance, investing in a company that ends up going bankrupt or a project that fails. This is what separates investing from saving – saving is accumulating money for future use that is not at risk, while investment is putting money to work for future gain and entails some risk.

Types Of Investment

1. Ownership Investments

Ownership investment Is what comes to mind for most people when the word “investment” is batted around. They are the most volatile and profitable class of investment. The following are examples of ownership investments:

Stocks:

 A stock is literally a certificate that says you own a portion of a company. More broadly speaking, all traded securities, from futures to currency swaps, are ownership investments, even though all you may own is a contract. When you buy one of these investments, you have a right to a portion of a company’s value or a right to carry out a certain action (as in a futures contract).

Your expectation of profit is realized (or not) by how the market values the asset you own the rights to. Suppose you own shares in Apple (AAPL) and the company posts a record profit. In that case, other investors are going to want Apple shares too. Their demand for shares drives up the price, increasing your profit if you choose to sell the shares.

Business

Entrepreneurship is one of the hardest investments to make because it requires more than just money. The money put into starting and running a business is an investment. Consequently, it is also an ownership investment with substantial potential returns. Entrepreneurs can make huge personal fortunes by creating a product or service and selling it to people who want it. Bill Gates, founder of Microsoft and one of the world’s richest men, is a prime example.

Real Estate

Houses, apartments or other dwellings that you buy to rent out or repair and resell are investments. However, the house you live in is a different matter because it is filling a basic need. It fills a need for shelter and, although it may appreciate over time, shouldn’t be purchased with an expectation of profit. The mortgage meltdown of 2008 and the underwater mortgages it produced illustrate the dangers in considering your primary residence an investment.

Precious objects and collectibles: 

Gold, Da Vinci paintings, and a signed LeBron James jersey can all be considered an ownership investment – provided that these are objects that are bought to resell them for a profit. Precious metals and collectibles are not necessarily a good investment for a number of reasons, but they can be classified as an investment nonetheless. Like a house, they have a risk of physical depreciation (damage) and require upkeep and storage costs that cut into eventual profits

2. Lending Investments

Lending investments allow you to be the bank. They tend to be lower risk than ownership investments and return less as a result. A bond issued by a company will pay a set amount over a certain period, while during the same period the stock of a company can double or triple in value, paying far more than a bond – or it can lose heavily and go bankrupt, in which case bondholders usually still get their money and the stockholder often gets nothing.

Your savings account

Even if you have nothing but a regular savings account, you can call yourself an investor. You are essentially lending money to the bank, which will give out in the form of loans. The return is currently quite low, but the risk is also next to nil because of the Federal Deposit Insurance Corporation (FDIC)

Bonds: Bond is a catch-all category for a wide variety of investments from Treasuries and international debt issues to corporate junk bonds and credit default swaps (CDS). The risks and returns vary widely between the different types of bonds, but overall, lending investments pose a lower risk and provide a lower return than ownership investments.

3. Cash Equivalents

These are investments that are “as good as cash,” which means they’re easy to convert back into cash.

Money market funds

With money market funds, the return is very small, 1% to 2% and the risks are also small. Although money market funds have “broken the buck” in recent memory, it is rare enough to be considered a black swan event. Money market funds are also more liquid than other investments, meaning you can write checks out of money market accounts just as you would with a checking account.

What About Investing in Your Education?

Education: Your education is often called an investment and many times it does help you earn a higher income. A case could be made for you “selling” your education like a small business service in return for income like an ownership investment.

Wealthbuffer has extensive articles that talk about business and investment. Visit the website to learn moe.




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