A business is described as a legal entity organized either for profit or non-reprofit activity, for the purpose of conducting commercial, industrial, or other productive activities. Businesses may be either for-profit or non-profitable organizations that conduct business to meet a social purpose or further a charitable cause. Business activities may be either physical or virtual. Examples of physical activities include production of tangible goods and services, development of information, distribution, sales, marketing, and financial activities.
Most small businesses are run either by employees or by independent contractors. Independent contractors work in the businesses on a contractual basis and are responsible for their own financial modeling, management, oversight, and reporting. Employees are usually the main stay of a business and make up the majority of the workforce. The employees of a business can either be salaried employees who perform the basic tasks and perform them well, or management personnel who are generally employed in higher paying jobs and have managerial duties.
Many businesses are started as sole proprietors and pass their profit and loss situations through to their employees, who then pass their performance and responsibilities to the company, which then passes it down to the employees, who again, pass it down to the company, until the business becomes a dominant force in its industry. In order for this to happen, however, certain principles must be followed. Usually, only owners can actively participate in management. Employees, supervisors, and managers all assume various forms of indirect ownership as the basis of the structure of a business. One example is CFi, which stands for “Certified Firm Owner Financial Model.” Companies like CFi can provide training, certification programs, and certification for business owners on various aspects of business operations including bookkeeping, financial modeling, and accounting.
It is important to understand that even the most successful business structure can collapse, and there is nothing inherently wrong with being involved in such a collapse. However, when the failure occurs because of a lack of knowledge, experience, or training, it becomes the fault of the business owners individually rather than the businesses as a whole. For example, if two owners start a CFi business together and realize they are not compatible with each other, they are in a sense guilty of their own failure. In many cases, a failure to adapt to changing conditions can cause a business structure to fail, because the owners may have been unprepared for a particular change.
When sole proprietorships and CFi fail for a variety of reasons, including poor cash flow, inefficient business operations, unwise investment strategies, and inadequate protection from competition, personal liabilities, and unneeded overhead, the owners may be sued. Depending on state laws, the owner may be personally liable for all costs and damages incurred by the business, not just the profits made. This means the owner could be held personally responsible for personal debts of the business, such as credit card debt, car payments, and payroll. Similarly, if business debts of sole proprietorships were never paid, the business owners could be held personally responsible for business debts of all types. Personal liability for business debts often results in judgments and liens that prevent the business from obtaining financing, damaging the owners’ reputations, and causing their businesses to shut down.
For most businesses, being a C corporation can be a good choice, because it requires less paperwork and allows most businesses to raise money without having to worry about state and federal taxes. However, there are also drawbacks to being a C corporation, which include limited liability corporation requirements. As a corporation is run through an organized system of limited liability, only the owners can be held personally liable for corporation debts. On the other hand, businesses can have more complex structure with various types of corporations to protect themselves from lawsuits.