What Is the Nature of Business?

By Staff WriterLast Updated Jul 14, 2020 11:49:22 AM ET
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The nature of business refers to the overall activities of a company in their quest to create, market, and sell a service or a product. Essentially, the main focus for what a company does in a particular sector or industry is known as that company’s nature of business.


Organization

There are different ways to understand the nature of business. One could look at a company’s organizational setup, the goods, services the company offers, and even the structural formation that is used. This refers to the nature of how a business is set up, using the common business structures of a sole proprietorship, a partnership, a corporation, a limited liability company (LLC), or even a limited liability partnership (LLP).

Types of Businesses

The nature of business can be viewed in the types of businesses that operate within a particular sector. There are businesses in the government sector, the military sector, the international sector and the private sector, among others. Today’s technology explosion has probably added a few more business sectors, too. Here are some business examples of the private sector.

Service Business

Public relations firms, law firms, medical practitioners, and software consultants are examples of service businesses. These businesses provide services like advising, counseling, and consulting. 

Merchandising Business

Merchandising businesses buy products at bulk, wholesale prices, and sell them to consumers at a higher markup. Many small businesses today are using online exchanges to buy goods from foreign countries, and sell them to American consumers at higher prices. 

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Manufacturing Business

Manufacturing companies buy raw commodity products like nuts, grain, wheat, and more to create new consumer-friendly products. Unlike merchandising companies, which offer products to consumers in the same format that they bought in bulk, manufacturers often create new products from the raw products used. 

Business Classification

Another way to assess the nature of a business is to research a company’s industry classification. The business classification system is how governments organize companies into specific categories to track the progress or decline of a particular industry. 

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There are two key classifications—the SIC (Standard Industrial Classification), run by the U.S. Department of Labor, and the NAICS (North American Industry Classification System), a joint North American effort by Canada, Mexico, and the United States.

SIC

The SIC was originally developed in the 1930s and was last updated in 1987. It was created for the government’s purpose to collect, analyze, and publish U.S.-related statistical data.

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Today, there are still business directories that use the SIC classification system, but the SIC system has been most surpassed by the NAICS (see below).

NAICS

The NAICS system is generally seen as the official business classification system today. The NAICS organizes similar companies from Canada, Mexico, and the U.S. into industry categories to obtain data related to the overall health or weakness of a particular industry. The NAICS relies heavily on number-based classification system. 

To get an idea of how a business is classified, here is the description for Facebook:

"Facebook Inc" of Menlo Park, CA 94025 operates primarily in SIC Code 7374—Computer Processing and Data Preparation and Processing Services, and NAICS Code 518210—Data Processing, Hosting, and Related Services.

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