Grandpa, what is 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 Grandpa explain.

Simply put, a business is a group of people who come together to sell something and make money, known as “income.”

A company can be very small, even one person. This small business can have a legal form or the person can consider himself (or herself) as a “self-employed worker”. Even a one-man business must generate enough money to pay for your living costs. Otherwise, you will have to get a job in another business or live on social security paid by the government and that is no fun at all.

The size of the companies we come across most often is as small as 2 or 3 to several hundred. These companies are often called small and medium-sized enterprises (SMEs). They normally have a legal status as “partnership” or “limited partnership”.

The great beasts in the jungle of business can be very large, often with thousands of employees and many millions of pounds of income, and are generally “Limited Liability Companies” (PLC). All of these businesses are important, and Grandpa will tell you more about all of these businesses in the next few days.

Let me now tell you about the money a business makes, called “revenue.” This money must be enough to cover the so-called costs or “expenses.” Costs are all the expenses that the business incurs: materials the business could have purchased, rents, wages, and money paid to other people. Costs can include many other things, such as computer costs, phone bills, insurance, heating, transportation, etc.

The idea of ​​a business is that income should be more than expenses. If income is greater than expenses, the difference is called “profit.” If income is less than expenses, the business is said to have a “loss.”

Losing is a BAD thing. If the losses continue, the business cannot continue and is said to be bankrupt. The company has no money to pay its bills.

Therefore, the profit must be a GOOD thing. Not everyone agrees, but Grandpa will explain as we go along why earnings are a VERY GOOD thing.

There is an intermediate result called “equilibrium”, which is neither a loss nor a gain. Normally, a company can survive in a state of equilibrium, but it brings problems that we will talk about later.

Grandpa has yet to mention the biggest contribution companies make to our lives: TAXES. Businesses are a rich source of TAXES, which our government needs to pay for schools, the National Health Service, roads, police, firefighters, the Army, the Navy and the Air Force, old-age pensions, etc. Our politicians have great ideas about how to spend the money, but they have no money to spend unless companies create TAXES.

There is a tax called CORPORATE TAX that is charged as a percentage of the profits made by the company. However, companies create taxes for the government in many other ways. All people who receive a salary or a salary from a country of business INCOME TAX and the company pay a NATIONAL INSURANCE for each person who works for the company. No business, no wages, no income taxes, no national insurance. Businesses charge VAT (value added tax) on most of the things they sell. They pay what they charge (minus the VAT they have paid to other companies) to the government. Business owners 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 someone else and, if they do, pay CAPITAL GAINS TAX on the sale. If a company buys insurance, it pays the INSURANCE TAX. If you buy goods abroad, you often have to pay TARIFFS to the government.

Corporation tax, income tax, national insurance, value added tax, dividend tax, fees, capital gains tax all help pay for the things we value like schools, police, defense and the National Health Service. Without these taxes, the government would not have enough money to pay for these things. By the way, businesses also pay the COUNCIL TAX that pays for local services like cleaning streets, parks, playgrounds, and many other things that we take for granted.

Of course, businesses are not created and operated to pay taxes. The business is created to generate money for the owners and pay the salaries of the people who work in the business. They will work hard in the business for their own benefit. the tax paid was an unwanted benefit to the rest of us. This raises all kinds of interesting questions that Grandpa will talk about another day.