Key Takeaways

  • A business functions by combining resources—capital, labor, and operations—to deliver goods or services to a market for profit.
  • Choosing a business structure (LLC, sole proprietorship, etc.) is foundational and influences legal and tax obligations.
  • Operational success depends on sound planning, effective location strategy, hiring practices, marketing, and financial management.
  • Managing business finances—such as securing funding, tracking cash flow, and understanding taxes—is critical to sustainability.
  • Compliance with federal, state, and local regulations (e.g., licenses, permits, employment law) is required for lawful operation.

How does a business operate? Each company can establish its own policies and procedures for operation in a document such as the bylaws, provided these rules are in accordance with local, state, and federal law.

Getting Started

As you start to build your business, initial key steps include:

  • Familiarizing yourself with the various laws and regulations that apply to your business, including tax and employment laws. It's important to understand the guidelines at the federal and state levels as well as specific laws in your municipality.
  • Obtaining the necessary business licenses and permits, which vary by location and industry but may include professional licenses, general business licenses, sales tax licenses, health permits, and/or zoning and land use permits.
  • Registering with the IRS for an employer identification number (EIN). If you are a sole proprietor with no employees, you can pay taxes and open a business bank account using your Social Security number. When you become an LLC or corporation, however, you need to file taxes with an EIN. This number is also used to open financial accounts and hire employees.

Understanding How a Business Works

To fully understand how a business works, it’s important to break it down into its core components:

  • Value Creation: Businesses begin by identifying a need or opportunity in the market and offering a product or service to fulfill it.
  • Business Structures: The way a business is legally formed—such as an LLC, partnership, sole proprietorship, or corporation—determines how it is taxed, managed, and legally protected. Each structure offers different levels of liability, administrative complexity, and funding options​.
  • Revenue Generation: The business earns income by selling goods or services. Revenue must exceed expenses to generate profit.
  • Resource Management: Businesses use inputs such as labor, materials, and technology to create outputs. Efficient operations are key to maintaining profitability.
  • Customer Relationships: Retaining satisfied customers through quality service and support is essential to long-term sustainability.
  • Regulatory Compliance: All businesses must adhere to laws and regulations, including licenses, tax filings, and labor laws.

Creating an Operations Plan

An operations plan, sometimes called a business plan, provides a comprehensive blueprint for running your business. You may not think you need a plan, especially if your business is small, but having one helps ensure that you're moving in the right direction during the critical initial growth period. In addition, if you plan to seek loan financing or investor funding, you'll need to present a business plan to the decision-makers.

The operations plan contains the complete guidelines for running your business. This plan can start small and become more complex as your business grows. Some of the items that should be included in the plan include staffing information, production processes, equipment, technology, location, customer base, marketing plans, potential vendors and suppliers, and other industry-specific notes.

The operations plan should also appeal to investors if you plan to seek funding. For example, describe your chosen business location and the local demographics. What are the terms of your lease? What major equipment do you need to get started? If you're an online-only business, describe how you made that decision.

Supply and inventory management processes should be designed for efficiency and include measures to check your sales and make adjustments accordingly. If your business will engage in manufacturing, providing sourcing, production, and distribution information.

A human resources framework is essential if your company will have employees. What will be the management structure of the business? Do you need specialized consultants? Will you outsource HR or hire a director for that purpose?

Managing Business Finances

Effective financial management is crucial for business stability and growth. Key components include:

  • Startup Capital: Businesses often require funding to launch. Options include self-funding, loans, grants, or venture capital.
  • Cash Flow Management: Monitoring how money enters and exits the business ensures that expenses can be met on time.
  • Accounting and Bookkeeping: Keeping accurate financial records helps with budgeting, forecasting, and tax filing.
  • Tax Obligations: Businesses are subject to federal, state, and sometimes local taxes. Common tax types include income tax, self-employment tax, and sales tax.
  • Profit Reinvestment: Businesses may reinvest profits to expand operations, hire staff, or improve products and services​.

Choosing a Location

An ideal location is particularly important for retail businesses that rely on foot traffic and being convenient for visits from customers. If you need a warehouse or office space, it should create a safe, productive, and comfortable work environment. After all, you'll be spending plenty of time at your business location, particularly as you launch. Make sure the space you choose can accommodate all the equipment and storage you need. Once you find the perfect place for our business and sign on the dotted line, you can make delivery arrangements with your vendors.

Choosing the Right Business Structure

The structure of your business affects daily operations, taxes, personal liability, and how much you pay in taxes. Common options include:

  • Sole Proprietorship: Simple to set up, but the owner is personally liable for business debts.
  • Partnership: Shared ownership and responsibility. There are general and limited partnerships depending on liability distribution.
  • Limited Liability Company (LLC): Offers liability protection like a corporation with the tax benefits and simplicity of a partnership.
  • Corporation (C or S Corp): Offers strong liability protection, ideal for businesses seeking outside investment, but with more regulations and higher administrative costs​.

Choosing the right structure should involve considering the nature of your business, the level of risk, and future goals. You may wish to consult a business attorney or CPA.

Marketing Your Business

Once you've registered your business and trademarked your business name, you can begin developing marketing materials in anticipation of your launch. You should seek professional help to obtain an attractive logo, stationery, website, business cards, and other marketing collateral. Well-designed materials will lead others to take your business seriously and increase your credibility. This also contributes to making a good first impression.

You can also focus on networking with other business owners and providing incentives for new and return customers.

Building Customer Trust and Brand Identity

Beyond promotional efforts, successful marketing depends on the relationship you build with customers:

  • Consistent Brand Messaging: Maintain uniformity in visual identity, tone, and customer experience across platforms.
  • Online Presence: Invest in a professional website, SEO, social media engagement, and email marketing.
  • Customer Feedback Loop: Use surveys and reviews to adapt offerings and improve service.
  • Loyalty Programs: Incentives for repeat business can increase customer retention and revenue.

Establishing a trustworthy and recognizable brand not only boosts customer confidence but can also differentiate you in competitive markets.

Hiring Employees and Consultants

An experienced, trustworthy team of advisers is a must for any business owner. These professionals provide support in areas that are beyond your expertise. You should seek recommendations for an excellent banker, business attorney, and tax specialist.

Rapid business growth will also require great staff. Providing generous pay and incentives can help you attract the most qualified candidates. Start small by hiring only the people you need immediately. Create clear job descriptions and a written management plan.

Frequently Asked Questions

  1. How does a business work on a day-to-day basis?
    A business functions daily by providing its product or service, managing operations, handling finances, serving customers, and ensuring compliance with regulations.
  2. What are the essential parts of a business?
    Core elements include the business idea, legal structure, operations plan, financial management, marketing, and customer service.
  3. What is the role of a business structure?
    The structure determines tax treatment, legal liability, funding potential, and administrative responsibilities.
  4. Why is an operations plan important?
    It outlines how the business will deliver products or services, manage resources, and scale effectively.
  5. How do businesses make money?
    By delivering goods or services to customers at a price higher than the cost of production, generating profit.

If you need help with learning how a business operates, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.