Knowing about the line of business can come in handy to simplify those productive and economic processes of a company. For this reason, this type of concept helps you to classify the various work environments of a given company.
Every day new ideas are developed, new companies are created and new opportunities appear. Also, technology changes at a fast pace and the possibilities are limitless when you want to innovate.
There are specific moments, when starting a new project, in which it is important to understand what your line of business will be, since it allows you to define, not only the type of undertaking that you will carry out, but also what will be the main activity of your company. Knowing and handling this type of definition is perfect to be able to distinguish the functioning of the different organizations.
In this post, we will explain everything you need to know to define the line of business of your venture, and we will tell you what you can do if you have a project in which things are not going very well.
Also, we will see the different types of lines of business, according to the sector of activity of a company. And if you want to change your activity but you don’t know how the company turns, in this note you will find everything you need to know about it.
- What is a line of business?
- Why is it important to determine the line of business?
- What are the types of business?
- Examples of line of business
- Frequently asked questions about the line of business
- Free resources for entrepreneurs
What is a line of business?
A line of business, also known as a line of business, is the classification given to a business, depending on the activities it performs. In other words, this concept refers to the economic activity to which a certain company is dedicated.
Companies are dedicated to developing different activities to provide their consumers. Depending on the type of activities carried out by the company, a line of business is assigned. It is a term that is responsible for defining which activities are allowed to carry out an enterprise, and is part of the legal requirements that are required to obtain a business license in most countries.
The line of business of a company can be very varied, because although it is regularly divided into three main types of activities, a wide list of subcategories is derived from them that depend on the specific activity that a business uses to obtain profits.
One way to easily understand what a line of business is is to observe the activities of a company. Do you want to know what they are?
What are the business activities?
To meet the needs of a customer, a business may focus on more than one line of business.
Here we will explain how business activities are classified:
1. Main activity of a business
It is the heart of the business, the most important piece that makes the company turn. Basically, it is the main source of income that a given organization may have.
If your company generates more than 50% of your income with this activity, you can say that this is the main activity of the business.
2. Secondary activity of a business
Most organizations usually have a secondary activity that generates income, but if the business decided to eliminate this activity, it would still exist.
In other words, the secondary activity would come to mean an alternative way to obtain income, which is complementary to the first option. Mainly, it has an exploratory nature, which implies that it may be a course in which profitability is not obtained in the short or medium term, but which allows the diversification of the company’s activities and grants it greater stability.
3. Auxiliary activities of a business
Both the main and secondary activities generate some product or service. Auxiliary activities do not generate any product or service, but are necessary for the proper functioning of the company.
We explain it to you in the following way: imagine that a video game company decides to design a particular game, which requires a peripheral device to accommodate the control. For producing and selling that article comes to represent an auxiliary activity.
Why is it important to determine the line of business?
Knowing the line of business of the company is essential for any entrepreneur to develop their business ideas effectively. Before investing your money, you need to know what are the conditions that apply to the sector in which you plan to undertake.
Similarly, the line of business is the first thing that should be developed within a business plan if you want to attract investment for a commercial project. In this way it can be easily recognized if it is a company with a good profitability projection, or if it is a project with little future.
In addition, to create a company, it is established as a requirement to specifically define what is the line of business from which its economic activities will be developed. In general, the line of business is one of the most important parts in the development of a business.
What are the types of business?
Within the lines of business there is a wide variety of activities, which is why a large number of subcategories emerge from them.
The activities carried out by a company are categorized by their importance and the purpose of the enterprise. Defining an organization with a single line of business is not that simple, since a company can have different lines of business.
If a company wants to engage in more lines of business, it can adapt a structure of different business units.
The lines of business are in constant movement and current ventures are multifaceted. Therefore, it would be very difficult to pigeonhole an enterprise into just one, although there are three general types that can be used to classify them:
- Of service
1. Industrial businesses
When we talk about an industrial line of business, we refer to businesses that are dedicated to the manufacture of goods. It is the one that uses natural resources or raw material, and transforms it into a finished product.
Within the industrial turn there are two large categories:
Businesses with an industrial line of production goods are those that are dedicated to manufacturing a material, which later another company or business will use, forgive the redundancy, to produce.
In this category, you can see from coffee producing companies to companies that are dedicated to manufacturing coffee machines.
On the other hand, we have the businesses of an industrial turn of consumer goods where companies allocate their goods to users who consume the product.
That is, these are businesses that sell the end product directly to users. An example of this could be a chair factory.
2. Business of commercial line
Basically, they are those who carry the goods from the producer to the consumer. The objective of these businesses of commercial line is to facilitate the access of the products to the clients.
The most frequent categories are:
Wholesale businesses are those that sell in large quantities. In general, other smaller companies are usually their main clients.
Often they do not seek to sell to the final consumer, but to a series of intermediaries.
Retail businesses, unlike wholesalers, sell by the unit and are usually directed to a final consumer.
This type of business is one of the most viewed, as it refers to enterprises that you visit daily, such as stores, pharmacies or supermarkets.
There is a third branch, that of the commission agents, who are those people who do not buy what they sell to the consumer. That is, they serve as a kind of bridge and only save a commission in case of obtaining a sale.
However, unlike the two mentioned above, the involvement of commission agents in the production chain is much less.
Commerce is very important and, if you want to start a business, you better know this line of business. Of course, remember what the Medium site mentions : ” the commercial area is fundamental in a business because having a product or service with added value that is perfectly differentiated from the competition is important, but it is not everything “.
3. Service business
The businesses that fall into this category are all those that offer an intangible good. This type of enterprise has a similar operation to the commercial line, but with the fundamental difference that they only work with what is impossible to touch.
Frequently, we can find companies that require a tangible good to be able to provide the service. These goods are considered added value, but they do not change the line of business.
A good example is the case of telephone companies; Although it is a service, they are also dedicated to selling phones. Remember that the line of business is often defined by the origin of the main income.
Among the elements that we can find in a service line of business, we have the following categories:
- Health services
- entertainment services
- Transport, both for the transfer of people and products.
- Administrative services
- Public Services (energy, water, telephony, etc.)
4. New lines of business
The digital transformation that we experience every day generates new needs and business opportunities. Therefore, new categories are emerging in the lines of business.
Innovation in technology has brought new ways of interacting as a society. We now have fully digital services like digital marketing and new concepts like frugal innovation and sustainable innovation.
Social networking services, community management, web design and UX, to name a few, are new activities that have emerged as a result of the revolution brought about by the internet. Can you imagine what other services the 4.0 revolution brings?
Examples of line of business
As you have seen, a company can have more than one activity, but its line of business will be defined by its main activity, which is defined by the percentage of income it represents.
Do you want to see an example of the activities of a business represented in the same company and what different models they would be? Suppose you have a company that sells digital cameras:
- On the one hand, your main activity is the manufacture of cameras, so the line of business of your company will be industrial due to the manufacture of the product.
- On the other hand, this same company can offer training or courses to use the cameras and take good pictures. Thus, with this secondary activity, it would be considered that you have a service line of business, but since most of your income comes from the sale of cameras, the venture is still industrial.
- Finally, a company that sells cameras can develop software for its own use. Software development, in this case, would be your ancillary activity because you are not offering the software to a consumer.
Now, we will show you some examples of business in real life, with which you can better understand the meaning of this type of concept.
1. Example of an industrial business
A clear example would be Grupo Bimbo, which is dedicated to the production of breads, donuts and pancakes. These products are generated by obtaining the raw material from different suppliers.
2. Example of a business with a line of business
Any supermarket chain would be considered commercial, since they give access to consumer goods to satisfy their customers.
3. Example of business with line of service
By having an offer to share knowledge, private universities or business schools fall into the category of business with a line of service.
Frequently asked questions about the line of business
It is understandable that multiple doubts and concerns arise about what a line of business is. Well, we will give you an answer to all those concerns you may have on this subject.
Let’s see some frequently asked questions about your company’s line of business.
1. Can the line of business of the company be changed?
As we mentioned at the beginning, the business line is part of the legal requirements that are required of a company in order to obtain a business license. Tax systems around the world establish, through the course of business, a framework to regulate the economic activities of companies.
In other words, if your line of business defines you as a service provider, you will only have a license to carry out specific activities that are directly related to it. For example, a bakery cannot stop selling bread to start selling clothes, without first carrying out all the legal procedures to do business.
But what if the business turn we took did not turn out as we expected? What can we do if we want to change the line of business and dedicate ourselves to another activity?
Fortunately, a company can change its line of business if it wishes, although to do so it must comply with the regulations established by law. Due to the current conditions, many companies have had to vary this concept to stay operational, and the regulations of some countries such as Peru have helped this to happen quickly and easily.
Doing business as a business can be easier and cheaper than removing the business license and setting up a new business. So you have options in case the line of business you chose does not generate as much profit as you expected, you just have to find out about the rules established by the tax system of your country to do so.
2. How to know which line of business to choose?
Regularly, it is advised that the selection of a line of business be as broad as possible in the definition, so that together with the secondary and auxiliary activities, the company has the possibility of developing its commercial functions without fear of receiving sanctions from auditing entities.
This applies if you are starting with the world of entrepreneurship and you do not have much knowledge about the area you plan to enter. If you already have very well defined what you are going to do, do not worry about this point.
It is important that you bear in mind that, depending on the type of business you choose, you will have to pay a certain percentage of your company’s income to the tax system of your country, so it is also a good idea that you exclude certain types of business from your business license. activities that are taxed with higher taxes, especially if they are activities that are not going to be a significant source of income.
“The digital world is becoming the most common medium for those who want to undertake. This situation is due to the development of the Internet, which currently provides anyone with access to information, and has recently been assuming an increasingly influential role in the consumer purchasing process itself.”
3. What elements should you take into account to implement a line of business?
When you start an enterprise, it can be complex not knowing in which area to specialize your company. This type of orientation can be determined, not only by the emotional part, but also by conditions, both particular and external.
If you want to know what kind of business you can adopt, you must take into consideration some elements. Mainly, choosing properly will depend on factors such as the following:
A venture in which your own ideas are the ones that promote and sustain the business, will always be a good alternative. Maintaining originality will allow you to seek the accelerated development of your company, without having to be aware of the competition.
If you transmit originality, you will offer greater security to your customers. Many successful businesses take originality as their flag.
Opting for a line of business will depend a lot on what you want to do and how passionate you are about the idea of starting a particular business. The more affection and love you feel for your company, the easier it will be for you to know which direction to take.
Always keep the passion for everything you do, in this way you will obtain better quality final processes and produce elements that will be to your liking.
Eye, competitiveness does not mean the same as competition. Many tend to view this factor negatively, believing that both terms are synonyms, when this is not the case.
It is important that you know that competitiveness refers, mainly, to the fact of determining growth factors, in which goals and objectives set must be exceeded; always looking for optimization, growth and quality in each of the actions undertaken.
Another element that you should pay attention to in the line of business is the market. If you know the environment in which your company will operate, you will have a clearer idea of which activity to focus your company on.
A very important advice at this point is that you do not choose to improvise. You must investigate where the demand is going and what the consumer prefers in that category.
Previously, we highlighted the role that technology is having in the workplace. Well, it is an element that can be of great help to you, if you have not yet applied it in the corresponding way.
How can the implementation of new technologies benefit you? Not only can you maintain a direct connection with your clients remotely, but you will also be able to take advantage of various business opportunities and, of course, be able to measure the development of your company and adopt the right strategies to stay the course or change it completely..
Now that you have knowledge about the details of each line of business and learned how to choose the right one for your business, we will share some resources that can be very helpful.
Free resources for entrepreneurs
Now that you can differentiate between a line of business or activity, you are one step closer to your own business.
1. Income Statement Template
If you want to know what type of business your company belongs to, we share an income statement template to help you find the activity that brings you the most income.
2. Guide to put together the business plan of your enterprise
Learn how to put together a strategic plan for a business and improve the viability of a business with this free guide.
A business plan is a document of a new business project. Communicate who you are, what you plan to do and how you plan to do it, based on previous market research.
In this document, you will lay the foundations that will define what type of business activities you will carry out in your venture, and, therefore, what your line of business will be.
3. Canvas model templates to print in A3
Do you have a business line idea that you need to work on? We want to share with you 3 Canvas model templates that will help you shape your future venture.
The Canvas model or “Business Model Canvas” summarizes the nine basic components that you need to consider before starting a business model, regardless of its type of business :
- Key partners.
- Key activities.
- Key resources.
- Value proposal.
- key structure.
- Customer relations.
- Market segments.
- Income sources.
4. Work plan format in Excel
Assuming that you are already clear about the line of business that you will set up and what type of enterprise it will be, let’s move on to the day-to-day management of the business.
Imagine that you have a lot of projects to do. How can you get organized without panicking? Download this work plan format and anticipate the typical chaos of company activities.
A work plan is a tool to assign tasks, deadlines and responsible, among others, and to monitor a project. The most important elements of this document are the following:
- Objective to be achieved.
- Person in charge.
- Start date and end date.
5. Return On Investment Calculation Template for Web in Excel
To find out if the line of business with which you want to undertake is profitable, the best thing you can do is calculate its profitability rates and the time in which you could achieve the return on investment.
To make things easier for you, we share this template for calculating return on investment in Excel, with it you will have the ability to analyze if the investments you plan to make are convenient, or if, on the contrary, you should change the line of business towards other activities.
This resource is intended for those planning to include a website as part of their business plan and line of business. So with it, you will be able to calculate the ROI of what you invest in the campaigns of your commercial page.
6. Financial profitability formulas in Excel, calculate your investment!
With this template you will have the opportunity to calculate the profitability of your line of business over time. That is, you will be able to determine if what you are planning as a line of business can be maintained with a good profitability during a specific period, and determine what level of profits you will obtain from it.
By applying the profitability formulas, you will also have information of interest that you can use to attract investors to your line of business.
7. Sales Funnel: Excel Template
For your line of business to produce as much profit as you expect, the main thing is to reach customers and increase the level of sales. Therefore, we recommend using this sales funnel template in Excel.
A sales funnel is a tool that is used within marketing strategies to generate more conversions, so it will be very useful to reach your customers in a more effective way.
Today, access to technology allows the creation of enterprises with multiple economic activities. The lines of business begin to mix more and, as we saw before, new items begin to emerge.
We hope that this note has been useful to answer your questions about business lines, one of the first elements that you must take into consideration when starting a business. Do not forget! And remember: there is always the possibility of change.
This point is recalled by the Forbes portal with the case of Simetrik, which had a completely different business model and today is a company that is valued at more than USD 100 million.