Learning Business: Companies, Debt and Partnerships

BY MUTJABA GHAUS

 
Do you know what Coca Cola is? When I say Coca Cola, what comes to your mind? A sweet and refreshing drink? Or a huge company that has thousands of workers in many countries?
Dear readers, what we will understand in this passage is how a simple business can grow so large that they can hold more power than governments. A research once claimed that after the word ‘OK’, ‘Coke’ is the most understood word, globally. How did a company started in America, in 1886, become so famous today that it is known all over the world?
It all starts with a buyer and a seller. The seller benefits because they earn a profit and the buyer benefits because they need or wanted the good or service they are buying. That is what makes a good business: everyone who is a part of it, benefits.
So let’s take the example of Mr. X, who makes a drink one day and gives samples to his friends to try. They all loved it, and within a couple of days, Mr. X starts making the drink to sell it. Soon enough, more and more people want to buy Mr. X’s drink and Mr. X starts calling the drink ‘Cola’. This is called branding in a business setting, where a product being sold, is named. Now Mr. X wants to open up a shop for selling that drink and also wants to make a company but he does not have the money to buy a shop. So firstly, why should Mr. X make a company?
A company is a registered (with the government of that country) organization, meaning a group of people, who are working towards shared goals. This means that Mr. X’s company will have a group of people that he will hire, to help him reach his goal; which can be to sell the refreshing Cola to as many people as possible, and earn more profits. You should remember though, that usually, businesses have many more goals than just profit.
Now the employees(the people that Mr. X hires) will clean the shop, help with delivering the Cola to customers, and will help Mr. X in his tasks. They will also be paid a salary, from which they benefit too, and feel happy about working for Mr. X. This is also called job creation, because Mr. X made the company that gave these people these jobs. But what will happen to Mr. X if he does not have the money to buy the shop? A friend explains to Mr. X that he has three options:

  1. Save his own money, from the sales of the Cola and buy a shop from his own money. This is called Private Ownership. But according to his calculations, it will take Mr. X ten years to save enough money to buy a shop! And in that much time, other people can open up shops that sell similar drinks and win a greater market share. This is called competition.
  2. Take a loan from the bank and buy the shop the same day! But Mr. X has to pay back the bank a fixed amount of money (for example 1,000 dollars every year, for 10 years), no matter what. This is called Debt. But what if Mr. X falls sick and cannot run his business and can make no money? Will the bank let him go? No. The bank will still want it’s money back and wants Mr. X to agree to give the bank his house if he cannot pay back the money! This is called collateral to a loan.
  3. Ask a friend to give him money and be a partner in the business. This means that Mr. X can buy a shop a next day, and also would not have to pay back his friend the money, or lose his house, if he cannot make money! But this also means that according to their company shares, Mr. X will have to give a set percentage to his friend, every time they make a profit. For example, if they are 50/50 partners, Mr. X have to give the friend half of whatever the company profits, and this will be the friend’s right forever, if other arrangements are not made between Mr. X and the friend. But what if the friend wants to control the business and wants to hire people who are not good for the company? Will that harm Mr. X’s goal?

These are the basic choices many rising business leaders, called entrepreneurs, like Mr. X face. What should Mr. X do?
What will you do?
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1 comment

  1. Nathan 5 years ago September 13, 2016

    What a good story. Keep educating people so that they think positively.

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