A firm is a business that produces goods or services. Firms range from a single market-stall trader to a giant company employing thousands, and many aim to grow larger over time.
Types of firm
Common legal types include:
- Sole trader: owned by one person; easy to set up but the owner bears all risk.
- Partnership: owned by two or more people who share profit and responsibility.
- Company (limited): a separate legal body owned by shareholders; owners' losses are limited to what they invested.
Measuring the size of a firm
Size can be judged in several ways: the number of workers employed, the value of output or sales, or the value of capital (machines and buildings). A small bakery run by Fatima may have five staff; a national supermarket chain may have thousands.
Why firms grow
- to earn higher total profit;
- to gain a larger share of the market and more influence over price;
- to lower average costs by producing on a bigger scale;
- to spread risk across more products or markets.
Internal versus external growth
Internal (organic) growth means growing from within, for example opening new branches or selling more products. It is usually slower but steadier. External growth means joining with another firm through a merger (two firms agree to combine) or a takeover (one firm buys another). External growth is faster but can be harder to manage. Not all firms grow: some stay small to serve a niche, keep personal service, or because the market is limited.