What is a Business Unit?
What is a business unit? Martin Luenendonk of Cleverism defines the term “business unit”, stating, “A business unit is a segment of a company with strategic objectives separate from the parent company but enhances the enterprise’s overall performance. It is set up to perform a specific business function to a specific market, requiring a management speciality that is not within the parent company”.
Essential Functions of Business Units
- Profitability for the larger parent company
- Micro-management abilities
- Quick and Efficient Decision-Making Abilities
3 Main Differences Between Subsidiaries and Business Units
- The Separate Legal Entity Principle
As explained by Paul Taylor of Lawpath, “The major difference between a division and a subsidiary is that a subsidiary is its separate legal entity from the company it sits under. The company above it can be known as either a parent or holding company. Even though another company can technically be another company’s majority shareholder, a subsidiary is nonetheless distinct. A parent company could also be a company that wholly owns another company, which is then known as a ‘wholly-owned subsidiary”.
2. Tax Burdens
Subsidiary companies bear their tax burdens Separate from their parent company, while divisions are not separate and must not share any tax burdens.
3. Wage and payment structures
All subsidiary wage and payment structures fall outside their parent company and can have their payment cycle and restrictions. The wage and payment structure of a division falls within the ‘parent’ company’s responsibility.
More Definitions of a Business Unit:
- Simplicable: (1) a department or team that manages revenue-generating products and services (2) a department or team that is responsible for both revenues and costs (3) an organisational structure such as a department or team that produces revenues and is responsible for costs. The term is applied loosely such that any team that manages products and services is typically considered a business unit.
- Chron – A business unit is a department or team within an organisation. It has a specialised function and must develop its own strategy in alignment with the company’s objectives. Think of a business unit as a highly specialised entity. For example, companies with a diverse customer base may set up individual business units for each market or product line.
- Cambridge Dictionary – a part of a company that operates as a separate part of the whole business.
- Law Insider – any segment of an organisation or an entire business organisation that is not divided into segments.
- BCM Institute – (1) Business Unit or BU refers to a division, facility, or department of an organisation. (2) Refers to a division, facility, or department of an organisation. Examples of business units include retail outlets and the human resource department. A business unit can perform several business functions. (3) A segment of the business entity by which both revenues are received and expenditure is caused or controlled, such revenues and expenditure being used to evaluate segmental performance.
So, What is a Business Unit?
A strategic business unit, popularly known as SBU, is a fully functional unit of a business that has its own vision and direction. If you would like the answers to other frequently asked business-related questions, be sure to check out our knowledge centre!
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