Every business, whatever its size, has work that must be done: making or buying what it sells, finding customers, paying people and keeping records. We group that work into business functions. Every individual, in turn, earns a living in one of three ways: as a professional, as an employee or as a business owner.
The Institute of Chartered Accountants of Nigeria (ICAN) syllabus asks you to explain the main business functions, why business matters to its stakeholders and how economic activities are classified by occupation.
The last of those, the three kinds of economic activity, is a favourite for written questions, because examiners ask you to compare them point by point.
In 30 seconds
Business functions are the high-level groups of capabilities and processes that describe what a company does and make it run. The syllabus lists fifteen. Business is important because it drives growth, contributes to gross domestic product (GDP), creates jobs, innovates, meets society’s needs and supports communities. Economic activity by occupation falls into profession or vocation, employment and business. A profession rests on specialised training and a code of conduct.
Employment is work for an employer under a contract in return for wages. Business is continuous activity, with capital at risk, aimed at profit.
Business functions
Business functions are the high-level groupings of a company’s capabilities and processes that describe its work. They make sure the organisation runs properly and serves its customers, employees, leaders and shareholders. A company may have one main function or several, and a service business often breaks them into three levels.
For a marketing firm, level one is marketing, level two is promotions, and level three is social media advertising and graphic design. A firm may handle a function in its own department, hire specialists, or outsource it.
| Function | What it does |
|---|---|
| Strategy | Develops the approach and plan for change: finds strengths, weaknesses and competitive advantage and plans how to reach goals. Common strategies are integration, diversification, market penetration, cost leadership and strategic partnerships |
| Finance | Funding, budgets, accounting and financial oversight: tax payments and returns, invoicing, payroll, cash flow records, audits |
| Sales and marketing | Promotes the firm and builds revenue. It decides what is sold, sets prices and promotions, builds the brand and runs campaigns, including digital marketing and public relations |
| Research and development | Leads innovation through market research, trend analysis and product development, to create new products, services and revenue streams |
| Information technology | Develops and runs applications, systems, hardware and software, networks, security and cloud storage, and gives technical help to staff |
| Customer service | Manages the relationship with customers, handling questions, purchases, returns and complaints in person, by phone or online |
| Human resources | Recruitment, hiring, benefits, performance management, employee relations, policies, culture and compliance with labour law |
| Design | The visual side of brand identity, in print, online, broadcast and mobile material |
| Communications | Public relations, corporate communications and crisis management: press releases, spokespeople and speeches |
| Governance | Direction and control of the company through rules, processes and practices, setting who has authority and accountability. It focuses on people, purpose, process and performance |
| Production | Making the products or delivering the services, in a factory, a bakery kitchen or a film set |
| Sourcing | Pricing and buying materials, components, equipment and services, often in volume to cut cost. It includes purchasing, supply chain management and logistics |
| Quality management | Makes sure a product or service is consistent and reliable through four steps: quality planning, quality assurance, quality control and quality improvement |
| Distribution | Reaching the customer, directly or through distributors. Retail distribution may be intensive (as many outlets as possible), selective (chosen outlets in chosen places) or exclusive (a limited number of outlets) |
| Operations | The core business process, which varies by industry: deploying information technology (IT) services, running a factory, a restaurant kitchen or the office of a law practice |
The importance of business to its stakeholders
A business is any commercial, corporate or professional entity that organises the production of goods or services. It may aim at profit or be a not-for-profit body with a charitable or social aim. Businesses are the engines of economic development: they create wealth, provide jobs and open the way to innovation.
| Importance | Meaning |
|---|---|
| Catalyst for growth | Producing and selling goods and services raises income, employment and living standards |
| Contribution to GDP | Business output is a main part of national income |
| Job creation | From start-ups to large firms, business gives people work and reduces unemployment |
| Innovation | New products and technology improve efficiency and quality of life |
| Meeting society’s needs | Food, clothing, housing, health care and entertainment |
| Community development | Investment in infrastructure and support for local initiatives |
| Entrepreneurship | Encourages people to take calculated risks and create value |
| Global connectivity | Facilitates trade between countries |
| Ethics and social responsibility | Fair treatment of staff, sustainability and ethical sourcing earn trust |
| Individual growth | Gives people skills and experience |
| Environmental conservation | Eco-friendly practice and support for conservation projects |
Economic activities based on occupation
Profession or vocation
A profession is an occupation that provides a personal service of a specialised nature, based on professional education, training and experience. Professionals are expected to acquire specialised knowledge from polytechnics, universities and specialised institutes such as the Institute of Chartered Accountants of Nigeria. They belong to professional bodies, follow their standards and codes of ethical conduct, and can be disciplined by them.
A licence can be withdrawn for a serious breach. Many set up their own practices and charge fees. A professional who does so is classed as a business for this purpose. Others take paid employment.
Employment
Employment is the provision of a service by an individual to an employer under a contract of employment in return for a wage or salary. The employer decides what the employee does, and the employee follows the employer’s rules. Its main features are:
- one person (the employee) works for another (the employer) and receives a salary, usually monthly, or wages, usually daily or weekly;
- a contract binds both parties, and a breach lets the other side take legal action;
- where specialist skills are needed, a basic or technical level of education is expected;
- the motive is assured income; and
- either side may end the relationship by giving the notice the contract requires.
Business
A business produces goods or provides services in order to make a profit. Types include industrial businesses, trading businesses and those that assist them, such as transport and warehousing, banking and insurance, and advertising. Its main features are:
- the major objective is profit, which is needed for survival and growth;
- it involves making or selling goods or services;
- the transactions must be continuous. Selling your old television once at a profit is not business. Selling television sets regularly is; and
- capital must be invested before it starts and as needed afterwards, and every business carries risk.
The three compared
| Basis | Profession | Employment | Business |
|---|---|---|---|
| Qualification | Specialised education, training and experience | A basic or technical education, depending on the job | No fixed qualification |
| Nature of work | Personal service of a specialised kind to clients | Work set by the employer | Producing or selling goods or services |
| Establishment | Own practice, or paid employment, under a professional body | A contract of employment | Set up by the owner, with capital |
| Motive | Service to clients, and fees | Assured income | Profit |
| Reward | Fees or salary | Wages or salary | Profit, which is uncertain |
| Regulation | A professional body and its code of conduct | The contract and employment law | Business and company law |
| Risk | Low to moderate | Low | High. Capital is at risk |
Benefits and drawbacks
| Activity | Benefit | Drawback |
|---|---|---|
| Profession | Specialised skill and high standards of service. Doctors and nurses add to well-being. Accountants supply information that businesses need | Some professional tasks may be criticised as adding little to the real economy while earning large personal fees, for example some banking and auditing |
| Employment | It is the heart of the business economy. Most businesses need employees | Most employees do what they are told and do not add entrepreneurship, which a growing economy needs |
| Business | It supplies entrepreneurship and much of the real value an economy creates | Many owners, such as shareholders, take no direct part in the work but benefit from the profit |
Worked example: classifying activities
Scenario. Classify each person:
- (a) Ngozi, a chartered accountant, who runs her own practice and charges fees
- (b) Sade, an accountant paid a monthly salary by a bank
- (c) Kunle, who buys and sells television sets every week
- (d) Musa, who sells his old television once at a profit
| Person | Classification | Reason |
|---|---|---|
| (a) Ngozi | Profession, and a business for classification | A specialised service under a professional body, run as her own practice for fees |
| (b) Sade | Employment | A contract with an employer in return for a salary, even though she is professionally qualified |
| (c) Kunle | Business | Continuous trading with capital at risk for profit |
| (d) Musa | None of the three | A single sale is not continuous, so it is not business |
Functions and economic activities in more detail
How the functions work together
The fifteen functions are not separate islands. A decision in one affects the others. If sales and marketing promises a delivery date, production must be able to meet it, sourcing must have the materials, distribution must have the transport, finance must fund the stock, and customer service must handle the complaint if it fails.
Strategy sets the direction for all of them, and governance keeps the whole in check through accountability. Good businesses coordinate the functions, which is the reason many firms use cross-functional teams and enterprise systems.
Functions in a small firm and a large firm
In a small business, one or two people may perform several functions, and some, such as design or IT, may be outsourced. In a large business each function has its own department, head and budget. The same business may outsource a function to a specialist to cut cost or gain skill, while keeping control of strategic ones.
Why quality management matters
Quality planning decides the standard to meet, quality assurance builds processes to meet it, quality control inspects the result, and quality improvement raises the standard over time. A firm that controls quality loses less to waste and returns, keeps customers and protects its brand.
Profession, employment and business: what separates them
The key tests are who carries the risk, who decides, how the person is rewarded and what regulates the work. In employment the employer carries the risk and directs the work, and the employee earns a wage under a contract. In business the owner carries the risk, decides, and rewards himself from profit.
In a profession the individual sells specialised expertise, is bound by a code of conduct and answers to a professional body. The same person can move between them: a chartered accountant may work as an employee of a bank, or run an independent practice as a business.
Benefits and drawbacks, reasoned
Professions raise standards and protect the public through qualification and discipline, but critics say some professional fees are high relative to the real value created. Employment gives stability and benefits, but the employee has little say and little entrepreneurial reward. Business creates jobs, goods and new ideas and offers unlimited reward, but it brings risk of loss and the pressure of responsibility.
Exam focus: nature of business
The nature of business means the overall activities of a company in its pursuit to create, market and sell a product or service. May 2026 Section A tested this wording. It is different from the types of business organisation (how the business is owned) and the objectives of business (what it aims to achieve).
Exam focus: the importance of business and the levels of business function
Eleven points on the importance of business
- Catalyst for economic growth. Business produces and sells goods and services, which raises income, jobs and living standards.
- Contribution to GDP.
- Job creation and employment. From start-ups to large firms, which lowers unemployment.
- Innovation and technological advancement.
- Meeting society’s needs. Food, clothing, housing, healthcare and entertainment.
- Community development and social importance. Investment in infrastructure and local causes.
- Entrepreneurship and empowerment. It rewards people who take calculated risks.
- Global connectivity and interdependence. Trade between countries.
- Business ethics and social responsibility. Fair treatment, environmental care and ethical sourcing earn trust.
- Individual growth and development. Skills and careers.
- Environmental conservation. Eco-friendly practices and support for conservation projects.
Levels of business function
A service business often describes its functions across three levels. For a marketing firm, level one is marketing, level two is promotions, and level three is social media advertising and graphic design. Functions can be run as internal departments, filled by hired specialists or outsourced. A graphic design company needs no manufacturing department, but a furniture company does.
The fifteen functions named are strategy, finance, sales and marketing, research and development, information technology, customer service, human resources, design, communications, governance, production, sourcing, quality management, distribution and operations. Distribution may be intensive, selective or exclusive.
Common mistakes in the exam
- Listing business functions with no explanation of what each does.
- Treating a professionally qualified employee as running a business. A salaried accountant is in employment.
- Forgetting that business must be continuous and involve capital and risk.
- Comparing the three activities without using the same bases for each.
- Giving only benefits when the question asks for benefits and drawbacks.
- Confusing sourcing with distribution. Sourcing buys inputs. Distribution gets output to customers.
Quick revision
- Business functions: strategy, finance, sales and marketing, research and development, IT, customer service, human resources (HR), design, communications, governance, production, sourcing, quality management, distribution and operations.
- Importance of business: growth, GDP, jobs, innovation, society’s needs, communities, entrepreneurship, global links, ethics, personal growth, the environment.
- Profession: specialised training and a professional body. Employment: a contract for wages. Business: continuous, capital, risk and profit.
- Each activity has a benefit and a drawback to learn.
Practice questions
These are original questions written in the style of the ICAN exam. Try each one before you open the answer.
Section A style: multiple choice
Question 1. Which business function handles the pricing and purchasing of materials, often in large volumes, to lower cost?
- Sourcing
- Production
- Distribution
- Governance
Show the answer
A. Sourcing.
Question 2. Distribution of goods to as many outlets as possible is called:
- Intensive distribution
- Selective distribution
- Exclusive distribution
- Direct distribution
Show the answer
A. Selective distribution uses chosen outlets and exclusive distribution uses a limited number.
Question 3. A person sells an old television once at a profit. This is:
- A business activity
- Not a business, because it is not continuous
- Employment
- A profession
Show the answer
B. Business transactions must be continuous.
Question 4. Which of the following is a main feature of employment?
- The motive of making profit
- A contract of employment and payment of wages or salary
- Investment of capital
- Membership of a regulatory body
Show the answer
B. Profit and capital belong to business, and the regulatory body to a profession.
Question 5. A professional who sets up his or her own practice and charges fees is classified, for economic activity, as:
- An employee
- A business
- Unemployed
- A vocation only
Show the answer
B. The syllabus classes an independent practice as a business.
Question 6. Quality management follows four steps: quality planning, quality assurance, quality control and:
- Quality improvement
- Quality pricing
- Quality hiring
- Quality advertising
Show the answer
A.
Question 7. The business function that decides the firm’s direction and how it will compete is:
- Distribution
- Strategy
- Sourcing
- Customer service
Show the answer
B. Strategy sets the direction for the other functions.
Question 8. Quality control means:
- Deciding the quality standard
- Inspecting output against the standard
- Raising the standard over time
- Marketing quality
Show the answer
B. Quality planning sets the standard and quality improvement raises it.
Question 9. Who carries the risk in employment?
- The employee
- The employer
- The government
- The professional body
Show the answer
B. The employee is paid a wage under a contract.
Question 10. A chartered accountant working for a bank on a monthly salary is in:
- Business
- Employment
- Retirement
- A cooperative
Show the answer
B. He is employed, though professionally qualified.
Section B style: written questions
Question 11 (10 marks). Distinguish between a profession, employment and a business on five bases.
Show the marking guide
Award 2 marks for each basis, up to 10, for a clear point on each of the three activities. Suitable bases: qualification, nature of work, establishment, motive, reward, regulation and risk.
Question 12 (20 marks).
(a) Explain five business functions. (10 marks)
(b) Explain three reasons why business is important to its stakeholders. (6 marks)
(c) State one benefit and one drawback of employment as an economic activity. (4 marks)
Show the marking guide
(a) 10 marks, 2 each. Any five functions, with the function named (1) and what it does explained (1).
(b) 6 marks, 2 each. Any three of: catalyst for growth, contribution to GDP, job creation, innovation, meeting society’s needs, community development, entrepreneurship, global connectivity.
(c) 4 marks. Benefit (2): employment is at the heart of the business economy, since most businesses need employees. Drawback (2): most employees do as they are told and do not provide the entrepreneurship a growing economy needs.
A further written question
Question 13 (10 marks). Explain the importance of the governance function in a business.
Model answers
Show the model answer to Question 11
The comparison follows five bases. Qualification: a profession needs specialised education, training and experience; employment needs a basic or technical education suited to the job; business needs no fixed qualification. Nature of work: a profession gives specialised personal services to clients; employment is work set by the employer; business is producing or selling goods and services.
Establishment: a professional works under a professional body, either in his own practice or as an employee; employment starts with a contract of employment; business is set up by the owner with capital. Motive: a profession aims at service and fees; employment at assured income; business at profit.
Risk and reward:
- a professional earns fees or salary with low to moderate risk
- an employee earns a wage with low risk
- a business owner earns uncertain profit and carries the risk of loss
Show the model answer to Question 12
(a) Five business functions. Strategy develops the plan for change and competitive advantage. Finance handles funding, budgets, accounting, tax and payroll. Sales and marketing promote the firm and build revenue through pricing, promotion and branding. Production makes the products or delivers the services. Human resources recruits, trains, rewards and manages staff and ensures compliance with labour law.
Others include sourcing, distribution, quality management, IT, research and development, customer service, design, communications, governance and operations.
(b) Importance of business. It is a catalyst for growth, because producing and selling goods and services raises income and living standards. It creates jobs and reduces unemployment. It drives innovation, bringing new products and technology. It also contributes to GDP and meets society’s needs for food, clothing, housing and health.
(c) Employment. Benefit: it is at the heart of the business economy, because most businesses need employees, and it gives the employee a steady income. Drawback: most employees do as they are told and do not provide the entrepreneurship a growing economy needs.
Show the model answer to Question 13
Governance is the direction and control of the company through rules, processes and practices that decide who has authority and who is accountable. Its importance lies in four things. First, people: it sets who holds power and ensures they act in the interest of the owners and stakeholders. Second, purpose: it keeps the company aligned with its goals.
Third, process: it provides decision-making and reporting procedures that prevent abuse and error. Fourth, performance: it monitors results and holds management to account. Good governance builds trust with investors, lenders and the public, lowers the risk of fraud and mismanagement and supports long-term success.
Pathfinder on business functions and economic activities
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the earlier Business, Management and Finance paper. Part (a) asks for the benefits and one drawback of each of a profession, employment and a business, with examples.
Revise first: Economic activities based on occupation
From the earlier Business, Management and Finance paper. Parts (b) and (c) ask you to identify the economic activities of individuals by occupation and state the main features of each.
Revise first: Economic activities based on occupation
From the earlier Business, Management and Finance paper. Part (c) asks you to distinguish a profession from other activities on the basis of qualification, nature of work, establishment and motive.
Revise first: The three compared
Tested the meaning of the nature of business. Revise the Exam focus note.
Revise first: Exam focus: nature of business
Multiple-choice questions can test the business functions and the features of each economic activity. Check Section A of every diet you practise for items on these points.
Revise first: Business functions
Source: ICAN Pathfinder, Business Environment. Diets covered: May Diet, 2021 to May Diet, 2026. November Diet, 2024 is not yet mapped.
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