Businesses are Like Fruit Trees

Businesses are like fruit trees because they are comprised of three different elements; roots, trunk/branches, and fruit.  The roots provide necessary nutrients to the trunk and branches which, in turn, bear fruit.  A strong root system provides the required nourishment for a solid trunk and branching system which can lead to plump juicy delicious fruit.  Note that the primary function of the root and trunk/branch systems is to produce and support the fruit, which can be consumed by the tree’s owner or sold.  Proceeds from fruit sales can be reinvested in the tree by hiring someone to prune and care for the trunk and branch system, and by purchasing and applying fertilizer to strengthen the roots.

Business operations are conducted in a similar way.  To start a business, an entrepreneur must attract capital in the form of equity or debt financing.  Owners contribute cash and receive equity shared in return.  Creditors loan cash in return for the promise of interest and principal payments.  Note how equity and debt financing correspond to the root system of the fruit tree in that they provide the nutrients necessary to support the entire process.  Once the capital (cash) is collected, it is then invested in producing assets, such as buildings, equipment, machinery and vehicles, which produce and support the goods and services provided by the business. Note how the producing assets and correspond to the trunk and branch system of the fruit tree in that they lead directly to the final product. In a business the final product is a good or service which is sold to customers.  The net earnings from these sales can be used in three ways: 1) reinvested in the producing assets, 2) returned to the creditors in the form of debt payments, and 3) returned to to the owners in the form of dividends.  Note how the goods and services provided by a business are similar to the fruit, which can be sold and 1) reinvested in the trunk of branches 2) used to strengthen the roots or 3) consumed by the owners.