Meaning and Types of Business Branches


Meaning Of Business Branch

A branch is a place other than the main office of business where activities related to business are conducted. It can be defined as segment of business enterprise that is normally controlled by head office located at some different geographical location. Branches are secondary establishments and should have continuous activities going on. They typically have a branch manager who is responsible for complete management of branch office, and reports directly to the management person in main office. Also, most branch offices consist of smaller division of distinct aspects of business corporation such as accounting, marketing and human resources. 

The primary motive of every business organization behind opening up branches is to raise their sales volume and ultimately the level of profits. This is why they establish numerous branches in different parts of country. So, practically the branch is just an extension of existing business firm. But it should be noted that branch only has its separate existence but do not possess any distinct legal entity. This is the main reason that branch is denoted as profit centre of existing firm. 

Types of Branches

There are distinct types of branches depending upon the nature as well as magnitude of operations of business organization. However, all of them are operated and controlled as per the orders from Head office. Generally, the branches are classified into 2 types: –

  • Inland Branches
  • Foreign Branches

Inland Branch (also termed as home branch or domestic branch)

Inland branches are branches situated within the territorial boundary of country. These branches are opened in distinct parts of same nation where the original undertaking is registered. Inland branches do not maintain accounts under the Double entry system of accounting. They simply read out periodical statements to main branch regarding the products received, products sold, expenses and position of stock both at the start and end of year.  

Inland branches are not permitted to buy goods from outside market. All collections are remitted to head office, and in similar way, all of the expenses are met by Head office. These branches operate under the complete control of Head office.

There are basically 2 types of inland branches, that are as follows:

Dependent Branch

Dependent branches are those branches who does not keep separate book of account but all of their accounts are maintained by head office. The head office is the one who ascertains the result of operations, i.e., profit or loss for these branches. These branches are not permitted to act solely but need to take prior permission from their head office. Every plan, policies, rule and regulations are completed, formed and implemented by head office. In other words, we can say that all functions of dependent branch are totally under the control of head office.

Under dependent branch, there are 2 types of branches included that are service branch and retail branch. 

  • Service Branch: Service branch are all those branches that books or execute orders on behalf of the head office. These branches for the sake of head office, are busy in executing all orders.
  • Retail Branch: Retail branches are dependable branches concerned with head office for sales of goods, either produced by head office or purchased from outside in large bulks, and are sold off to retail selling branches for selling them out as like.

Independent Branch

Independent branches are those maintaining the complete system of accounting themselves. These usually happens when their size is quite large involving various functional complexities. In short, it can be said that independent branches prepare their accounts independent from Head office. They can also independently buy and sell goods for cash and credit, in addition to the goods supplied by Head office. Independent branches can pay their own expenses and deposit the whole collection in their own name in bank account. Therefore, as they maintain their own book of accounts under Double account system and they are termed as independent branch. 

Foreign Branch

Foreign branches are branches located outside the nation. They lie outside the territorial boundary of country where Head office is located. Businesses are nowadays increasingly opening their branches abroad, due to the rapid development of trade, commerce, industries and growing high competition for capturing potential market and accelerating their business activities globally. The overall accounting procedure of foreign branch is similar to independent branch except the following cases: Exchange rate and conversion of foreign currency into the home country currency, and the effects of foreign exchange rate needs to be incorporated into books of head office. 

Advantages Of Opening Business Branches

Various advantages of opening the business branches are as follows: – 

Attracts new customers

One of the biggest advantages of opening up new branches is to attract and retain new customers. New products can be added to portfolio and all untapped customer markets can be tapped by business via setting up new branches. Opening new means, you are reaching out to new customers and capture leadership. An increasing customer base is a mean of attaining the growing profits for business enterprise.

Economies of scale

The expansion of business via establishing new branch offices help businesses in achieving the economies of scale. Profit potential for organisations rises on adding up new customers, but initially there is also risk involved in expanding business. Economies of scale are apparent in production activities resulting in more productivity and balances as low cost per unit is reached on materials, labour, energy and shipping.

Diversifying into markets

The biggest competition in growth of business is to capitalize the economies of scale. It provides benefits to raise the production output, lower cost per unit and ensure savings. Business gets discounts when purchasing in bulk quantities, attain greater output via spreading the administrative and staff costs, and spreading of promotional costs with larger sales. The overall growth of business enables making of more profits and sales, putting money back into business, and influence the market price.