Business Segment (SBU) - Explained
What is a Market Segment?
Written by Jason Gordon
Updated at April 8th, 2022
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Table of Contents
What is a Business Segment?How does a Business Segment Work? Example of a SegmentAcademic Research on Business SegmentsWhat is a Business Segment?
A segment refers to the separate part of the business that runs its operations and generates its own revenue. A segment is a sector or subdivision of a whole, although distinct, a segment is related to other parts or segments of a whole.
A business segment, also known as a strategic business unit or SBU, is a sector of a business that can run its operations independently without excess reliance on other sectors. This suggests that a segment has its costs and generates its own revenues. Self-reliance is an attribute of a segment, this, however, does not mean that it is not subject to periodic reviews by the management of the company.
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How does a Business Segment Work?
Usually, a business segment refers to that part of a business that is self-sustainable and can be distinguished from the whole company. Although a segment has links with the entirety of a company, it is that part of the company that can efficiently run on its own. This means that the financial statements and activities of a segment is different from that of the whole business. A segment also produces its own goods and generated profit different from what the main business generates. Activities of segments are reported on FASBs SFAS 131 for accounting purposes.
Example of a Segment
Here is an illustration of a segment; Company ABC is into the production of telephones, mobile phones and other related gadgets for its customers and has a wide business coverage. After many years of operation, Company ABC decides to start the production of a mobile network for its customers and creates a separate segment for it. The segment created performs functions slightly different from that of the main company, so, it has different workers, generates its revenue and runs on its own. This segment is a subdivision or sector of Company ABC. It is, however, important to state that not every unit of a business makes a segment. If a unit cannot be run independently, generates its revenue and has its activities different from that of the main company, it remains a unit and not a segment.
