Concept and Characteristics of Business
All Human beings where ever they may be require different type of
goods and services to satisfy their needs. Business is a major
economic activity in all modern societies concerned with production
and sale of goods and services required by the people. It is aimed at
earning money by satisfying human demands.
Meaning: Literal meaning of Business is “BUSY”. Business is defined
as an economic activity involved in the production and sales of
goods and services undertaken with the motive of earning profit by
satisfying human needs in the society.
Characteristics of Business Activities
• Economic activity: It means an activity aimed at earning
money. Business is also aimed at earning money or livelihood
by satisfying human needs.
• Production and procurement of goods and services: Every
business enterprise must either manufacture the goods or it
acquires from producers. Goods may be consumer goods or
Capital goods. Services means facility offered to consumers
like banking, insurance etc.
• Sale or exchange of goods and services: Business involves
transfer or exchange of goods and service for value.
• Dealing in goods and services on a regular basis: It should be a
regular activity. One time sale or exchange will not be
considered as business.
• Profit earning: Business always aims at earning profit.
• Uncertainty of earning: There is always a possibility of less
amount of profit or even loss in business.
• Element of Risk: There is always a possibility of Uncertainty of
earnings.
Business, Profession and Employment
Classification of Business Activities
1. Industry
Production or processing of goods and services. It is concerned with
changing the form of the products. It gives form utility to the
products.
It is classified into the following:
(a) Primary
Extraction and production of natural resources and reproduction
and development of living organisms, plants etc.
(i) Extractive industry: Mining, lumbering, hunting and fishing
operations.
(ii) Genetic industry: Breeding plants and animals. Poultry farming
and fish hatchery.
(b) Secondary
(i) Manufacturing industry: Production and processing of goods
creating form utilities.
Analytical industry: Separate different elements from the same
materials. Example: Petroleum, Diesel.etc.
Synthetical Industry: Combines various ingredients.
Example: Cement, Textiles, etc.
Processing industry: Involves series of activities.
Example: Sugar and Paper.
Assembling Industry: Assembles different components.
Example: Television, Car, Computer.
(ii) Construction Industry: Construction of Buildings, dams, bridges,
etc.
(c) Tertiary
Support services to primary and secondary industries.
2. Commerce
It includes all those activities which are concerned with removing all
the hindrances in the movement of goods from the manufacturer to
the consumers. It includes the following activities.
Commerce includes the following activities:
• Industry
• Trade – Export, Import
• Transport and communication
• Banking
• Insurance
• Advertisement
• Packaging
• Warehousing etc.
TRADE
Trade means exchange of goods and services between sellers and
buyers with profit motive.
Auxiliaries to Trade
1. Transport and communication: Physical movement of goods
from the place where there is no demand to the place where
there is demand. It creates place utility to the product.
2. Banking and Finance: Helps in removing financial hindrances.
Facilitates production, buying and selling by providing funds
by way of loans.
3. Insurance: It facilitates business by ensuring compensation
for various types of risks.
4. Warehousing: It keeps the goods in tact till they are in
demand. It creates time utility to the product.
5. Advertising: It provides information about availability of
goods and services. It induces the consumers to buy the
product.
Objectives of Business
An objective is the starting of business. Every business is directed
towards the achievement of certain business objectives. Objectives
are needed in every area that influences survival and prosperity of
business.
Primary objective of every business is to earn profit but there are
several other areas where objectives are needed.
Business Risk
It refers to the possibility of inadequate profits or even losses due
to uncertainties or unexpected events.
Nature Of Business
Risks:
• Business risks arise due to uncertainties.
• Risk is an essential part of business.
• Degree of risk depends upon the nature and size of business.
• Profit is the reward for risk taking.
Causes of Business Risks
1. Natural Causes: Risk may be due to flood, earth quake,
lightning, heavy rains etc.
2. Human Causes: It includes dishonesty, carelessness or
negligence of employees, strikes, riots, etc.
3. Economic Causes: It includes uncertainties relating to
demand for goods, competition, price, collection of dues from
customers, changes in economic policies etc.
4. Other Causes: It includes political disturbances, mechanical
failures etc.
Factors to Be Considered Before Starting a Business
1. Selection of Line of Business: Based on the requirements in
the market nature and type of business to be selected.
2. Size of the Firm: Based on the amount of funds available and
demand for the product in the market size of the firm i.e
small scale or medium or large scale to be decided.
3. Choice of form of ownership: Based on the amount of capital
required, legal formalities to be filled in, liability of the owner,
etc. the form of ownership is to be decided.
4. Location of the Business enterprise: Based on the availability
of raw material and infrastructure facilities location of the
Business is to be selected.
5. Financing the Proposition: Requirement of Capital and its
sources must be decided.
6. Physical facilities: Availability of physical facilities including
machines and equipment, building and supportive services to
be considered before starting a business.
7. Plant layout: Plant layout should draw to show the
arrangement of these facilities.
8. Competent and committed worked force: Every business
needs work force. So careful planning should be about
selection, training and motivation of employees.
9. Tax Planning: Tax liability and its impact on business to be
considered.
10. Launching the enterprise: After fulfilling the formalities
entrepreneur can launch the business.
