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Nature and Purpose of Business

Human Activity

  • Economic activity
    Economic activities are those activities which are performed to earn livelihood and related to Money. For e.g: A business man earns profit, a doctor charge fees.
  • Non-Economic activity
    Non-economic activities are those activities which are performed out of love and sympathy and not related to money. For e.g: A mother cooks food for her family.

Types of Economic activities

  1. Business
    Business is an economic activity which is concerned with production, purchase, sale are distribution of goods and service with the, main aim earning profit.
    • Trade
    • Banking
    • Industry
    • Advertising
  2. Profession
    Profession is an economic activity that requires special knowledge and skill to be applied by an individual for earn their livelihood.
    • Medical
    • Chartered
    • Accountancy
  3. Employment
    Employment is also an economic activity in which people work for other and get salary and wages in return.
    • Forman
    • Manager
    • Worker
    • Salesperson

Features of Business

  1. An economic activity
    Business is an economic activity undertaken with aim earning profit.
  1. Production of Goods and services
    Business is concerned with production and procurement of goods and services which means converted raw material in to finished goods.
  1. Dealing in goods and services
    A business is deals in goods and services goods are to be produced, and sold in:
    1. Consume goods: Bread, cold drinks, sugar
    2. Capital goods: Machine, Tools
    3. Services: electricity, gas, insurance
  2. Regular Dealing
    One single transaction of sale on purchase of goods can not to be termed as Business; thus, Business involves exchange of goods are service on a regular Basis. For eg: if a person sells his personal computer that is not called Business but if he continuously deals in purchase and sale of computer. It is called a Business Activity.

  3. Profit Earning
    The main aim of every business is to earn profit. Earning profit is essential for the profit is essential for the survival of Business.

  4. Risk elements
    Where there is No Risk No Business it means a business invest money to run the Business but he is not certain about the amount of profit than he may earn. So, the risk elements considered in every type of Business.

Features of profession

  1. Organized body of knowledge
    A profession is based on the knowledge related to the particular field. It is based upon principle, theories and techniques.

  2. Requires Training
    A profession requires special training about the particular field and professional degree such as CA, L.L.B or M.B.B.S. etc.

  3. Restricted entry
    The membership of the professional body is compulsory case of a profession. For example: Chartered accountant of India.

  4. Ethical code
    There is an established code of conduct that contains behavior for the member of the professional.

  5. Service motive
    A profession gives priority to service to the clients in order to maintain high status in our profession.

Features of employment

  1. Employment commences on joining service of another person or a firm.
  2. A person is known as ''Employer.''
  3. It involves person the duty assigned by the employer.
  4. It does not need any capital investment.
  5. An employee cannot transfer his job to the other.
  6. The employee gets wages/salaries on the basis of his work.
  7. An employee has follow the rules maintain by the employer.

Objective of Business

  1. Economic Objectives of Business
    1. Earning of profit
      Generally, profit is regarded as the main economic objective of any business; basically, profit is the main sources of income and sources of finance for expanding the business.
    2. Creation of new customer
      The growth of the business also depends up on the growth, in its customer base. Hence, business must aim at creating new customers and markets.
    3. Innovation
      Innovation means developing new products and their multiple users. A business cannot succeed without designing, new product and finding their new users.
    4. Effective utilization of resources
      Business requires men, machine and materials which are considered scare resources.

  2. Social Objectives of Business
    1. Quality goods
      Business should supply goods of the right quality and the right place; quality includes durability, purity, safety etc.
    2. Fair trade practices
      Business enterprises must not indulge themselves in antisocial practices like hoarding, black marketing of goods, overcharging, misleading the consumer etc.
    3. Genetic of employment
      Business enterprises should grow and create new jobs without discriminating on the basis of caste, creed, sex religion etc.
    4. Protection of employment
      Every business house hold should insure safely of local surrounding and protection of neighborhood environment.
    5. Community service
      Modern business organization engages in community service by running dispensaries and schools, encouraging social activity. 

 Role of Profit in Business

''A Business much achieve sufficient profits to cover the risk of economic activity and thus to avoid loss.''

  1. Means of livelihood
    The entrepreneurs engage in business activities to earn profit as a means of livelihood.
  2. Return to Investors
    The people are invest money in the business expect fair rate of return on their capital.
  3. Reward for risk
    Profit is considered as reward for assuming business risks. It serves as a protection against those risks which cannot be insured.
  4. Source of finance for growth and expansion
    Profit must be earned to provide fund for reinvestment in business.
  5. Indicator of efficient working
    A business cannot survive for long without earning profits. A business unit which incurs losses for a number of years becomes a sick unit.

Business Activity

  1. Industry
    Industry refers to economic activities, which are concerned with conversion of resources in to useful goods. These include activities related to producing are processing of goods as well as breeding and rising of animals.
    1. Primary Industries
      These include all activities which are concerned with the extraction, producing, and processing of Natural resources.
      1. Extractive Industries
        Extractive industries supply some basic raw materials that product related to environment include hunting, fishing etc.
      2. Genetic Industries
        These industries remains engaged in breeding plants and animals like; animal husbandry, poultry farming.
    2. Secondary Industries
      These industries are concerned with processing materials which have, already been produced at primary stage.
      1. Manufacturing Industries
        Such industries are engages in the conversion of raw materials or semi-finished product in to finished goods include cement, sugar etc.
      2. Analytical Industry
        The basic material is analyzed and separated into a number of products; petroleum refining is an example of analytical industries.
      3. Synthetical Industry
        Which combines various ingredients into a new product paint and cosmetics etc.
      4. Processing Industry
        It involves successive stage for manufacturing finished product as in the case of sugar, paper.
      5. Assembly line Industry
        Industry which assemble different component parts to make new product like; car, computers etc.
      6. Constructive Industry
        These industries are involved in the construction of dams, building, bridges as well as canals etc.
    3. Tertiary Industry
      These industry proving support service to primary and secondary industries as well as activities related to trade.
      1. Transport: Movement of goods from one place to another.
      2. Banking: Provides credit facilities to industry.
      3. Insurance: Covers the business risk.
      4. Warehousing: Provide storage facility to trader.
      5. Advertising: Provide information to consumer.

  2. Commerce
    Commerce is the sum of total of all those, activities which are concerned, with the transfer of goods and service from the produce to the consumer.
    Function and Role of Commerce
    Commerce performs the function of removing hind raves in the smooth flow of goods from the producer to consumer and thus links the produce and consumer.
    1. Removing the problems of person
      The producer and consumer of good one not situated at same place so, trader, and wholesaler link between produces and the consumer.

    2. Removing the problem of place
      Goods may be produce at a place where advantages of location other than the market are available. So, Removing the problem of place remove by transportation.

    3. Removing the problem of storage
      The function of storage is performed by warehousing which remove the hind raves of time by balancing the time lag between production and consumption.

    4. Removing the problem of risk
      Insurance companies undertake to make good the loss by    receiving a small amount premium in advance.

    5. Removing the problem of finance
      Businessman mostly face the problem of finance, the problem is should by banks and financial institution.

    6. Removing the problem of information
      Advertising and salesmanship help to remove the problem of information on the part of the prospective buyer brings to their notice the utility of goods and service.

    1. Internal Trade
      Internal trade refers to purchase and sale of goods within the boundaries of country.
      1. Wholesaler Trade
        In involve purchase and sale of goods belong to a specific type of variety in Bulk.
      2. Retail Trade
        It refers to sale of good by the retailer to the customer, thus, Act between as a link between the wholesaler and final consumer e.g: shops, vendor etc.

    2. External Trade
      External trade refers to purchase and sale of goods between two or more countries. It is called international trade.
      1. Import
        It involves purchase of foreign goods for use in domestic market.
      2. Export
        It involves supply of domestic goods to foreign market.
      3. Entrepot
        It involves import of foreign goods with a view to Re-exporting them and maximum and making profit in the process.

    Auxiliaries to Trade
    The infrastructure include transport, warehousing insurance, financing and banking and other allied service which is known as aids of trade.
    1. Banking and finance
      Bank provides a device though, which payment of good purchase or sold are facilitate. Thus, the bank help the business firm to overcome the problem of finance.
    2. Insurance
      It provides a cover against the loss of goods. Thus, it protects the trader from the fear of loss of property and goods.
    3. Transportation
      Transportation help in removing the hind raves of place in the exchange of goods of services. Transport has linked all parts of the world with the help of means of transport.
    4. Warehousing
      Storage creates time utility and removes the hind raves of time in trade. It performs the useful function of holding the goods for the period until they are demanded.
    5. Communication
      Communication facilities are very important in linking the produces traders and consumer. They help them to exchange information with one another.
    6. Advertising
      It performs a useful function of bridging the knowledge or information gap about the availability of goods between trader and consumer.
    7. Packaging
      Packaging is traditionally done to protect the goods from damage in transit and to facilitate easy transfer of goods to consumers. 

Business Risk
Business risk means possibility of some unfavorable occurrences which might lead to some loss for the business.

The most common type of business risk

  1. Financial loss
  2. Loss of goodwill
  3. Non-payment of debtor
  4. Non-availability of power, capital etc.

Nature or Characteristics of Business Risk

  • Risk is an essential of business
    No business can be run without some elements of risk in it. He is talking a calculated risk.
  • Risks arise due to uncertainties
    Uncertainty is an important future of any business, fluctuation in demand prices, natural calamities etc.
  • Reward for undertaking risk in profit
    An entrepreneur assumes risk and consideration. It has been rightly said ''No risk, No gain''.
  • The degree of risk depended up on Business
    The nature of business and the volume of operation determine the degree of risk.

Causes of business risk

  1. Natural Cause
    Unforeseen events like rain, flood, earthquake affects our business.
  2. Human Cause
    These include dishonesty, carelessness, negligence of employees etc.
  3. Economic Cause
    Economic causes relate to fluctuation in demand and supply or change in market condition.
  4. Physical Cause
    These include technical or mechanical change.
  5. Political and Legal Cause
    Such include change in government policy regarding foreign trade.


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