Business - Meaning & Characteristics

Business refers to those economic activities, which are connected with production, purchase
and sale of goods or supply of services with the main objective of earning profit.

Economic and non economic activities

Economic activities, which are undertaken to earn a living are called economic activities.
Non-economic activities refer to those activities which are undertaken to satisfy social,
psychological and emotional needs.

Characteristics
Economic activity: All business activities are economic activities and are done for the sole
purpose of earning money.
Production and procurement of goods and services: A business activity involves
production or procurement of goods and services. A manufacturer is involved in
production, while a shopkeeper is involved in procurement.
Sale and exchange of goods and services for the satisfaction of human needs: Sale and
exchange of goods and services is done to satisfy human needs.
Dealing in goods and services on a regular basis: One time dealing in goods or services
cannot be termed as a business. The business should happen on a regular basis.
Profit earning: Profit earning is the fundamental motive of doing a business. Other
motives are there but they depend on profit motive.
Uncertainty of returns: Returns can never be certain in business activity. This happens
because of external factors which are outside the control of business organization.
Element of risk: Always present in business activity.

Business, Profession and Employment

Basis Business Profession Employment

Definition Activities includes Activities which Economic

production, purchase require special activities, which are
and sale of goods or knowledge and skill connected with
supply of services to be applied by production,
with the main individuals in their purchase and sale
objective of earning occupation to earn of goods or supply.
profit. money.
 Basis Business Profession Employment
Mode of Starts after Membership of a Start after
Establishment completing some pro- fessional body getting
legal formalities if and certi- ficate of appointment
needed. practice required letter.

No minimum Professional Qualification and

Qualification qualification is qualification and training required
necessary. training required. prescribed by the
employer.

Capital Capital needed Limited capital for No capital

Investment according to nature establishment required
and size of business.

Risk High risk Low risk No risk

No code of conduct Professional code The terms and

Code of of conduct conditions of service
conduct contract are to be
followed.

Objectives of buiness

Economic Social
*You
Creating consumers Quality product
Innovation Environment protection
Effective utilization of Fair and reasonable price
resources Generating employment
Earning profit Social Security
Creating goodwill Good industrial relations

Role of profit in business

Means of Livelihood: Without profits, entrepreneurs cannot continue with the business
Rewards for taking risks: Provides returns for taking risks
Funds for Growth: Provide funds for growth of the business
Symbol of efficiency and efficacy: Profits symbolise that management is efficien and
business is operating in a healthy manner.
Enhancement in goodwill: A business making higher profits has a better go‹›‹1w-ñ1 and
reputation in the market.
 Classification of business activities

Business Activities

Industry Commerce

Primary Secondary Tertiary Trade Auxiliaries to Trade

Industry

Primary Industry: The primary industry includes those activities through which the
natural resources are used to provide raw materials to other industries. Primary industries
are of two types:
1. Extractive
2. Genetic

Secondary Industry: Under this industry new products are manufactured by using the
previously produced things e.g., producing cotton is a primary industry and
manufacturing cloth out of cotton is a secondary industry. It is of two types:
1. Manufacturing - Includes analytical, processing, synthetic and assembling industries
2. Construction

Tertiary or Service Industry: It includes those services which help business to move
smoothly e.g. transport, bank, insurance, storage and advertising.

Commerce

Trade Auxiliaries to Trade

Internal Trade Transport

Wholesale Communication
Retail Banking
External Trade
Warehousing
Export
Import Insurance
Entrepot Advertising, grading and packing
 Trade

Internal Trade: Internal trade refers to the exchange of goods

and services within a country's borders, and can be categorized as
either wholesale or retail. Wholesale trade involves buying and
selling in bulk, while retail trade involves smaller quantities for
final consumption.

External Trade: External or foreign trade involves the transfer of

goods and services between entities from different nations. Import
trade refers to buying goods from foreign countries, while export
trade refers to selling goods to foreign countries.

Entrepot: When goods are imported for export to other countries, it

is known as entrepot trade.

Auxiliaries to trade

Transport and communication: Goods are produced in specific

locations, but they are required in different parts of the country.
Transportation by road, rail or coastal shipping facilitates the
movement of raw materials and finished products. Communication
services such as postal and telephone facilities are also important
for business activities.

Banking: Businesses require funds for operations, which can be

acquired through banks. Commercial banks offer lending options,
cheques collection, remittance, bill discounting, and assistance with
foreign trade and capital raising.

Insurance: Business is exposed to various risks such as fire, theft,

accidents, and damages to property and goods. Insurance can
protect against such risks by paying a small fee to recover losses
and compensation for injuries.

Warehousing: Goods produced are often stored to be sold or used

later. Warehousing prevents loss or damage and ensures availability
when needed, helping maintain prices through continuous supply.

Advertising: To boost sales, it's crucial to inform potential buyers

about the products and services on offer, including their features
and prices, and convince them of their quality and value.
Advertising serves this purpose by providing information and
encouraging purchases.
 Business Risk
The term ‘business risk’ refers to possibility of inadequate profits or even losses due to
uncertainties e.g., changes in tastes and preferences of consumers, strike. increased change in
Government policy etc. These are of two types: speculative and pure.
*Businessman
Nature of business risk

Business risks arise due to uncertainties: Natural calamities, change in demand and
prices, change in technology etc. are some of the examples of uncertainty which create
risks.
Risk is on essential part of every business: No business can avoid risk. Risk can be
minimized but cannot be eliminated.
Degree of risk depends mainly upon the nature and size of business: For small scale
business it is less and for large scale business it is more.
Profit is the reward for risk taking: An entrepreneur assumes risks and in consideration
he gets reward which is called profit. Greater the risk higher is the chance of profit.

Causes of business risk

Natural causes: The causes which are beyond human control e.g. flood, earthquake, heavy
rains, famine etc.
Human causes: It includes carelessness or negligence of employees e.g. theft. strikes, riots,
misappropriation of cash and products etc.
Economic causes: It is related to a chance of loss due to change in market condition e.g.,
fluctuations in demand and prices, competition, change in technology etc.
Physical causes: Mechanical defects or failures which may also lead to losses e.g. bursting
of boiler or machine, may cause death or destruction.
Other causes: These include unforeseen events like political disturbance, fluctuation in
exchange rates etc.

Important questions with answers

Question Define the term business?

Answer Business refers to those economic activities, which are connected with
production, purchase and sale of goods or supply of services with the main
objective of earning profit.
Question Why business is considered as economic activity?
Answer Any activity is called an economic activity when it is done with a view to earning
money. The motive of a business is to earn profit primarily. However, there are
some other objectives as well like increasing market share, improvement in
productivity, employee satisfaction, consumer satisfaction, social objectives but
the main and basic objective of a business is to make profits. Therefore, it is
called economic activity.

Question What are the functions of commerce?

Answer (1) Removing the hindrance of person and that means lack of information to
producer about consumer and to consumer about producer. It is removed by
advertising.
(2) Transportation removes hindrance of place.
(3) Storage and warehousing activities remove the hindrance of time.

Question What is business risk?

Answer The term ‘business risk’ refers to possibility of inadequate profits or even losses
due to uncertainties e.g., changes in tastes and preferences of consumers, strike.
increased change in Government policy etc.

Question Differentiate between economic and non-economic activities?

Answer Economic activities, which are undertaken to earn a living are called economic
activities while non-economic activities refer to those activities which are
undertaken to satisfy social, psychological and emotional needs.

Question Define profession?

Answer Profession includes activities which require special knowledge and skill to be
applied by individuals in their occupation to earn money.

Question What is the role of profit in business?

Answer It is one of the main objective of business because if there is profit, there is
growth. It is like a symbol of success and right direction.
Question What is the importance of commerce in business?
Answer Commerce removes obstacles in business by providing various kinds of services such
as advertising, banking, transportation, warehousing, banking etc.

NOTE : Worksheet (Important questions of all typology with answers) is

provided as a seperate PDF on website padhleakshay.com