Define business. And Describe its important characteristics

Define business and its characteristics

Meaning of the Business ?

The term business is derived from the word ‘busy’. Thus, business means being busy. However, in a specific sense,

Definition of business ?

"Business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with a view to earning profits."

If you look around you will observe that people undertake various activities to satisfy their needs. These activities may be broadly classified into two groups — economic and non-economic activities.

What is Economic activities ?

Economic activities are those by which we can earn our livelihood, whereas, non-economic activities are performed out of love, sympathy, sentiment, patriotism, etc. For example, a worker working in a factory, a doctor operating in his clinic, a manager working in an office and a teacher teaching in a school are doing so to earn their livelihoods and are, therefore, engaged in an economic activity.

What is non-economic activities ?

A housewife cooking food for her family, or a boy helping an old man cross the road are performing non-economic activities since they are doing so out of love or sympathy.

Economics activities are divided into how many categories?

Economic activities may be further divided into three categories,

1.Namely business, 2.profession and 3.Employment.

Business may be defined as an economic activity involving the production and sale of goods and services undertaken with a motive of earning profits by satisfying human needs in Society.

What are the characteristics of business activities ?

In order to appreciate how business activity is different from other activities in society, the nature of business or its fundamental character must be explained in terms of its distinguishing characteristics, which are as follows:

1. An economic activity

Business is considered to be an economic activity because it is undertaken with the objective of earning money or livelihood and not out of love, affection, sympathy or any other emotion. It may be mentioned here that this activity can be undertaken either on small and individual level, e.g. (purchase and sale by a shopkeeper) or on large scale in a more formal and organised level (purchase and sale by a cooperative society or company).

2. Production or procurement of goods and services

Before goods are offered to people for consumption, these must be either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods it deals in or acquires them from producers, to be further sold to consumers or users. Goods may consist of consumable items of daily use, such as sugar, ghee, pen, notebook, etc., or capital goods, like machinery, furniture, etc.

Services may include facilities offered to consumers, business fi rms and organisations in the form of transportation, banking, electricity, etc.

3. Sale or exchange of goods and services

Directly or indirectly, business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but for personal consumption, it cannot be called a business activity. Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer.

4. Dealings in goods and services on a regular basis

Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase, therefore, does not constitute business. Thus, for example, if a person sells his/ her domestic radio set even at a prof i t, it will not be considered a business activity. But if he/she sells radio sets regularly either through a shop or from his/her residence, it will be regarded as a business activity.

5. Profit earning

One of the main purpose of business is to earn income by way of profit. No business can survive for long without profit. That is why, businessmen make all possible efforts to maximise prof i ts, by increasing the volume of sales or reducing costs.

6. Uncertainty of return

Uncertainty of return refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period.

Every business invests money (capital) to run its activities with the objective of earning prof i t.

But it is not certain as to what amount of prof i t will be earned.

Also, there is always a possibility of losses being incurred, despite the best efforts put into the business.

7. Element of risk

Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event. Risks are related with factors, like changes in consumer taste and fashion, changes in method of production, strike or lockout at workplace, increased competition in market, fi re, theft, accidents, natural calamities, etc.

No business can altogether do away with risks.