11th Class Business Studies Nature And Purpose Of Business

  • question_answer 16)
    Explain the characteristics of business.


    Business refers to any occupation in which people regularly engage in an activity with an objective of earning profit. The activity may consist of production or purchase of goods for sale, or exchange of goods or supply of services to satisfy the needs of other people in the society. Business has the following characteristics (i) Economic Activity Business is considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection or sympathy. (ii) Production or Procurement of Goods and Services Goods are offered to consumers after they are either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods it deals in or it acquires them from other producers, to be further sold to consumers or users. Goods may be consumer goods like television, tea, pen, etc or capital goods like machinery, furniture, etc Services may include facilities offered to consumers in the form of transportation, banking, electricity, etc. (iii) Sale or Exchange of Goods and Services Business involves transfer or exchange of goods and services for value addition. If goods are produced for self consumption and not for selling purpose, 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. (iv) Regular Dealings in Goods and Services Business involves dealings in goods or services on a regular basis. Therefore, one single transaction of sale or purchase does not constitute business. e.g., if a person sells his/her old washing machine even at a profit, it will not be considered a business activity. But if he/she sells washing machines regularly it will be termed as a business. (v) Profit Earning One of the main objectives of business is to earn profit. No business can survive for long without earning profit. It is a source of income for business persons and a source of finance for meeting expansion requirements of business. Hence, businessmen make all possible efforts to maximize profits, by increasing the sales revenue or reducing costs. (vi) Uncertainty of Return Uncertainty of return refers to the lack of surety relating to the amount of money that the business is going to earn in a given period. Every business invests capital in its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. There is even a possibility of losses being incurred even after the best efforts. (vii) Element of Risk Risk involves the possibility of inadequate profits or even losses due to uncertainties or unexpected events. It is caused by some unfavorable or undesirable event. The risks are related with certain factors like changes in consumer tastes and fashions, changes in methods of production, strike or lockout in the work place, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can eliminate risks altogether.

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