“Nature and Purpose of Business”

1. Human Activities

Human activities are actions performed by human beings to meet their needs. They are divided into two types:

• Economic Activities: Activities performed with the objective of earning money and creating wealth (e.g., a teacher teaching in school, a farmer growing crops to sell).
• Non-Economic Activities: Activities performed out of love, affection, sympathy, or patriotism without any expectation of monetary gain (e.g., a mother cooking for her family, social service).

2. Meaning and Definition of Business

Business refers to an economic activity involving the regular production and distribution of goods and services with the primary motive of earning profit by satisfying human needs.

3. Characteristics of Business

• An Economic Activity: It is done to earn a livelihood/money.
• Production or Procurement: Business involves either producing goods or buying them from others to sell.
• Sale or Exchange: There must be a transfer of goods or services for value (money).
• Regularity in Dealings: A single transaction is not business; it must be a continuous process.
• Profit Motive: The main goal is to earn profit.
• Element of Risk: There is always uncertainty regarding future profits or the possibility of loss.

4. Objectives of Business

Business objectives are divided into four main categories:

• Economic Objectives: Earning profit, market standing (increasing customers), and innovation (new products).
• Social Objectives: Providing quality goods at fair prices, generating employment, and avoiding unfair trade practices.
• Human/Individual Objectives: Providing good salaries, welfare facilities, and job satisfaction to employees.
• National Objectives: Contributing to the country’s revenue (taxes) and helping in national self-sufficiency.

5. Classification of Business Activities

Business is broadly divided into two categories: Industry and Commerce.

A. Industry (Production side)

• Primary Industry: Concerned with the extraction of natural resources (e.g., Farming, Mining, Fishing).
• Secondary Industry: Concerned with processing materials to produce goods (e.g., Manufacturing, Construction).
• Tertiary Industry: Provides support services to primary and secondary industries (e.g., Transport, Banking, Insurance).

B. Commerce (Distribution side)

Commerce includes all activities that help in the exchange of goods from producers to consumers.

• Trade: Buying and selling of goods (Internal Trade and External/International Trade).
• Auxiliaries to Trade: Activities that remove hindrances to trade:
  • Transport: Removes the hindrance of place.
  • Banking: Removes the hindrance of finance.
  • Insurance: Removes the hindrance of risk.
  • Warehousing: Removes the hindrance of time (storage).
  • Advertising: Removes the hindrance of information.

6. Business Risk

Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.

• Nature of Risk: It arises due to uncertainties, is an essential part of business, and the reward for taking risk is profit.
• Causes of Risk:
  • Natural Causes: Floods, earthquakes, famine.
  • Human Causes: Theft, strikes, dishonesty by employees.
  • Economic Causes: Change in market demand, competition, price fluctuations.
  • Other Causes: Political instability, technical changes.

7. Starting a Business: Basic Factors

Before starting a business, an entrepreneur must consider:

• Selection of the line of business (what to produce/sell).
• Size of the firm (Small scale or Large scale).
• Choice of form of ownership (Sole proprietorship, Partnership, etc.).
• Location of the business.
• Financial requirement (Capital).
• Physical facilities and Tax planning.

Summary: This chapter teaches that business is not just about making money; it is a systematic activity of providing goods and services to society while managing risks and fulfilling social responsibilities.