What is Business?
Business is any economic activity that includes the purchase or sale of goods or services with the basic objective of earning profit and satisfying the individuals’ needs of the society. Business activities can be classified into two categories: Industry and Commerce.
Table of Content
Concept of Business
All economic activities that involve the sale and/or purchase of goods and services with some element of risk and motive of earning profits are known as business. All business activities also aim at satisfying the needs of human beings in society. It is an activity that is performed on a regular basis and hence also means ‘being busy.’
Economic and Non-Economic Activities
Every individual has different needs, and to fulfill these needs, they perform different activities. These activities are categorized as economic and non-economic activities.
What are Economic Activities?
Economic activities refer to those activities which are performed with the objective of earning money and creating wealth. Economic activities are of three types, namely, Business, Profession, and Employment. For example, an individual running an organization is a business, a teacher teaching at a school is a profession, and an employee working in an organization is employment.
What are Non-Economic Activities?
Non-economic activities refer to those activities which are performed with the objective of satisfying emotional, social, and psychological needs. Earning money and livelihood is not the motive of human beings while performing non-economic activities; instead, people perform them out of sympathy, love, affection, etc. For example, a mother cooking food for her children, a sports teacher coaching his daughter, and friends teaching each other before exams are considered non-economic activities.
Characteristics of Business
- Economic activity: Business is an economic activity, as it involves performing activities with the basic objective of earning money and profits.
- Sale or exchange of goods and services: A business should include the sale or exchange of goods and services for some consideration or value in return between the buyer and seller directly or through some third party. No internal consumption is involved in business activities.
- Procurement or production of goods and services: Procurement means trading goods and services, and production means manufacturing the goods and services in an organization. In procurement, businesses do not manufacture goods or services on their own; instead, they purchase them from other companies and then sell them to different consumers and businesses. Here goods include any consumable item, and services consisting of banking, insurance, transportation, etc.
- Regular basis: An activity will be considered as a business if it takes place on a regular basis. It means that selling or purchasing goods and services for one time only is not considered a business. For example, manufacturing and selling chairs on regular basis is a business. However, selling your school books for one time is not a business.
- Profit earning: The main objective of any business is to earn profits. No business can survive only on the sale and purchase of goods and services without making profits. Therefore, the efforts of a businessman are always directed towards earning more and more profits.
- Uncertainty of return: The environment in which a business operates is quite uncertain. Therefore, no matter how much money is invested in a business, one cannot say for sure how much profit the business will earn in a specific time period. Hence, the chances of losses are also present in a business.
- Element of risk: Uncertain business environment and different natural, human, social, economical, political, financial, or personal factors exist in every business that exposes them to certain risks. Therefore, a business has to consider these elements of risks while performing activities.
Objectives of Business
- Profit earning: Profit is the amount of a business’s revenue over expenditure. Profit earning is the prime motive of every organization as it ensures the survival and growth of the business. Even though profit is essential for a business, it can’t be the sole motive of a business.
- Innovation: To attain success and growth, it is essential for a business to innovate. Innovation can be done by making new products or making better changes, or adding new features to the existing products. It helps a business in improving its production and distribution methods and explore new markets. In the present world, innovation is essential for every business to compete with other businesses and remain in the market.
- Market standing: Another important objective of any business is market standing which can be attained by providing goods and services to its customers to meet their needs and wants. By doing so, a business can maintain a market standing, attain goodwill, and survive for a long time.
- Social responsibility: Besides economic objectives, there are some social obligations that a business has to follow, also known as social responsibility. Simply put, social responsibility means contributing business resources to solve social problems and work in a socially desired manner.
- Productivity/optimum utilization of resources: The next objective of a business is optimum utilization of resources and productivity. It means that a business has to use its inputs or resources like money, material, labor, machinery, land, etc., in the best possible and optimum manner so as to achieve maximum result or output in return.
- Physical and Financial resources: For the production and sale of goods and services, a business requires some physical and financial resources. Physical resources consist of plant, machinery, land, labor, etc. However, financial resources consist of the funds or money to run and operate the business for the production and distribution of goods and services. Therefore, acquiring the required financial and physical resources is an objective of a business.
- Quality goods and services at a fair price: It is another social objective of a business that aims at providing better quality goods and services to the customer at a reasonable price. For example, providing goods with ISI mark on electrical goods, Hallmark on jewelry, etc.
- Workers Development: Human beings are the most important resource of a business, and their development is one of the most crucial objectives. It includes providing equal opportunities to all irrespective of caste, creed, religion, etc., proper remuneration, medical, entertainment, training, and welfare facilities to its employees.
Classification of Business Activities
The business activities are classified as Industry and Commerce.
Industry
Industry is concerned with the processing and production of goods and services with the motive of earning profit. Simply put, it involves changing the raw materials into finished products for the purpose of selling them to the customers. The goods sold by industry can be either used by other companies for further production or can be used by the end consumers for final consumption. The goods produced in the former case are known as producer goods. For example, machinery, etc. However, the goods produced in the latter case are known as consumer goods. For example, bread, milk, butter, cloth, groceries, medicines, etc. An organization can also produce materials that can be used by other companies to further process and convert into finished goods. These goods are known as intermediate goods. For example, rubber, copper, plastic, etc. Industry can be further classified into three parts: primary, secondary, and tertiary industry.
Commerce
Commerce is concerned with the activities involving taking goods and services from the manufacturers and delivering them to the users. The basic motive of commerce is ensuring the proper flow of goods and services in the market for the ease of manufacturers and consumers. With the help of commerce, an individual can purchase the goods produced in any part of the world. Commerce not only includes the buying and selling of goods but also consists of all the activities or services like transportation, banking, insurance, communication, packaging, advertisement, warehousing, etc., required to facilitate the process of trade, i.e., buying and selling of goods. Hence, commerce provides the required link between the manufacturers and consumers. Commerce can be further classified into two parts: trade and auxiliaries to trade.