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. 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 are those by which we can earn our livelihood, whereas, non-economic activities are performed out of love, sympathy, sentiment, patriotism, etc.

Activities are divided into two categories-

Non – economic Activity-

On the other hand, 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.

Economic Activity-

Economic activities may be further divided into three categories, namely business, profession and employment. Business

 Characteristics of Business Activities

(i) 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.

(ii) 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-

Goods may consist of consumable items of daily use, such as sugar, ghee, pen, notebook, etc., or capital goods, like machinery, furniture, etc.,

Services

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

(iii) 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.

 (iv) Dealings in goods and services on a regular basis:

Business involves dealings in goods or services on a regular basis.

 (v) Profit earning:

businessmen make all possible efforts to maximise profits, by increasing the volume of sales or reducing costs.

(vi) Uncertainty of return:

 It is uncertain for every business to earn profits in every transaction and in every purchase and sale of goods. Future can be uncertain in terms of working of the business or the environment in which it is working.

 (vii) Element of risk:

Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event.

 CLASSIFICATION OF BUSINESS ACTIVITIES

Various business activities may be classified into two broad categories — industry and commerce. Industry

Industry is concerned with the production or processing of goods and materials.

Commerce

Basic	Business	Profession	Employment
Commerce includes all those activities, which are necessary for facilitating the exchange of goods and	Entrepreneur’s decision and other legal formalities, if necessary	Membership of a professional body and certificate of practice	Appointment letter and service agreement
Nature of work	Provision of goods and services to the public	Rendering of personalised, expert services	Performing work as per service contract or rules of service
Qualification	No minimum qualification is necessary	Qualifications, expertise and training in specific field as prescribed by the professional body is a must	Qualification and training as prescribed by the employer
Reward or return	Profit earned	Professional fee	Salary or wages
Capital investment	Capital investment required as per size and nature of business	Limited capital needed for establishment	No capital required
Risk	Profits are uncertain and  irregular; risk is present	Fee is generally regular and certain; some risk	Fixed and regular pay; no or little risk
Transfer of interest	Transfer possible with some formalities	Not possible	Not possible
Code of conduct	No code of conduct is prescribed	Professional code of conduct is to be followed	Norms of behaviour laid down by the employer are to be followed
Example	Shop, factory	Legal, medical profession, chartered accountancy	Jobs in banks, insurance companies, government departments

Industry

Industry refers to economic activities, which are connected with conversion of resources into useful goods. Generally, the term industry is used for activities in which mechanical appliances and technical skills are involved. These include activities relating to producing or processing of goods, as well as, breeding and raising of animals. The term industry is also used to mean groups of firms producing similar or related goods. For example, cotton textile industry refers to all manufacturing units producing textile goods from cotton.

Industries may be divided into three broad categories namely-

 (i) Primary industries:

 These include all those activities which are concerned with the extraction and production of natural resources and reproduction and development of living organisms, plants, etc. These are divided as follows.

 (a) Extractive industries:

 These industries extract or draw products from natural sources. Extractive industries supply some basic raw materials that are mostly products of geographical or natural environment.

Example- Important extractive industries include farming, mining, lumbering, hunting and fishing operations.

(b) Genetic industries:

These industries are engaged in breeding plants and animals for their use in further reproduction. Seeds and nursery companies are typical examples of genetic industries. In additional, activities of cattle breeding farms, poultry farms, and fish hatchery come under genetic industries.

(ii) Secondary industries:

 These are concerned with using materials, which have already been extracted at the primary state. These industries process such materials to produce goods for final consumption or for further processing by other industrial units.

 Secondary industries may be further divided as follows:

(a) Manufacturing industries:

They bring out diverse finished products, that we consume, or use through the conversion of raw materials or partly finished materials  in their manufacturing operations.

 Manufacturing industries may be further divided into four categories on the basis of method of operation for production.

• Analytical industry which analyses and separates different elements from the same materials, as in the case of oil refinery.

 • Synthetical industry which combines various ingredients into a new product, as in the case of cement.

• Processing industry which involves successive stages for manfucturing finished products, as in the case of sugar and paper.

 • Assembling industry which assembles different component parts to make a new product, as in the case of television, car, computer, etc.

 (b) Construction industries:

These industries are involved in the construction of buildings, dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries.

 (iii) Tertiary industries:

 These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These industries provide service facilities.

Included in this category are transport, banking, insurance, warehousing, communication, packaging and advertising.

Commerce

Commerce includes two types of activities, viz.,

(i) trade and

 (ii) auxiliaries to trade.

 Buying and selling of goods is termed as trade. But there are a lot of activities that are required to facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and include transport, banking, insurance, communication, advertisement, packaging and warehousing.

 Commerce, therefore, includes both, buying and selling of goods i.e., trade, as well as, auxiliaries, such as transport, banking, etc. Commerce provides the necessary link between producers and consumers. It embraces all those activities, which are necessary for maintaining a free flow of goods and services. Thus, all activities involving the removal of hindrances in the process of exchange are included in commerce. The hindrances may be in respect of persons, place, time, risk, finance, etc.

 The hindrance of persons is removed by trade, thereby, making goods available to consumers from the possession or ownership producers.

 Transport removes the hindrances of place by moving goods from the place of production to the markets for sale.

Storage and warehousing activities remove the hindrance of time by facilitating holding of stocks of goods to be sold as and when required.

The hindrance  of finance is removed by banking and financing institutions

Advertising makes it possible for producers and traders to inform consumers about the goods and services available in the market.

 Warehousing creates time utility by way of storage facilities

Hence, commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and information in the process of exchange of goods and services.

Trade

 It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to the consumers or users.

Trade may be classified into two broad categories – internal and external.

Internal

Internal, domestic or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country.

 This may further be divided into wholesale and retail trade.

 When goods are purchased and sold in comparatively smaller quantities, for final consumption it is referred to as retail trade.

External or foreign trade consists of the exchange of goods and services between persons or organisations operating in two or more countries.

 Import trade

If goods are purchased from another country, it is called import trade.

Export trade

 If they are sold to other countries, it is known as export trade.

Entreport trade.

When goods are imported for export to other countries, it is known as entreport trade.

 Auxiliaries to Trade

Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally referred to as services because these are in the nature of facilitating the activities relating to industry and trade. Transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries to trade, i.e., activities playing a supportive role. In fact, these activities support not only trade, but also industry and, hence, the entire business activity

 Auxiliaries to trade are briefly discussed below:

 (i) Transport and Communication:

Production of goods generally takes place in particular locations. Transport facilitates movement of raw material, to the place of production and the finished products from factories to the place of consumption. Along with transport facility, there is also a need for communication facilities so that producers, traders and consumers may exchange information with one another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities.

(ii) Banking and Finance:

 Commercial banks, generally lend money by providing overdraft and cash credit facilities, loans and advances. Banks also undertake collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders. In foreign trade, commercial banks help exporters in collecting money from importers. Commercial banks also help promoters of companies to raise capital from the public.

(iii) Insurance:

Business involves various types of risks. Factory building, machinery, furniture, etc., must be protected against fire, theft and other risks. Material and goods help in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance provides protection in all such cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, can be recovered from the insurance company.

(iv) Warehousing:

Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Prices are, thereby, maintained at a reasonable level through continuous supply of goods.

 (v) Advertising:

 Advertising is one of the most important methods of promoting the sale of products, particularly, consumer goods, like electronic and automobile goods, soaps, detergents, etc. Advertising helps in providing information about available goods and services and inducing customers to buy particular items.

 OBJECTIVES OF BUSINESS

 An objective is the starting point of business. Every business is directed to the achievement of certain objectives. Objectives refer to all that the business people want to get in return for what they do.

Every business is an attempt to reap more than what has been invested, and profit is the excess of revenue over cost. Profit may be regarded as an essential objective of business for various reasons:

(i) it is a source of income for business persons,

 (ii) it can be a source of finance for meeting expansion requirements of business,

(iii) it indicates the efficient working of business

(iv) it can be taken as the society’s approval of the utility of business, and

(v) it builds the reputation of a business enterprise.

However, too much emphasis on profit to the exclusion of other objectives can be dangerous for good business. The enterprises might lose business and may be unable to earn profit. That is the reason why there is hardly any sizable business enterprise who only objective is maximisation of profit.

 Multiple Objectives of Business

Objectives also enable the business to analyse their own performance and take steps as necessary to improve their performance in future. Objectives are needed in every area where performance and results affect the survival and prosperity of business. Some of these areas are described as follows.

  Business Risks

 The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.

 Business enterprises constantly face two types of risk : speculative and pure.

A. Speculative risks

Speculative risks involve both the possibility of gain, as well as, the possibility of loss. Speculative risks arise due to changes in market conditions, including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers. Favourable market conditions are likely to result in gains, whereas, unfavourable ones may result in losses.

B. Pure risks

Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike are examples of pure risks. Their occurrence may result in loss, whereas, non-occurrence may explain absence of loss, instead of gain

 Nature of Business Risks

 Nature of business risks can be understood in terms of their peculiar characteristics:

(i) Business risks arise due to uncertainties:

 Uncertainty refers to the lack of knowledge about what is going to happen in future. Natural calamities, change in demand and prices, changes in government policies and prices, improvement in technology, etc., are some of the examples of uncertainty which create risks for business because the outcomes of these future events are not known.

(ii) Risk is an essential part of every business:

Every business has some risk. No business can avoid risk, although the amount of risk may vary from business to business. Risk can be minimised, but cannot be eliminated.

 (iii) Degree of risk depends mainly upon the nature and size of business:

Nature of business (i.e., type of goods and services produced and sold) and size of business (i.e., volume of production and sale) are the main factors which determine the amount of risk in a business

 (iv) Profit is the reward for risk taking:

 ‘No risk, no gain’ is an ageold principle which applies to all types of business. Greater the risk involved in a business, higher is the chance of profit

Cause of Business Risks

Business risks arise due to a variety of causes, which are classified as follows:

 (i) Natural causes:

 Human beings have little control over natural calamities, like flood, earthquake, lightning, heavy rains, famine, etc. property and income in business.

(ii) Human causes:

Human causes include such unexpected events, like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.

 (iii) Economic causes:

These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc. Financial problems, like rise in interest rate for borrowing, levy of higher taxes, etc., also come under these type of causes as they result in higher unexpected cost of operation or business.

 (iv) Other causes:

 These are unforeseen events, like political disturbances, mechanical failures, such as the bursting of boiler, fluctuations in exchange rates, etc., which lead to the possibility of business risks.

Starting a Business — Basic Factors

To start a factory, plans must be made about the location of the business, the possible number of customers, the kind of equipment required and the amount of money needed to procure them, the shop layout, purchasing and financing needs, and hiring of workers for its effective implementation. These problems become more complex in a big business. However, some of the basic factors, which must be considered by anybody who is to start the business are as follows.

 (i) Selection of line business:

 The first thing to be decided by an entrepreneur is the nature and type of business to Methods of Dealing with Risks.

For instance, the enterprise may

(a) decide not to enter into too risky transaction:

 (b) take preventive measures, like firefighting devices, to reduce risk; .

(c) take insurance policy to transfer risk to insurance company;

(d) assume risk by making provisions in the current earnings as is the case of provision for bad and doubtful debts; or

(e) share risks with other enterprises as manufacturers and wholesalers may do by agreeing to share losses which may be caused by falling prices. be undertaken..

(ii) Size of the firm:

 If the entrepreneur is confident that the demand for the proposed product is likely to be good over time and he/she can arrange the necessary capital for business, he/she will start the operation at a large scale. If the market conditions are uncertain and risks are high, a small size business would be better choice.

(iii) Choice of form of ownership:

With respect to ownership, the business organisation may take the form of a sale proprietorship, partnership, or a joint stock company. Each form has its own merits and demerits

 (iv) Location of business enterprise:

An important factor to be considered at the start of the business is the place where the enterprise will be located.

(v) Financing the proposition:

Capital is required for investment in fixed assets, like land, building, machinery and equipment and in current assets, like raw materials, books, debts, stock of finished goods, etc. Capital is also required for meeting day-to-day expenses. Proper financial planning must be done to determine

 (a) the requirement of capital,

(b) source from where the capital will be raised and

(c) the best ways of utilising the capital in the firm.

 (vi) Physical facilities:

 The decision relating to this factor will depend on the nature and size of business, availability of funds and the process of production.

 (vii) Plant layout:

Layout means the physical arrangement of machines and equipment needed to manufacture a product.

(viii) Competent and committed worked force:

 Every enterprise needs competent and committed workforce to perform various activities so that physical and financial resources are converted into desired outputs. Plans should also be made about how the employees will be trained and motivated to give their best performance.

 (ix) Tax planning:

 Tax planning has become necessary these days because there are a number of tax laws in the country and they influence almost every aspect of the functioning of modern business.

 (x) Launching the enterprise:

After the decisions relating to the above mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilising various resources, fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign.