As an individual what all products and services you would like to have to settle down in new place
- Good Surrounding area – Buildings, Roads and Parks
- Shopping Facility – Daily Essentials – Food Grains, Toiletries, Personal Grooming
- Services – Hospitals, Education, Banks, Entertainment
To Meet all the above needs set of people will be engaged in producing and supplying above services and goods.
Business is a major Economic Activity in modern societies
The term business derived from word “Busy”. In General, business means being busy
Definition of Business
“Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling of goods” – LH Hanry
“Business is an organization entity involved in the provision of goods and services to consumers” – David A
In specific sense business includes
- Purchase of Goods and Services
- Production of Goods and Services
- Sale of Goods and Services
Aim of Business is “Earning Profit”
Human Activities are divided into t; wo parts – Economic Activities and Non Economic Activities
Characteristics of Business
An Economic Activity: Business will be undertaken with the aim of earning profit and livelihood. Not because of love, sentiment etc.
Production of Procurement of Goods and Services : Before offering to customer business person either has to produce the goods or procure it from wholesaler
Sale / Exchange of Goods and Services: Essential characteristics of business there should be transfer of goods or services to other party for economic consideration
Dealing in Regular Basis: Business activity should be continuous and regular activities. One of kind buy and sell activity cannot be considered as business
Profit Earning: Basic purpose of the business must be “Earning Profit”
Uncertainty of Return: Return on Investment in business should be uncertain. If there is a fixed percentage of return, then it will be called as investment activity and not business.
Element of Risk: Every business associated various risks, there may be adverse impact on business results and business may end up with Loss. – Such risks include change in customer tastes, Government Policies etc
Classification of Business Activities
Group of manufacturers or businesses that produce a particular kind of goods or services.
Example : Cotton Industry, Steel Industry etc
Concerned with Land. Aims in providing Raw Material to various other industries
Extraction: Extracting product from natural resources
Eg. Farming, Fishing, Mining etc
Genetic: This is connecting with breeding plants and animals
Eg. Cattle farms, Poultry Farms, etc
Industry which uses inputs from primary industry and produces goods
Manufacturing: Deals with process of production of goods using raw material
Analytical – Eg. Oil refinery
Sythetical – Eg. Cement
Processing – Eg. Steel, Sugar
Assembling – Eg. Automobile
Construction of building, dams, roads etc
These industries provide support to Secondary Industry.
Eg. Packaging, Transportation, Banking etc. These are also considered as part of Commerce classification
Commerce is the activity of buying and selling of goods and services, especially on a large scale
It can also be defined as a component of business which includes all activities, functions involved in transferring goods from producers to consumers
Buying and Selling of Goods
- Internal Trade: Trade within the boundary of the country
- Retail: Where product sold to end customer
- Wholesale : Goods are purchased and sold in bulk. Buying from manufacturer / distributor and selling it to Retaier.
- External Trade: Trade with foreign countries
- Import: Buying of Goods from foreign countries
- Export : Selling of Goods to foreign countries
- Entrepot: Goods are imported for the purpose exporting to other countries
Auxiliary to Trade
Supports the function of Buying and Selling of Goods
Aim is to remove the hindrances to trade – like movement of goods, financing, protection of goods, reaching to customers etc.
- Transportation – Movement of Goods
- Warehousing – Storage of Goods
- Insurance — Eliminates the risks in business
- Banking and Finance – Financing the business needs
- Advertising – Helps in reaching end customer.
Objectives of Business
Business objectives are the results entrepreneur hope to achieve and maintain as to run and grow business
Economic Objectives: Business is an economic activity, So primary objective of every business would be economic in nature.
- Earning Profits
- Creating Customers
- Increase Productivity
Social / Human Objectives: Business is part of society, and it is necessary for every business help surrounding society to grow
- Supplying Quality Goods
- Adoption of fair trade practices
- Social Welfare
- Labour Welfare
- Knowledge development
National Objectives: Every business contributes to growth of country’s GDP
- Optimum Utilization of resources
- Development of backward areas
- Development of Industries
- Reduce Import
- Employment Generation
Business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit.
Strategic Risk: Strategic risk arises when the implementation of a business does not go according to the business model or plan. A company’s strategy becomes less effective over time, and it struggles to reach its defined goals
Compliance Risk: This type of risk arises in industries and sectors highly regulated with laws. The wine industry, for example, must adhere to the three-tier system of distribution, where it is a requirement for a wholesaler to sell wine to a retailer, who in turn sells it to the end consumer. Wineries cannot sell directly to retail stores.
Operational Risk: Operational risk summarizes the risks a company undertakes when it attempts to operate within a given field or industry. Operational risk is the risk not inherent in financial, systematic or market-wide risk..
Nature of Business Risk
- Risk exist in every business
- Risk arises because of uncertainties
- Degree of risk depends mainly upon the nature and size of business
Causes of Business Risk
- Natural Causes à Flood, Earthquake, Famine etc.
- Human Causes à Dishonesty, Carelessness, Strikes
- Economic Causes à Changes in demand due to competition, price , technology advancement etc.
- Other Causes à Political Disturbance, exchange price, bursting of boilers etc
Starting a business basic factors
Selection of Line of business
Depends on entrepreneur’s risk taking capacity, investment available, technical knowledge etc
Size of the firm
Identification of production capacity, it depends on market demand, fund available, risk etc. If Risk is high then low investment,
Form of ownership
Decision depends on Capital requirement, line of business, liability of owners, Legal formalities etc
Availability of Labour, raw material, power supply, transportation facility, banking, communication, waare housing etc are important factors
Deals with identification of capital required, Sources of fund – Capital and Loan and Utilisation plan
Facilities required in plant – Machinery, building, and other services. Decision depends on nature of business and fund available
Arrangement of physical facilities to support easy movement of goods and people
Every business requires competent and committed workforce. Both skill / Non skill workforce needed
Detail analysis of Tax benefits available, and taxes applicable for every business activity need to be carried out
Launching the business
Once all the above factors covered, entrepreneur can start the business