Concept of Business | Definitions and Characteristics of Business
Concept of Business
In its literary sense, the term business means the state of being busy. Technically, the term business is defined as all the commercial and industrial activities that provide goods and services to the people and are undertaken for profit. For example, a manufacturer who converts raw material into semi finished or finished goods (cotton to yarn to cloth), a person who is engaged in fishing, poultry, mining, farming with the sole objective to earn profit are carrying on the business activities. Similarly, all commercial occupations which deal with the buying and selling of goods on retail or wholesale basis, the financing of trade by banks, the transportation of goods from places where there are in less demand to the places where they are more demanded for earning of profit are doing business. Thus business combines human, material, technological and financial resources carried on for profit.
Activities excluded from business:
- Social Service Activities:
There are certain human activities which do not seek profit. They are organized and operated with the sole object of rendering social service to the society. For example, setting up free hospitals, free educational institutions, provision of free legal services etc. are provided by certain organizations purely for social benefits to the society. These and such other non-profit activities which are undertaken for the purpose other than of earning money or profit are excluded from the study of business.
- Personal Consumption Activities
Similarly, all the activities which are concerned with the production or purchase of goods and services for personal consumption fall outside the scope of business. For instance, a shoemaker making a pair of shoes for personal consumption or a tailor sewing shirts for his own use or a nurse nursing her own child are not business activities because these do not involve in sale or transfer for value. However, if a shoemaker manufactures shoes for regular sale in the market with a view to earn profit, it will be purely a business activity
- Religious and other activities
All religious and other activities like offering of prayers or engaging oneself for freedom of country or showing love and affection for the family members and taking them to dinner etc are undertaken not for earning profit. These are non-economic activities and hence excluded from the study of business.
- Illegal Activities
The economic activities to be included in business must be legal. If a person earns money through smuggling or sale of heroine, or adulteration of goods etc. these activities being illegal and anti-social are excluded from the study of business.
Definitions and Characteristics of Business
The term ‘business’ has been defined differently by various writers. According to Urwick and Hunt, “Business is any enterprise which makes, distributes or provides any service which other members of the community need and are willing to pay for it. In the words of Davis, “Business may be defined as an activity in which different persons exchange something of value whether goods or services for mutual gain or profit”. Ronald defines business as “an organization that produces or sells goods and services to make profit”.
From the definitions of business given here, we find that the term business includes all human activities which are organized and operated for producing or purchase and sale of goods and services with the main object to earn profit. The prospect of earning profit encourages individuals and organizations to open and to expand business, Besides the exchange of goods, the services of professionals such as chartered accountants, lawyers, engineers etc, are also needed in the smooth flow and progress of business. So the services of the professionals which assist to carry on the business are also a part of business. Business thus is the sum of total activities which are connected with the production or purchase and sale of goods and services with the object to earn profit (profit is the difference between a business’s revenues and its expenses). The persons who are engaged in business are named as businessmen or entrepreneurs. An organization formed for carrying on business activities is called business organization.
Characteristics of Business
The essential characteristics or features of business are as under:
An entrepreneur is a person who combines the factors of production to produce goods and services for profit. The presence of an entrepreneur is essential in any business which may be operated on a small or on a large scale.
- Deals in goods and services
Every business enterprise whether it is carried on a small or a large scale deals in goods and services. The goods may be consumer goods such as bread, butter, cloth, shoes, pens etc or capital goods like plant, machinery, building, etc. or it may take the shape of services like transportation, electricity, banking, insurance, advertising etc..
- Involves production or exchange of goods
An important characteristic of business is that it involves production or sale of goods and services for earning of money. Any activity undertaken for personal consumption or for free distribution fall outside the scope of business. Business includes only economic activities.
- Series of deals
Business consists of producing or purchasing and selling of goods on continuous and regular basis. One or two isolated transactions are not treated as business. A student, for instance, sells his old books in the market is not doing business However, if he purchases old books and sells them in spare time on regular basis to earn profit, it will then be treated as business.
- Desire to earn profit
The primary aim of business is to earn profit. If an enterprise is to survive, grow and expand, it must yield profit. Profit making thus is an essential element of business
- Involves element of risk
There is an element of risk and uncertainty in every business. There is no certainty that business will always result into profit. The business may suffer losses due to change in demand for goods, changing fashions, theft fire etc.
- Creation of utilities
An important characteristic of business is the creation of utilities in goods so that consumers may use them For instance, when goods are transported from the places of production to the places of consumers who ultimately use them, then place utility is created. When raw material is converted into finished goods, it creates form utility. When it is stored and brought into the market when needed, then time utility is created.