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| What is Business And Nature of Business |
What is Business And Nature of Business
WHAT IS BUSINESS?
Business means any lawful economic activity which is
conducted to earn profit through satisfaction of human wants.
Definition of Business
A few famous
definitions of business are given below:
"Business is any activity concerned with production orexchange
of goods or with rendering of services to the public for profit". (H. S.
Sloan)
"Business includes all the commercial and industrial
activities that provide goods and services to the people with an objective to
earn profit".(R. N. Owen)
NATURE OF BUSINESS
Following
characteristics/features of business clearly explain
1. Economic Activity
Economics deals with production, consumption and distribution
of wealth (i.e. material resources of satisfaction of human wants). Business
deals with these activities too; . Object of an economic activity is to earn
income".
Deals in Goods and Services.
Businessmen produce want satisfying goods and services and exchange them in the market for price to earn profit. Goods mean tangible items having potential to satisfy human wants. For example, books, computers, cloths, foodstuff, sports ware, home appliances, automobiles etc. Services mean those activities which enhance human welfare but they do not have any tangible existence i.e. they cannot be weighed or stored. Services include such activities as medical care, auto repair, banking, transportation, education, beautician, musician, etc
.
3. Creates Utility
Utility means capability to satisfy a human want. Businessmen
convert raw materials into finished goods and create form utility. Businessmen
transport goods from the place where they are produced to the place where they
are needed thus they create place utility. They store goods from the time they
are produced till the time they are sold to ultimate consumers hence they
create time utility. By creating utility they add to the value of items they
offer in the market and thus they earn profit.
4. Profit Motive
Basic object of a business is to earn profit. Where object of an economic activity is to generate income in any way other than profit, such activity is not a business. For example, earning salary as an employee, earning interest on capital or earning rent of land is not business. Similarly, an activity that deals in goods or services and creates utility but without the object of earning profit is not a business. For example, a government hospital or a government school is not a business because its object is to provide an essential service either free or at subsidized rates.
.
5. Risk of Loss
Profit is reward of entrepreneur. Rewards of land, labour and
capital are predetermined and fixed. It is responsibility of entrepreneur to
pay remunerations to land, labour and capital employed by him. If revenues
generated by a business are not sufficient, the entrepreneur is required to
make payments either from his personal assets or by borrowing. Therefore, with
the chance to earn profit, entrepreneurs also face risk of loss.
6. Series of Deals
An occasional transaction that may result in profit is not
considered as a business. An activity can be regarded as a business only when
it is conducted on regular basis i.e. there must be a series of deals. For
example, sale of a car by a car dealer is a business because the car dealer
sells cars regularly; but when a doctor is selling his car he is not doing a
business because he sells a car occasionally only when he wants to buy a new
one.
7. Lawful Activity
There are economic activities which are conducted with the
object to earn profit and the activities also deal with goods and services and
create utility but these activities are forbidden by law. For example,
smuggling, drug trafficking, trade of illegal weapons etc. An economic activity
which is forbidden by law is not regarded as business and does not form part of
our study.
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