Nature and Purpose of Business: Economic and Non-Economic Activities
All Human beings have different types of needs. So, in order to fulfill those needs they have to perform some or the other activity. Human activities are classified into Economic & non-economic activities.
|Purpose/ Notice||Those activities whose Objective is to earn money and to create wealth.||Those activities whose aim is not to earn money, but to satisfy social, psychological and emotional needs. For example love, sympathy, patriotism.|
|Examples||People work in factories
Cooking food in a restaurant. A teacher teaching in a school.
|A housewife cooking food for her family. A teacher training his daughter at home.|
Nature and Purpose of Business: Concept of Business
Business refers to those economic activities involving the purchase, production and / or sale of goods and services with a motive of earning profit by satisfying human needs in society.
Nature and Purpose of Business: Characteristics of Business Solutions
1. An economic activity
Business is considered as an economic activity because it is undertaken with the objective of earning money.
2. Production or procurement of goods and services
Business includes all the activities concerned with the production or procurement of goods & services for sales. Services include transportation, banking, Insurance etc. Goods may consist of consumable items.
3. Sale or exchange of goods & services
There should be sale or exchange of goods and service between the seller & the buyer.
4. Dealing in goods & services at a regular basis
There should be regularity of dealings or exchange of goods & services. One single transaction of sale or purchase does not constitute business.
5. Profit Earning
The main purpose of business is to earn profit. A business cannot survive without making profits.
6. Uncertainty of return
Every business invests money with the objective of earning profit but the amount of profit earned may vary. Also there is always a possibility of losses.
7. Element of risk
All business activities carry some elements of risk because the future is uncertain and business has no control over several factors like, strikes, fire, theft, and change in consumer taste etc.
Nature and Purpose of Business Notes
Refers to Purchase, production and/ or sale of goods & services with the objective of earning profit.
Includes those activities which require special knowledge & skills in the occupation.
Refers to the occupation in which people work for others and get remuneration in return.
|Basis of Destruction||Business||Profession||Employment|
|Mode of establishment||Starts after completing some legal formalities if needed.||Membership of a professional body and certificate of practice required.||Start after getting appointment letter.|
|Nature of work||Provision of goods
and service to the public.
|Personalized services of expert nature.||Work allotted by the employer according to the contract.|
|Qualification||No minimum qualification is necessary.||Professional Qualification and training required.||Qualification and training as prescribed by the employer.|
|Capital investment||Capital needed according to its size and capacity.||Limited capital for established||No capital required.|
|Reward/ Returns||Profits||Professional fee||Salary or wages|
|Risk||High Risk||Low Risk||No Risk|
|Code of Conduct||No code of conduct||Professional code of conduct||The terms and conditions of services contract are to be allowed.|
Nature and Purpose of Business: Objectives Of Business
The objective of business means the purpose for which a business is established and carried on. Proper selection of objectives is essential for the success of a business.
The businessmen always have multiple objectives. All objective may be classified into two broad categories.
(1) Economic objectives
(2) Social Objectives
1. Economic Objectives
Business is an economic activity and therefore, its purpose is to show economic results. The economic objectives of business are follows:
(i) Earning profit:
Profit means excess of income over the expenditure. The foremost and prime objective of every businessman is to earn profit. A business cannot service without earning profit. Not only for survival but it is also required for growth and expansion of business.
(ii) Market standing/creation of customer:
Business can survive for a longer period only if it is able to capture a big share in the market & has market standing. It is possible only when a business provides goods and services to satisfy the needs & wants of customers. Therefore, creation and satisfaction of customers (market) is an important objective of business.
Innovation means making new products or adding new features of old products for making it more useful, improving methods of production & distribution, exploring new markets, etc. In these days of competition, a business can be successful only when it creates new designs, better machines, improved techniques, new varieties etc.
(iv) Optimum utilization of resources:
It refers to the best use of men, material, money and machinery employed in business. The resources of business are scarce so these must be utilized in the best possible manner so that the business can get maximum benefit from their resources.
(v) Improving productivity:
It is used as a measure of efficiency. Every business enterprise must aim at greater productivity – to ensure continuous survival and growth. This objective can be achieved by reducing wastages and making efficient use of machines and equipment, human resources, money etc.
Business is an integral part of society. It makes use of the resources of society. It earns profit by selling its products or services to members of society. So it becomes obligatory on the part of the businessman to do something for the society. The important social objectives of business are as follows:
(i)Quality goods and services at Fair Price:
The first social objective of business is to provide better quality products at reasonable prices and in proper quantity on a continuous basis to consumers’ examples.
Example: Consumers look for ISI mark on electrical goods, FPO mark on food products. Hallmark on Jewelry.
(ii) Avoidance of Anti-Social and Unfair trade practices:
Anti-Social practices include hoarding, black marketing and adulteration. Making false claims in advertisements to mislead and exploit people is an example of unfair trade practice. Business should not indulge in such practices.
(iii) Generation of Employment:
Nowadays, employment is the biggest problem of society. Business should provide employment to more and more people living in the country. Handicapped and disabled people should be given extra care.
(iv) Employee Welfare:
Employees are a valuable asset and they make significant contributions towards the success of business. Another social objective of business, therefore, is to ensure welfare of employees by providing good working conditions, fair wages and facilities such as housing, medical and entertainment etc. such welfare facilities help to improve physical and mental health of employees.
(v) Community service:
Business should contribute something to the society where it is established and operated. Library, dispensary, educational institutions etc. are certain contributions which a business can make and help in the development of community.
Nature and Purpose of Business: Role of Profit in Business
Business is established for the purpose of earning profit. Profit plays a very important role in business. The role of profit in business can be brought out by the following facts:-
(1) For Long Survival:
Profit alone helps a business to continue to exist for a long period. In the absence of profit the establishment of a particular business loses its justification.
(2) For growth & Expansion:
All businessmen want their business to expand and to grow. For development of business additional capital is needed. Retained earnings is a very good source of capital.
(3) For increasing efficiency:
Profit is that power which motivates both the parties – owner and workers to do their best. As they know that in case of good profits they will get good compensation for their efforts so it finally helps in increasing the efficiency of business.
(4) For Building prestige and Recognition:
For gaining prestige in the Society, Business had to satisfy all the parties concerned. It has to supply good quality product/service at reasonable price to customers, adequate remuneration to employees, to pay sufficient dividend to the shareholders etc. and all these are possible only if the business is earning good profit.
1. Primary Industry:
The primary industry includes those activities through which the natural resources are used to provide raw material for other industries Primary industries are of two types.
Industry refers to those industries under which something is extracted out of the earth, water or air e.g., coal, iron, gas etc. Farming, mining, lumbering, hunting & fishing come under this category of industry
Industry refers to those industries under which the breed of animals and vegetables are improved and made more useful e.g., poultry farms, dairy farming, fish hatchery, cattle breeding etc.
Under this industry new products are manufactured by using the previously produced things e.g., producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry. It is of two types.
These industries convert raw materials or semi-finished products into finished products e.g., paper from bamboo, sugar from sugar cane. It is further divided into four parts.
Different things are manufactured out of one material e.g., petrol, diesel, gasoline out of crude oil.
Those industries wherein useful things are manufactured by making the raw material to pass through different production processes e.g., steel from iron ore, sugar and paper industries.
Many raw materials are mixed to produce more useful product e.g., paints, cosmetics, cement.
Where in the parts manufactured by different industries are assembled to produce new and useful product e.g., computers, watches cars, television etc.
Industries that are involved in the construction of buildings, dams, bridges, roads as well as tunnels and canals.
3 Tertiary or Service Industry:
Includes those services which help business to move smoothly e.g. transport, bank, Insurance, storage and Advertising.
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Nature and Purpose of Business: FAQs
Question 1 Why does a business exist?
Ans. A business purpose explains the motivation for the founding of a company.
Question 2 What are the characteristics and goals of business?
Ans. Humans have countless wants, and economic operations are necessary to meet them. Giving the economy and society the goods and services they need is what business is all about. A business consists of all economic, commercial, and trading operations.
Question 3 What exactly is the business concept?
Ans. The purpose and structure of a company’s operations are determined by its business idea. Consider protecting the company’s intangible assets early on if it is clear to you that they are the key to its success. A firm cannot exist without a basic premise, which is a business concept.