UNIT-I NATURE AND PURPOSE OF BUSINESS

Human ActivitiesIn every society people undertake

various activities to satisfy their needs. These activities can b

broadly be classified in two groups:ECONOMIC ACTIVITIES NON ECONOMIC ACTIVITIES

ECONOMIC ACTIVITY Economic activities are those by which we can earn our livelihood.

OR Keeping yourself engaged to earn

something in return is economic activity.

e.g. doctor, teacher, driver, sweeper or clerk are all engaged

in economic activities.

NON ECONOMIC ACTIVITY Activities which do not have any economic motive and are performed

with a feeling of love, sympathy, humanity and patriotism are known

as non-economic activities. e.g. playing, dancing, giving

donation, a housewife cooking food for family, or a boy helping an old

man cross the road etc.

TYPES OF ECONOMIC ACTIVITIES Economic activities may be further divided

into three categories:1. Business2. Profession3. Employment

Business The term Business is derived from the word

‘busy’. Thus, business means being busy. However, in specific sense, business refers to

an occupation in which people regularly engage themselves with a view to earn profit.

Business involves production or purchase or exchange of goods and services to satisfy the needs of people with aim to earn profit.

The persons who are engaged in business are called entrepreneurs.

PROFESSION Profession refers to the activity which

requires special knowledge and skills to be applied by an individual in his work to earn a living. E.g. doctor, lawyer, teacher, nurse.etc.

EMPLOYMENTEmployment refers to an activity in which a

person works regularly for another for a fixed remuneration. E.g. People who work in banks, insurance companies, or government departments, as managers, assistants, clerks, peons, or security guards.

CHARACTERISTICSOF BUSINESS ACTIVITIES1. An economic activity.2. Production or procurement of goods and

services.3. Sale or exchange of goods and services for

the satisfaction of human needs.4. Dealing in goods and services on regular

basis.5. Profit earning.6. Uncertainty of return.7. Element of risk.

COMPARISON OF BUSINESS, PROFSSION AND EMPLOYMENT1. Mode of establishment: Business is established when the entrepreneur

decides.

Profession is started after getting the certificate of practice from the professional body.

Employment begins after getting the appointment letter from the employer.

2. Nature of work: Business includes buying and selling

of goods and services.

Profession involves rendering personalized services of expert nature.

Employment includes performing the work as per the service contract.

3. Qualification: No minimum qualification is

required for business.

A professional degree in a specific field is required for profession.

An employee needs the qualification and training as prescribed by the employer.

4. Return of reward: Business gets the return in the form

of profit.

Professionals charges fees for their services.

Employees get the salary or wages in return for their work.

5. Capital investment: Business needs investment as per

its size and nature.

Only initial investment is required in case of profession.

No capital investment is needed for employment.

6. Risk: In business, profits are uncertain and

irregular; so risk is present.

Professionals face less risk ; as the fee charged is generally regular and certain.

No risk is there in employment; as they get a fixed and regular pay.

7.Code of conduct No code of conduct is prescribed in

business.

Professional code of conduct is to be followed.

Norms of behavior laid down by the employer are to be followed.

OBJECTIVES OF BUSINESS An objective is the starting point of business. It refers to the aim because of which a

business unit is brought in to existence.

Objectives of business:1. Market standing2. Innovation3. Productivity4. Physical and financial resources

5. Earning profit 6.Manager performance and development

7. Workers performance and attitude

8. Social responsibility

FACTORS TO BE CONSIDERED WHILE STARTING A BUSINESS UNIT1. Selection of line of business2. Size of the firm3. Choice of form of ownership4. Location of business enterprise5. Availability of finance6. Physical facilities7. Plant layout8. Competent and committed work force9. Tax planning10. Launching of enterprise

BUSINESS RISK The term business risk refers to the possibility of

inadequate profits or even losses due to uncertainties or unexpected events.

Busniess enterprises constantly face two types of risks: specultive risk and pure.

Speculative risk– involves both the possibility of gain as well as the possibility of loss.Examples- change in demand and supply, chages in fasion and taste of consumers etc.

Pure risk involve only the possibility of loss or no loss. Example- the chance of fire, theft or strike.

NATURE OF BUSINESS RISK1. Business risk arise due to

uncertainties.2.Risk is the essential part of

business.3. Degree of risk depends upon

the nature and size of business.4. Profit is the reward for risk

taking.

Causes of business risksi. Natural causes – natural calamities like flood,

earthquake, lightning, heavy rains etc.ii. Human causes – dishonesty, carelessness or

negligence of employees, stoppage of work due to power failure, strikes, management efficiency.

iii. Economic causes– uncertainties relating to demand for goods, competition prices, collection of dues from customers, change of technology or method of production.

iv. Other causes– political disturbance, mechanical failure etc.