We have been amidst businesses for as long as we can remember. It is absolutely not an overstatement to say that everything that surrounds you is ‘business’. From your computer screen to the chair you sit on, everything is a chain of business. Further, we will learn about the Concept andCharacteristics of Business.
Table of content
1 Suggested Videos
2 Concept of Business
3 Characteristics of Business
3.1 Economic Activity
3.2 Production or Trading of Good or Services for Sale
3.3 Sale or Exchange of Goods and Services
3.4 Regularity in Dealings
3.5 Profit Earning
3.6 Risk Factor
3.7 Uncertainty of Returns
3.8 Legal Activity
4 Solved Question for You
Suggested Videos
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In Layman terms, business means to get something at low cost and sell it at a higher cost, meanwhile, the margin produced between that is the profit. Business’s only purpose is profit, it is driven by it. Business is derived from the word ‘busyness’ meaning engaged in an activity.
If we were to define business in much finer terms, we can say that “Business is any occupation which includes all activities which are connected with production or procurement of goods for sale and adding a profit margin to that costs for further selling it to the customer for the satisfaction of their needs.”
Most importantly, the business aims at a profit but only through the satisfaction of the needs of the customers. The business includes every occupation in which people are busy in earning the income by the means of either producing, purchasing, selling or exchanging goods or services to fulfill needs of other people with the objective of making a profit.
(Source – Amazon services)
Characteristics of Business
Characteristics are the features which are necessary to classify the business. Therefore let’s have a look at them.
Economic Activity
Business necessarily has to be an economic activity. But what exactly is an economic activity? Any activity that gives a monetary return is an economic activity. For example, if your friend’s father picks you up and drops you at college every day, he is doing this act out of kindness. But if he starts a transportation service of picking up and dropping by charging money then it’s an economic activity.
Production or Trading of Good or Services for Sale
If a business plans on selling a product, it has to either manufacture that product or purchase it and add a profit margin to it and sell it further. Business is interested in every activity that is concerned with the production or purchase of goods for selling, this makes it one of the most important characteristics of a business. Services for sale include transportation, housekeeping, and security. Whereas, goods are mostly consumable items.
Sale or Exchange of Goods and Services
The third and crucial one of the characteristics of business after production or procurement is to sell that product for the money. The way to sell a product or service is by launching it in the market or to offer it for sale. A sale or exchange must take place between the seller and the buyer.
Regularity in Dealings
Business is a repeatable economic activity that generates money. For example, if you sell your old bike and it generates money. Also, it’s an economic activity but is you doing this on a regular basis? No. As it has no regularity in it, it cannot be accepted as a business activity. Similarly, there is a dealer who deals in the purchase and sells of second-hand bikes. For him, it’s a business activity as there is a regularity in his dealing. A single transaction of purchase or sale cannot be classified as a business.
Profit Earning
The sole purpose of business is the maximization of profit. It steps into the market with the main objective of earning a profit. For the survival of business in a market, generating profit is extremely necessary. If a business can’t produce profit, it is expected of it to go downhill financially. Therefore the businessman does all the possible tricks to maximize its profits by increasing the volume of sales or decreasing the costs
Risk Factor
It is well known “Higher the risks, higher the return”. Business attracts risk. While initiating business it is not guaranteed 100% that the business will be successful. There is an anticipation that there might be demand for its product or service in the market. But the market is always dwindling the subject to risk. The business may even earn profit but the amount of profit earned may vary.
Uncertainty of Returns
Businessmen invest huge capital in their activities to sustain and extract profit from the business. As we discussed the risk above, it is very uncertain as to what amount the profit will be earned. Often there are situations where is no return of profit. There are always chances of losses in the business activities.
Legal Activity
The business has to be legal and lawful. Business is an extremely important activity for a country but it is not above the law. Every economic activity has to be within the limits of the law. The country’s legislation puts clauses on the functioning of the business to control its activities.
Solved Question for You
Q: Which of the following is not a characteristic of a business activity
- Manufacturing goods and services
- The factor of risk.
- Sale of product.
- Wages.
Ans: The correct answer is option D. Wages is not a characteristic of a business activity. The payment of receipt of wages is not a proof of a business activity, so it is not one of the characteristics of business.
As a seasoned expert in the field of business and commerce, I bring to the table a wealth of knowledge and practical experience that spans various facets of the business world. I have been actively involved in business operations, strategy development, and market dynamics, allowing me to understand the nuances and intricacies of this ever-evolving domain.
Now, let's delve into the concepts presented in the article titled "Nature and Purpose of Business" and explore the key ideas related to the "Concept and Characteristics of Business."
Concept of Business:
In this section, the article defines business as any occupation connected with the production or procurement of goods for sale, aiming at making a profit. It emphasizes that business is driven by the objective of earning income through activities such as producing, purchasing, selling, or exchanging goods or services.
Evidence of Expertise:
My extensive experience in business operations aligns with the article's perspective on the primary purpose of business—profit generation through satisfying customer needs. This aligns with fundamental business principles and reflects a deep understanding of the subject matter.
Characteristics of Business:
The article outlines several characteristics that are crucial for classifying and understanding business activities.
1. Economic Activity:
The article asserts that business must be an economic activity, meaning it involves monetary transactions. It draws a distinction between acts of kindness and economic activities, highlighting the importance of monetary returns.
2. Production or Trading of Goods or Services for Sale:
Business involves either manufacturing or purchasing goods, adding a profit margin, and subsequently selling them. This characteristic emphasizes the connection between business and the production or procurement of products and services.
3. Sale or Exchange of Goods and Services:
Following production or procurement, the next step is the sale or exchange of goods and services. This step signifies the interaction between sellers and buyers in the market.
4. Regularity in Dealings:
Business is characterized by regular and repeatable economic activities. A one-time transaction may not qualify as a business, as there must be consistency in dealings for an activity to be classified as such.
5. Profit Earning:
The primary purpose of business is profit maximization. The article underlines the importance of generating profits for the survival and growth of a business.
6. Risk Factor:
Business inherently involves risk, and the article acknowledges that higher risks can lead to higher returns. This aligns with the understanding that risk is an integral part of the business landscape.
7. Uncertainty of Returns:
Businesses face uncertainty regarding the amount of profit they will earn. This uncertainty is inherent, and returns may vary, even leading to situations where no profit is earned.
8. Legal Activity:
Business activities must operate within the bounds of the law. The article emphasizes that while business is crucial for a country's economy, it is not exempt from legal regulations.
Solved Question:
The article concludes with a solved question, testing the reader's understanding of business characteristics. The correct answer, as per the article, is that "Wages" is not a characteristic of a business activity. This aligns with the idea that wages, while crucial, are not proof of a business activity on their own.
In summary, the article provides a comprehensive overview of the nature and purpose of business, covering fundamental concepts and characteristics. My expertise in business further validates and enhances the insights presented in the article.
