Q.Define business. Describe its important characteristics.

Business can be defined by its central purpose of earning profit through producing and selling goods and services, and this purpose is reflected in several distinguishing features it has as an activity.

Definition

• Business may be defined as an economic activity involving the production and sale of goods and services, undertaken with the motive of earning profit by satisfying human needs in society.

Important characteristics of business

• An economic activity: It is carried on to earn money or a livelihood, not out of love, affection or sympathy. It may be at a small individual level (a shopkeeper) or a large organised scale (a company or cooperative society).
• Production or procurement of goods and services: Before goods reach consumers, a business either produces them or procures them from producers. Goods may be consumable items (sugar, ghee, pen, notebook) or capital goods (machinery, furniture); services include transport, banking and electricity.
• Sale or exchange of goods and services: There must be a transfer or exchange of goods and services for value between a seller and a buyer. Making goods for personal use is not business — cooking food at home for the family is not business, but cooking and selling it in a restaurant is.
• Dealings in goods and services on a regular basis: Business means dealing regularly. A single transaction is not business — selling one's own radio set once is not business, but selling radio sets regularly is.
• Profit earning: A main purpose is to earn income by way of profit; no business can survive long without it, so businesspeople try to maximise profit by raising sales or cutting costs.
• Uncertainty of return: There is a lack of knowledge about how much the business will earn in a given period; the return is not certain and there is always a possibility of loss.
• Element of risk: Risk is the uncertainty associated with exposure to loss from unfavourable events — changing tastes/fashion, new production methods, strikes, competition, fire, theft, accidents or natural calamities. No business can completely do away with risk.