Nature of business

Nature of business

Business is a wide term. it includes all occupations in which people are busy earning income either by production or purchase and sale or exchange goods and services to satisfy the needs of other people with the main object of earning a profit.

  • Definition by other authors:-
  •  According to Lewis H. Honey "Business is a human activity directed toward producing or acquiring wealth through buying and selling goods".
  •  According to Peterson and Plowman "Business is an activity in which different people exchange something of value, whether goods or services for mutual gain or profit".
  •  According to James Stephenson" Business is sum total of those processes which are engaged in the removal of hindrances of person, place and time in the exchange commodities".

                 In modern times the business is no longer dealing only with goods or services. It can not be defined in terms of profit only. It has become an integral p[art of society. In modern times business includes the following activities:-
  • Creating a customer for itself.
  • Converting economic resources into goods and services keeping in mind the preferences of customers.
  • Innovating new products or services. Innovation may lead to technological up-gradation of production processes.
  • Marketing these innovative products and services so that these can reach the customer.

  • Nature of business:-
  • An economy activity:- Business is considered as an economic activity as it is undertaken with the objective or aim of earning money and livelihood and not for psychological satisfaction.
  • Production or procurement of goods and services:- Every business enterprise either produces or procures goods or services from producers. Goods may consist of consumer or industrial goods and services may include transportation, banking, insurance, etc.
  • Sales of exchange of goods and services for the satisfaction of human needs:- Business involves sale or exchange of goods or services. The production of goods or services for self-consumption is not business. A farmer cultivating crop for himself and his family consumption only is not doing business. But the farmer who is cultivating crop for sale is involved in business activity. similarly buying goods to gift to someone else is not a business but buying goods for resale in business. so there must be a sale exchange of goods and services in business.

  • Dealing with goods or services on a regular basis:- another important feature of the business is that it must sell or exchange goods or services on a regular basis. buying or selling goods and services once or twice is not business. once a single transaction of sale does not constitute a business. For example:- If a person sells his house to buy a new house, he is not doing business. But if a person buys and sells houses on a regular basis to earn a commission, then it will be considered as a business. The regularity of the occurrence of a business transaction is a must. 
  • Profit earning:- The main purpose of business is earning the profit. If the profit motive is missing in a transaction then it can not be considered as a business transaction. For example:- Goods given in a charity are not a business activity. No businessman can survive without earning sufficient profit.
  • Uncertainty of Return / Risk:- Another important feature of the business is the presence of a risk factors in the transaction. There is always a possibility of losses. It is not certain that a businessman will always earn an adequate profit, as the market conditions may change, customer's tastes may change, there may be strike in businessman's own factory, etc. All of these can lead to a loss. So in a business transaction, there is always an element of risk involved.   
Nature of business
4/ 5