UNIT 1: Introduction

Business denotes busi-ness, that is the state of being busy – any activity in which one keeps
himself busy.  But the economic term of business refers to work, efforts, and acts of people or
human busy in connection with the production of wealth. Business is the sum of total activities
which are connected with the production or purchase and sale of goods and services with the
main objective to earn profit.

According to Urwick and Hunt, “Business is any enterprise which makes, distributes or

provides any service which other members of the community need and are willing to pay
for it”.

Nature of Business

Business is an economic activity having some feature and characteristics. Following are some
important characteristics of Business

1. Production or Acquisition of Goods

Every business whether small or large scale deals with goods and services. The goods may
produce, manufacture or procure. Business is either to produce, manufacture or procure and then
to supply for a price to those who are in need of the goods so produced, manufactured or
procured.

2. Profit – The basic motive of business

Profit is an essential part of business, infact profit is the motivation factor behind a business one
carries on. Profit is stimulus and a guarantee to continue the business. Profit is the factor which
ensures the survival of the business. Profit is the reward of all those individuals engaged in a
particular business. The efficiency of a businessman depends on the profit which he is able to
make during the business operation. He renders singular service to the continuity by satisfying
the needs of the people. He expected a reward for such a service rendered and if he gets the
double and redoubles his efforts and plans his future in such manner so as to render best possible
service to the community.

3. Risk – Uncertainty of future

Every business involves risk and uncertainty while carrying on its operations. Future is uncertain
and business activity focuses on future. This focus on future and uncertainty of future naturally
entails risk. It is risk which every businessman takes when he embarks upon a business activity.

4. Dealing in Goods and Services

Business refers to goods and services dealt with a view to supply to those who need them and are
ready to make payment for the same. Dealing in goods and services is business. The goods may
either be consumers’ goods (Cloth, books, electronics appliances, medicine etc) or Producer
goods (machinery, tools etc) or services (courier or transport services etc).

5. Regular Dealings

One of important characteristics of business is regularity and recurrences. Business is not a

single operation. A single operation would never constitute a business. It should a regular and
continuous entity. Recurrence of dealing is a must to constitute a business.  On selling furniture
of his household with a view to replace it with new one is not business. But if the same person
procures a variety of furniture, keeps the stock and sells them to the consumers, he carries on a
business dealing in furniture.

Scope of Business

The Scope of “Business” is wider than that of the terms “Trade” and “Commerce”. The terms
trade and commerce are often used synonymously.

Trade is one of the branches of commerce. It is concerned with exchange of goods and services.
It performs the function of acting as an intermediary and thereby it transfers goods from the
producer to the consumer. On the other hand, commerce is a wider term. It includes “Trade” as
well as, Aids to trade i.e. the various activities which facilitate trade.
Scope of Business

1. Industry

The word “Industry” refers to that part of business activities which is apprehensive with the
extraction, production or fabrication of products. The products which are raised, produced or
processed by an industry may either be used by the ultimate consumer or by another concern for
further production. If the goods produced by an industry are consumed by the final customers,
these are named as ‘consumer’s goods’ e.g. clothes. If the goods are used for further production
of wealth they are called producer’s or capital goods. In case the goods produced by an industry
are further processed into finished products by another concern they are called as intermediate
goods. i.e Plastic.

Types of Industry

On the basis activity industry is further classified into various types are as under:-

(i) Extractive Industries

Extractive industries are those industries which extract, raise or fabricate raw materials from
above or beneath surface of the earth. i.e. Mining, fisheries forestry, agriculture.

(ii) Genetic Industries

Those industries which are engaged in reproducing and multiplying certain species of animals
and plants and selling them in the market for profit are named as genetic industries. i.e. Cattle
breeding farms, poultry farms, plant nurseries.

(iii) Constructive Industries

Constructive industries as the name signifies are engaged in the construction of building, canals,
brides, dams, roads etc.

(iv) Manufacturing Industries

Manufacturing industries are those which are concerned of converting raw material or semi
finished products into finished products. E.g. Shoes Company, Textiles Mills.

(v) Service Industries

Service industries are usually engaged in the manufacturing of intangible goods which cannot be
seen or touched by naked eye. The service of professionals such as doctors, lawyers is examples
of service industries.

(vi) Commerce
The second element that comes in the scope of business is Commerce. It is a very important
component of business and is concerned with the buying and selling of goods. It includes all the
activities which are connected to the transfer of goods from the place of production to the
ultimate consumers. The whole ranges of commerce activities are classified are as under:-

2. Trade

The process of buying and selling of goods is called Trade. It is the exchange of goods and
services among buyers and sellers in which both the parties are benefited. Trade is classified into
two types.

(i) Internal Trade

The process of buying and selling of goods within the edge of a country is called internal trade.

 Wholesale Trade. The process of purchase of goods in huge quantity from producers and
their resale to retailers is known as wholesale trade. The retailer then further sells these
goods to the final consumers.

 Retail Trade. The retailer sale the goods and services to the ultimate consumers is
known as Retail Trade.

(ii) External Trade

The purchase and sale of goods between two countries are called external trade. It is also called
foreign trade. There are two types of external Trade.

 Import Trade

 Export Trade.

3. Aid to Trade

The activities which help in the purchase of goods and services are called aids to trade. The aids
which are compulsory for the development of the trade are as follows:-

(i) Transport

The different ways of transport help in carrying goods from the places of production to centers of
utilization e.g. Railways, ships, airlines etc.

(ii) Insurance

Insurance is very essential aid to trade. The risk of damage of goods due to fire, flood,
earthquake or other causes us covered by insurance.

(iii) Warehousing
Warehousing is a kind of storeroom. Nowadays most of the goods are produce in anticipation of
demand. They are stored in safe places and are released as and when demanded in the market.
Warehousing thus helps in overcoming the barrier of time and creates time utility.

(iv) Banking

The commercial banks play a vital role in financing the different trade activities. They are
funding the traders for stock holding and transportation of goods. They also support the buyers
and sellers of goods in receiving and making payments, both at the national and worldwide level.
The credit facility in the form of cash credit, overdrafts and loans is provided to the traders.

(v) Advertisement

Selling of goods is the most difficult problem for the producer. Advertisement regarding the
product through newspapers, magazines, radio and television has greatly helped the consumers in
choosing the goods of their taste. So advertisements play a vital role in increasing sale of goods.

Meaning, Definition of Business Organisation

An entrepreneur organizes various factors of production like land, labour, capital, machinery,

etc. for channelizing them into productive activities. The product finally reaches consumers
through various agencies. Business activities are divided into various functions, these functions
are assigned to different individuals.

Various individual efforts must lead to the achievement of common business goals. Organization
is the structural framework of duties and responsibilities required of personnel in performing
various functions with a view to achieve business goals through organization. Management tries
to combine various business activities to accomplish predetermined goals.

Present business system is very complex. The unit must be run efficiently to stay in the
competitive world of business. Various jobs are to be performed by persons most suitable for
them. First of all various activities should be grouped into different functions. The authority and
responsibility is fixed at various levels. All efforts should be made to co-ordinate different
activities for running the units efficiently so that cost of production may be reduced and
profitability of the unit may be increased.

Definitions:

Louis Allen, “Organization is the process of identifying and grouping work to be performed,
defining and delegating responsibility and authority and establishing relationships for the
purpose of enabling people to work most effectively together in accomplishing objectives.” In
the words of Allen, organization is an instrument for achieving organizational goals. The work of
each and every person is defined and authority and responsibility is fixed for accomplishing the
same.
Wheeler, “Internal organization is the structural framework of duties and responsibilities
required of personnel in performing various functions within the company. It is essentially a blue
print for action resulting in a mechanism for carrying out function to achieve the goals set up by
company management”. In Wheeler’s view, organization is a process of fixing duties and
responsibilities of persons in an enterprise so that business goals are achieved.

Koontz and O’Donnell, ‘The establishment of authority relationships with provision for co-
ordination between them, both vertically and horizontally in the enterprise structure.” These
authors view organization as a coordinating point among various persons in the business.

Oliver Sheldon, “Organization is the process so combining the work which individuals or groups
have to perform with the facilities necessary for its execution, that the duties so performed
provide the best channels for the efficient, systematic, positive and coordinated application of the
available effort”. Organization helps in efficient utilization of resources by dividing the duties of
various persons.

Spriegel, “In its broadest sense organisation refers to the relationship between the various factors
present in a given endeavor. Factory organisation concerns itself primarily with the internal
relationships within the factory such as responsibilities of personnel, arrangement and grouping
of machines and material control. From the standpoint of the enterprise as a whole, organisation
is the structural relationship between the various factors in the enterprise”.

Spriegel has given a wide definition of the organization. He has described it as the relationship
among persons, factors in the enterprise. All factors of production are coordinated in order to
achieve organisational objectives.

George Terry, “Organising is the establishing of effective authority relationships among selected
work, persons, and work places in order for the group to work together efficiently”. According to
Terry organisation is the creation of relationship among persons and work so that it may be
carried on in a better and efficient way.

C.H. Northcott, ‘The arrangement by which tasks are assigned to men and women so that their
individual efforts contribute effectively to some more or less clearly defined purpose for which
they have been brought together”. According to Northcott the purpose of organisation is to co-
ordinate the activities of various individuals working in the organisation for the attainment of
enterprise goals.

L.H. Haney, “Organisation is a harmonious adjustment of specialised parts for accomplishment

of some common purpose or purposes”. Organisation is the adjustment of various activities for
the attainment of common goals.

Characteristics of Business Organisation

1. Economic activity:
Business is an economic activity of production and distribution of goods and services. It provides
employment opportunities in different sectors like banking, insurance, transport, industries, trade
etc. it is an economic activity corned with creation of utilities for the satisfaction of human
wants.

It provides a source of income to the society. Business results into generation of employment
opportunities thereby leading to growth of the economy. It brings about industrial and economic
development of the country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying of raw material,
plants and machinery, stationary, property etc. On the other hand, it sells the finished products to
the consumers, wholesaler, retailer etc. Business makes available various goods and services to
the different sections of the society.

3. Continuous process:

Business is not a single time activity. It is a continuous process of production and distribution of
goods and services. A single transaction of trade cannot be termed as a business. A business
should be conducted regularly in order to grow and gain regular returns.

Business should continuously involve in research and developmental activities to gain

competitive advantage. A continuous improvement strategy helps to increase profitability of the
business firm.

4. Profit Motive:

Profit is an indicator of success and failure of business. It is the difference between income and
expenses of the business. The primary goal of a business is usually to obtain the highest possible
level of profit through the production and sale of goods and services. It is a return on investment.
Profit acts as a driving force behind all business activities.

Profit is required for survival, growth and expansion of the business. It is clear that every
business operates to earn profit. Business has many goals but profit making is the primary goal
of every business. It is required to create economic growth.

5. Risk and Uncertainties:

Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is
associated with every business. Business is exposed to two types of risk, Insurable and Non-
insurable. Insurable risk is predictable.

6. Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come out with creative
ideas, approaches and concepts for production and distribution of goods and services. It means to
bring things in fresh, new and inventive way.

One has to be innovative because the business operates under constantly changing economic,
social and technological environment. Business should also come out with new products to
satisfy the growing needs of the consumers.

7. Customer satisfaction:

The phase of business has changed from traditional concept to modern concept. Now a day,
business adopts a consumer-oriented approach. Customer satisfaction is the ultimate aim of all
economic activities.

Modern business believes in satisfying the customers by providing quality product at a

reasonable price. It emphasize not only on profit but also on customer satisfaction. Consumers
are satisfied only when they get real value for their purchase.

The purpose of the business is to create and retain the customers. The ability to identify and
satisfy the customers is the prime ingredient for the business success.

8. Social Activity:

Business is a socio-economic activity. Both business and society are interdependent. Modern
business runs in the area of social responsibility.

Business has some responsibility towards the society and in turn it needs the support of various
social groups like investors, employees, customers, creditors etc. by making goods available to
various sections of the society, business performs an important social function and meets social
needs. Business needs support of different section of the society for its proper functioning.

9. Government control:

Business organisations are subject to government control. They have to follow certain rules and
regulations enacted by the government. Government ensures that the business is conducted for
social good by keeping effective supervision and control by enacting and amending laws and
rules from time to time.

10. Optimum utilisation of resources:

Business facilitates optimum utilisation of countries material and non-material resources and
achieves economic progress. The scarce resources are brought to its fullest use for concentrating
economic wealth and satisfying the needs and wants of the consumers.

Objectives of Business Organisation
A. Economic Objectives:

Economic objectives of business refer to the objective of earning profit and also other objectives
that are necessary to be pursued to achieve the profit objective, which include, creation of
customers, regular innovations and best possible use of available resources.

(i) Profit Earning:

Profit is the lifeblood of business, without which no business can survive in a competitive
market. In fact profit making is the primary objective for which a business unit is brought into
existence. Profits must be earned to ensure the survival of business, its growth and expansion
over time.

Profits help businessmen not only to earn their living but also to expand their business activities
by reinvesting a part of the profits. In order to achieve this primary objective, certain other
objectives are also necessary to be pursued by business, which are as follows:

(a) Creation of customers:

A business unit cannot survive unless there are customers to buy the products and services.
Again a businessman can earn profits only when he/she provides quality goods and services at a
reasonable price. For this it needs to attract more customers for its existing as well as new
products. This is achieved with the help of various marketing activities.

(b) Regular innovations:

Innovation means changes, which bring about improvement in products, process of production
and distribution of goods. Business units, through innovation, are able to reduce cost by adopting
better methods of production and also increase their sales by attracting more customers because
of improved products.

Reduction in cost and increase in sales gives more profit to the businessmen. Use of power
looms in place of handlooms, use of tractors in place of hand implements in farms etc. are all the
results of innovation.

(c) Best possible use of resources:

As we all know, to run any business we must have sufficient capital or funds. The amount of
capital may be used to buy machinery, raw materials, employ men and have cash to meet day-to-
day expenses. Thus, business activities require various resources like men, materials, money and
machines.

The availability of these resources is usually limited. Thus, every business should try to make the
best possible use of these resources. Employing efficient workers. Making full use of machines
and minimizing wastage of raw materials, can achieve this objective.
B. Social Objectives:

Social objective are those objectives of business, which are desired to be achieved for the benefit
of the society. Since business operates in a society by utilizing its scarce resources, the society
expects something in return for its welfare. No activity of the business should be aimed at giving
any kind of trouble to the society.

If business activities lead to socially harmful effects, there is bound to be public reaction against
the business sooner or later. Social objectives of business include production and supply of
quality goods and services, adoption of fair trade practices and contribution to the general
welfare of society and provision of welfare amenities.

(i) Production and Supply of Quality Goods and Services:

Since the business utilizes the various resources of the society, the society expects to get quality
goods and services from the business he objective of business should be to produce better quality
goods and supply them at the right time and at a right price It is not desirable on the part of the
businessman to supply adulterated or inferior goods which cause injuries to the customers.

They should charge the price according to the quality of e goods and services provided to the
society. Again, the customers also expect timely supply of all their requirements. So it is
important for every business to supply those goods and services on a regular basis.

(ii) Adoption of Fair Trade Practices:

In every society, activities such as hoarding, black- marketing and over-charging are considered
undesirable. Besides, misleading advertisements often give a false impression about the quality
of products. Such advertisements deceive the customers and the businessmen use them for the
sake of making large profits.

This is an unfair trade practice. The business unit must not create artificial scarcity of essential
goods or raise prices for the sake of earning more profits. All these activities earn a bad name
and sometimes make the businessmen liable for penalty and even imprisonment under the law.
Therefore, the objective of business should be to adopt fair trade practices for the welfare of the
consumers as well as the society.

(iii) Contribution to the General Welfare of the Society:

Business units should work for the general welfare and upliftment of the society. This is possible
through running of schools and colleges better education opening of vocational training centres
to train the people to earn their livelihood, establishing hospitals for medical facilities and
providing recreational facilities for the general public like parks, sports complexes etc.

С. Human Objectives:
Human objectives refer to the objectives aimed at the well-being as well as fulfillment of
expectations of employees as also of people who are disabled, handicapped and deprived of
proper education and training. The human objectives of business may thus include economic
well-being of the employees, social and psychological satisfaction of employees and
development of human resources.

(i) Economic Well-being of the Employees:

In business employees must be provided with tan remuneration and incentive for performance
benefits of provident fund, pension and other amenities like medical facilities, housing facilities
etc. By this they feel more satisfied at work and contribute more for the business.

(ii) Social and Psychological Satisfaction of Employees:

It is the duty of business units to provide social and psychological satisfaction to their
employees. This is possible by making the job interesting and challenging, putting the right
person in the right job and reducing the monotony of work Opportunities for promotion and
advancement in career should also be provided to the employees.

Further, grievances of employees should be given prompt attention and their suggestions should
be considered seriously when decisions are made. If employees are happy and satisfied they can
put then best efforts in work.

(iii) Development of Human Resources:

Employees as human beings always want to grow. Their growth requires proper training as well
as development. Business can prosper if the people employed can improve their skills and
develop their abilities and competencies in course of time. Thus, it is important that business
should arrange training and development programmes for its employees.

(iv) Well-being of Socially and Economically Backward People:

Business units being inseparable parts of society should help backward classes and also people
those are physically and mentally challenged. This can be done in many ways. For instance,
vocational training programme may be arranged to improve the earning capacity of backward
people in the community. While recruiting its staff, business should give preference to physically
and mentally challenged persons. Business units can also help and encourage meritorious
students by awarding scholarships for higher studies.

D. National Objectives:

Being an important part of the country, every business must have the objective of fulfilling
national goals and aspirations. The goal of the country may be to provide employment
opportunity to its citizen, earn revenue for its exchequer, become self-sufficient in production of
goods and services, promote social justice, etc. Business activities should be conducted keeping
these goals of the country in mind, which may be called national objectives of business.

The following are the national objectives of business.

(i) Creation of Employment:

One of the important national objectives of business is to create opportunities for gainful
employment of people. This can be achieved by establishing new business units, expanding
markets, widening distribution channels, etc.

(ii) Promotion of Social Justice:

As a responsible citizen, a businessman is expected to provide equal opportunities to all persons

with whom he/she deals. He/ She is also expected to provide equal opportunities to all the
employees to work and progress. Towards this objectives special attention must be paid to
weaker and backward sections of the society.

(iii) Production According to National Priority:

Business units should produce and supply goods in accordance with the priorities laid down in
the plans and policies of the government. One of the national objectives of business in our
country should be to increase the production and supply of essential goods at reasonable prices.

(iv) Contribute to the Revenue of the Country:

The business owners should pay their taxes and dues honestly and regularly. This will increase
the revenue of the government, which can be used for the development of the nation.

(v) Self-sufficiency and Export Promotion:

To help the country to become self-reliant, business units have the added responsibility of
restricting import of goods. Besides, every business units should aim at increasing exports and
adding to the foreign exchange reserves of the country.

E. Global Objectives:

Previously India had very restricted business relationship with other nations. There was a very
rigid policy for import and export of goods and services. But, now-a-days due to liberal
economic and export-import policy, restrictions on foreign investments have been largely
abolished and duties on imported goods have been substantially reduced.

This change has brought about increase in competition in the market. Today because of
globalisation the entire world has become a big market. Goods produced in one country are
readily available in other countries. So, to face the competition in the global market every
business has certain objectives in mind, which may be called the global objectives. Let us learn
about them.

(i) Raise General Standard of Living:

Growth of business activities across national borders makes quality goods available at reasonable
prices all over the world. The people of one country get to use similar types of goods that people
in other countries are using. This improves the standard of living of people.

(ii) Reduce Disparities among Nations:

Business should help to reduce disparities among the rich and poor nations of the world by
expanding its operation. By way of capital investment in developing as well as underdeveloped
countries it can foster their industrial and economic growth.

(iii) Make Available Globally Competitive Goods and Services:

Business should produce goods and services which are globally competitive and have huge
demand in foreign markets. This will improve the image of the exporting country and also earn
more foreign exchange for the country.

Forms of Business Organisation

One of the first decisions that you will have to make as a business owner is how the business
should be structured.  All businesses must adopt some legal configuration that defines the rights
and liabilities of participants in the business’s ownership, control, personal liability, life span,
and financial structure.  This decision will have long-term implications, so you may want to
consult with an accountant and attorney to help you select the form of ownership that is right for
you.  In making a choice, you will want to take into account the following:

 Your vision regarding the size and nature of your business.

 The level of control you wish to have.

 The level of “structure” you are willing to deal with.

 The business’s vulnerability to lawsuits.

 Tax implications of the different organizational structures.

 Expected profit (or loss) of the business.

 Whether or not you need to re-invest earnings into the business.

 Your need for access to cash out of the business for yourself.
Sole Proprietorship

A sole proprietorship or one-man business is a form of organization in which an organization in

which an individual produces independently with his own capital, skill and intelligence and is
entitled to receive all the profits and assumes all the risks of ownership. The owner is commonly
called the Sole Proprietor or Sole Trader. It is also known as Individual Proprietorship or
Individual Entrepreneurship.

Features:

 One-man ownership
 Personal control
 Total or undivided risk.
 Unlimited liability
 Free from government regulation.
 Proprietor and the firm identical

Advantages

 Easiest and least expensive form of ownership to organize.

 Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.

 Profits from the business flow-through directly to the owner’s personal tax return.

 The business is easy to dissolve, if desired.

Disadvantages

 Sole proprietors have unlimited liability and are legally responsible for all debts against
the business. Their business and personal assets are at risk.

 May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.

 May have a hard time attracting high-caliber employees, or those that are motivated by
the opportunity to own a part of the business.

 Some employee benefits such as owner’s medical insurance premiums are not directly
deductible from business income (only partially as an adjustment to income).

Social Advantages

 Opportunity for self employment.

  Facilities growth of cottage industry
 Balanced regional development
 Promotes independent living: Business alone with job depending upon the wants.
 Opportunity to utilize skills and talents

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