By Harshvardhan, the Subject Matter Expert at Edumarz
Solution: Business refers to an occupation in which people regularly engage in activities related to the purchase, production, and/or sale of goods and services with a view to earning profits. A 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.
The Characteristics of Business can be illustrated below:
- An economic activity: Business is considered an economic activity as it is undertaken with the objective of earning money or livelihood and not out of love, affection, sympathy, or any other emotion. It may be mentioned here that this activity can be undertaken either on a small and individual level. Example- The purchase and sale by a shopkeeper or purchase and sale by a cooperative society or company on a large scale in a more formal and organized level.
- Production or procurement of goods and services: Before goods are offered to people for consumption, these must be either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods it deals in or acquires them from producers, to be further sold to consumers or users. Goods may consist of consumable items of daily use, such as sugar, ghee, pen, notebook, etc., or capital goods, like machinery, furniture, etc. Services may include facilities offered to consumers, business firms, and organizations in the form of transportation, banking, electricity, etc
- Sale or exchange of goods and services: Directly or indirectly, business involves the transfer or exchange of goods and services for the value. If goods are produced not for the purpose of sale but for personal consumption, it cannot be called a business activity. Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be a sale or exchange of goods or services between the seller and the buyer.
- Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase, therefore, does not constitute a business. Thus, for example, if a person sells his domestic Wasing Machine set even at a profit, it will not be considered a business activity. But if he sells Wasing Machines regularly either through a shop or from his residence, it will be regarded as a business activity.
- Earning Profits: One of the main purposes of business is to earn income by way of profit. No business can survive for long without profit. That is why, businessmen make all possible efforts to maximize profits, by increasing the volume of sales or reducing costs.
- Uncertainty of return: Uncertainty of return refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period. Every business invests money (capital) to run its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. Also, there is always a possibility of losses being incurred, despite the best efforts put into the business.
- Element of risk: Risk is the uncertainty associated with exposure to loss. It is caused by some unfavorable or undesirable event. Risks are related to factors, like changes in consumer taste and fashion, changes in the method of production, strike or lockout at the workplace, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can altogether do away with risks.