SUMMARY OF - Nature And Purpose Of Business

Nature And Purpose Of Business

Introduction

In order to satisfy human needs beings, require different types of goods and services. The form of producing of good and services to those who are in need of them. These are undertaken with the object of earning money or livelihood. Hence, it is called an economic activity. Business is a major economic activity since it is concerned with the production and sale of goods and services that people need. business has a greater role to play in our daily lives. Hence it become important that one should know the concept, nature and purpose of business

Concept Of Business

Business means busyness or the state of being busy. however, in a specific sense, business includes all occupations in which people regularly engage in activities with a view to earning profit. Such activities may consist of production or purchase of goods for sale, or exchange of goods or providing services to satisfy the needs of others.                                   

             In every society, people undertake various activities to satisfy their wants. These activities may broadly be classified in to two;  

1     Economic Activities

2     Non-Economic Activities

Economic Activities

Activities undertaken with the object of earning money or livelihood are known as economic activities. For example; a teacher goes to school, a manager to his office, a doctor to his clinic, a worker to the factory and a lawyer to the court are instances to earn their livelihood and are there for engaged in economic activities

Non-Economic Activities

Activities which are undertaken to derive psychological satisfaction or for religious or social obligations, or are performed out of love, sympathy, patriotism and similar sentiments are called non-economic activities. A house wife cooking for the family, a man visits to the temple for the day’s prayers are all examples of human actions of these types. The purpose of such activities is not to earn money or to satisfy material needs. It gives the happiness, pleasure or satisfaction, which cannot be expressed in terms of money

Characteristics Of Business Activities

All business concerns irrespective of their size, nature or ownership have in common the following essential characteristics;

1.    An economic activity since it is concerned with the production and distribution of goods and service.

2.    Every business enterprise either produce goods or assembles them from producers to be sold to consumers. Services denotes facilities offered to consumers.

3.    Sales of exchange of goods and service for the satisfaction of human needs.  

4.    Business consisting of dealing in goods and service.

5.    Regularity or continuity of dealing in business activities.

6.    Profit is the main motto of exchanging goods and services.

7.    Business involves risk (Chance of loss)

BUSINESS PROFESSION AND EMPLOYMENT

The occupation of the people or economic activities can be classified into three broad categories as followers;  

1     Business

2     Profession

3     Employment

1     Business refers to those economic activities consist of  production or purchase of goods for sales or exchange goods or providing services with the object of earning profit. Those who are engaged in the business activities earn income in the form of profit.

2     Profession   a profession may be defined as an occupation which involves the rendering of personal services of special and expert nature , legal profession practiced by lawyers, medical profession by doctors. Those engaged in professions are known as professionals. The specialised services are rendered to their clients for a remuneration called fees. Since specialised services have to be rendered by professionals they should be experts in their respective fields and must possess the minimum academic and other specific qualifications prescribed by law or by the association. (doctors- medical council of India)

3     Employment is performing the work assigned by the employer.

Classification of business activities

Industry and its types

Industry  refers to economic activities connected with the raising , production, conversion,processing or fabrication of products. An industry may be primary or secondary.

PRIMARY INDUSTRY

Which are concerned with the extracting, producing, and processing of natural resources. Such type of industry may be further sub divided into two;

1     extractive industries

which are engaged in the extraction or production of wealth from soil, water or air extracting minerals from  under the earth, fishing, procuring timber from forests, etc... are activities of extractive industries.

2. Genetic industries Genetic industries refers to those activities which are undertaken for producing, breeding, multiplying certain species of plants or animals with the object of earning profits from their sales. Eg;  cattle breeding, poultry farmimg etc...

SECONDARY INDUSTRIES

     Secondary industries classified into;

1     Manufacturing Industries

  manufacturing industries refers to those activities concerned with the conversion of raw materials or semi_ finished      products into finished goods. The manufacturing activities may be undertaken on a small scale using simple tools and equipments. But it is usually done in factories.

·          analytical industry;  this industry analyse and separates different element from the same minerals eg.. oil refinery

·       Synthetical Industry  ; this kind of industry combines various ingredients  into new product eg...cement industry

·       Processing industry;  here involves successive stages of manufacturing process to get finished goods eg.. sugar or paper industry.

·       Assembling industry  assembles different components into a new product.eg.. computer or television industry etc...

2   Construction Industries

it refers to those activities concerned with the construction of building, roads, bridges, canals, etc.. their products are not marketed like other industries.

TERTIARY INDUSTRIES

It provide support service to primary and secondary industries. They also include various activities relating to trade.

COMMERCE

commerce may be defined as “ the sum total of all those processes which are engaged in the removal of the hindrances of person , place and time in the exchange of commodities.

For overcoming the hindrances ;

1     trade

2     transport

3     warehousing

4     storage

5     insurance

6     banking and financing

7     advertising

8     salesmanship

TRADE

Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to ultimate consumers or users. These days goods are produced on a large scale and it is difficult for producers to themselves reach individual buyers for sale of their products. Businessmen are engaged in trading activities as middlemen to make the goods available to consumers in different markets. In the absence of trade, it would not be possible to undertake production activities on a large scale. Trade may be classified into two broad categories — internal and external. Internal, domestic or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country.

Types of trade

1     Home trade(internal trade)

2     Foreign trade (external trade)

1     HOME TRADE

it also called internal trade  or domestic trade consist of sale, transfer or exchange of goods within country. The primary object of a home trade is to bring about equitable distribution of goods within the country.

·       Wholesale trade

It involves buying goods from producers in large quantities and selling them to retailers in small quantities.

·           Retail trade

                 Retail trade consists in the supply of the requirements of the consumers in small quantities needed by them . they buy large quantity from whole sellers and give to  small quantity to customers.

2       FOREIGN TRADE

foreign  trade consists of trade among different nations. Here goods are moved from one country to another. Foreign trade is mostly conducted on wholesale basis. It is also known as international trade. It may be further divided into;

Import trade,   which consist of purchasing of goods from supplier of a foreign country for home use.

Export trade,   which consist of  the selling of home goods to foreign countries

Entrepot trade,   which consists of importing of foreign produced goods from some countries with the object of  re-exporting them to some other countries.

AUXILIARIES TO TRADE

Organisations engaged in different types of business activities are called business enterprises. It may be an industrial , trading or service enterprises. These service enterprises facilitates movement, storage, finance, risk coverage and sales promotion  of goods. They also help the  consumers in satisfying their needs and desires.

Auxiliaries to trade are briefly discussed below

1     Transportation and communication

Production usually takes place in particular locations. Here there is an obstacle or barrier of place. This is removed by transport through various modes_ road, rail, or coastal shipping transport makes possible the physical movements of materials and goods from the points of production to the place where they are needed for consumption. Along with transport facility there arises the need for communication facilities. These will help producers, traders and consumers exchange information with one another. Postal services, Telephone facilities and various modern means of communication.

2     Banking And Finance

business requires funds for acquiring assets, purchasing raw materials and meeting day to day expenses. Finance or fund which  is the foundations of business activities is provides by banks. They accept deposit from the public and provided credit to the public. They generally lend money  by providing overdraft and cash credit facilities, loans and advances and discounting of bills. Besides, commercial banks undertake collection of cheques, remittance facilities and various other services to the business.

3     Insurance

In business , there are innumerable risk such as destruction of property by fire, earthquake, theft, damages of goods held in stock, loss of goods in transit, etc... so, insurance has been protects property and human beings. On payment of a nominal amount called premium, the amount of loss or damages is compensates by the insurance company.

4     Warehousing

usually goods are produced in factories or small scale business units are not sold or consumed immediately  . there are to be kept in good condition and make them available as and when needed. Measures should be taken for storage of goods to prevent loss or damage. Warehouse is help to storage and stabilize price by equalizing supplies.

5     Advertising

it is one of thee most important devices of promoting sales, especially consumer goods like soaps, detergent, electronic goods etc...it helps in provide required information and inducing them to buy particular items.

Role of profits in business      

1.    It is a source of income, and it provides the means for livelihood for the businessman. Nobody can undertake business activities without earning income to satisfy his needs

2.    Profit may earned to provide growth and expansion of the businessman

3.    Profit earning ability is considered to be the index of business success.

4.          Profit is the reward for the entrepreneur’s taking business risk.

5.         Profit provide economic power and status to businessman

6.        It can raise funds on easy terms.

OBJECTIVES OF BUSINESS

1     Market standing

Business activities can be sustained only if it has a good standing in the market. This necessitates of the business to lay down objectives to establish a place in the market and protect itself from competition.

2     Innovation

Innovation means exploring and discovering ways and means by which products are made more useful to customers. The business world is highly competitive. In order to capture the market, new or improved products must be offered for sale. This is possible only with the help of new methods of production.

3     Productivity

Productivity is ascertained by comparing the value of inputs. It is usually taken as the measure of efficiency. Every business must aim at greater productivity by making the best possible use of the scarce resources like men, money, machinery, materials etc...it reduces the wastage of materials , fuller utilisation of equipments, and allotting funds with due to regard to the benefit delivered.

4     Physical and financial resources

All business establishments require physical and financial resources. Physical resources include plant, machinery, offices etc... by financial resources mean fund to produce and supply goods and services to their customers .

5     Earning profits

The primary objectives of the business is to earn profit. It is driving force behind  every enterprises. Profit has multiple objectives.

6     Manager performance and development

good managers are needed by business enterprises to conduct and co ordinate various business activities. Managers must be motivated well to get the best out of them. Manager performance and development must be an important objectives of any business.

7     Worker performance and attitude

workers performance and attitude very much determine the productivity and profitability of any business enterprise . every business enterprises must  provide the workers with incentives to improve their performance.

8     Social responsibility

social responsibility refers to the obligations of businessmen to pursue those policies, to make those decisions  which are desirable in terms of the objectives and values of our society.

BUSINESS RISK

Risk means possibility of loss. In business, risk is unavoidable. Business enterprise usually face two types of risk ;

Speculative and pure

Speculative risk involves both chance for a gain or loss. Such risk arise due to change in the market conditions like fluctuations in demand and supply, change in tastes and habits of customers.

Pure risk involves the possibility of loss or even no loss. Fire, theft, earthquake, strike, etc... are example of pure risk.

Causes of business risk

·       Natural causes    damages from flood, fire, earthquakes, etc.,

·       Human causes   caused by theft, bad debts, invalidated contracts and other acts of general public.

·       Risk arising from competition   in the form of entry of new products into the market, low cost of products, new inventions etc..,

·       Price fluctuations   this may totally upset stock values, selling price, budget proposals, cost and income forecast.

·       Risk due to mismanagement  wrong management decision about the use of capital and other resources, lack of proper planning and control, lack of research and technique knowledge etc..,

·       Risk due to changes in demand   risk may also arise due to changes in demand which depends upon the likes and dislikes, styles, fashions, consumer’s income etc..,

·       Government policy   Govt. Regulations, changes in tax structure, international relations, etc.., may cause heavy losses to a businessman

·       Internal business environment    personal failure from death, accident, ill health etc.., and dishonest act in the form of embezzlement of funds and theft of goods causes for heavy losses to the business.

STARTING A BUSINESS-BASIC FACTORS

The procedure of setting up of new business enterprise is very lengthy and time consuming. It includes many steps and formalities.

1      Discover a business opportunity

·       A business opportunity may be to;

·       Start a new business

·       Expand or diversity the existing business

·       Purchase another company

·       Enter a joint venture of foreign collaborations etc..

2      Size of a business

the promoter has to decide the size of the business. He decide large, medium, or small scale unit.it depend up on economics of scale, future demand, finance etc..,

3      Form of business owner ship

the promoter must decide  about form of ownership. The form of business ownership are sole trader, partnership, private and public company etc.., the form of  ownership depends upon size of business, finance, tax, extent of liability etc..,

4      Location of business

  the promoter must decide about the location of the business. He must consider factors like availability of land, electricity, water, nearness to market, transportation, scope for expansion etc..,

5      Capital needs

finance is the lifeline of the business. The promoter has to decide about business capital requirements and also find out different sources of finance.

·       The finance need of business. (short term or long term)

·       Source of finance like shares, debenture , loans from banks etc..,

·       Cost of collecting finance and returns on capital invested

·       The capital structure and appropriate time for collecting finance

·       Source of working capital

6      Organisation of physical facilities

physical facilities means the resources used to convert raw materials into finished products. Promoters has to decide about the machines and equipments. And skilled and unskilled workers required to job.

7      Layout

layout means arrangements of physical facilities like machines, equipments and workers required for manufacturing goods. So promoter have a good plant layout.

8      Organisational structure

a proper organisational structure is needed to conduct business smoothly and efficiently. The employees are assigned their duties and important responsibilities. It develop relationship between them.

9      Manpower requirements

a business enterprise require skilled and semi skilled workers to do factory and clerical jobs. The success of all business is depends upon selecting the right man for the right job.

10   Registration

registration is a very  important step. It is not compulsory, but is beneficial to business. main reasons for registration

·       It gives legal entity and status to the business.

·        Get all govt. Assistance and incentives

·       Get licence to import raw materials.

11   Starting the business

After  registration, the promoter start business. He brings together the physical facilities, starts the production process, recruits labour produces and distributes goods.

12   Tax planning

The promoters has to decide about the tax liability. It cannot be avoided, but it can be minimised by better management. Tax planning does not mean non payment of  tax . tax  planning influences the promoter’s decision about location, size, form and profitability of the business.