What is Business? The Key Features of Business

In our day-to-day life, we use words like business, commerce, occupation, trade, industry, etc. quite often. These words have a definite meaning in the 'Business Organization'. After studying this article you should be able to identify the broad categories of human activities and describe what we mean by business and what are the features and objectives of the business. We will also classify the business activities and will explain the nature of the business organization. Read more to know what business is!

Economic Human Activities:

All of us participate in various kinds of works from morning to evening and these activities are called 'human activities'. If we closely examine these human activities, we can correlate that some of these activities result in economic benefits; for example, working in a factory or in an office or producing at an agricultural farm. Non-economic activities are conducted by human beings due to love and affection, social obligation, religious obligation, physical requirement, patriotism, etc. but not for earning money and does not yield any direct economic benefit. On the other hand, economic activities are undertaken by human beings for earning money or livelihood. These economic activities are concerned with the production, exchange, and distribution of goods and services. Economic activities are carried out to satisfy the needs of human beings and produce goods or services that are required by other human beings. We can further classify these economic activities into the business, profession, and employment-based on the nature of activities and they all have three elements – Production (of product or service), Consumption, and Commercialization of product or service.

What is Business?

As the name implies business relates to the state of being busy as an individual or as an organization. But the most important element for any work to become business is the presence of commercial viability or profitability.

Any activity carried primarily with the object of earning a profit can be called a business activity. This objective of earning profit is achieved by production and/or exchange of want satisfying goods and services. Economic activities can take the form of consumption, production, distribution, or exchange. Therefore, we can define business as "any activity concerned with the production and/or exchange of want satisfying goods and services carried with a view of earning profit".

The basic function of business is to optimize the outcome of economic activities. A business firm is an economic unit with its primary function to transform a set of inputs into an output that includes both goods as well as services. The entire process of creation, mobilization of resources, and utilization of surplus constitutes the business activity. Business is an occupation that is carried on with the acquired set of specialized skills and abilities and enables people to create valuable goods and services.

Production of mobile phones, sale of eggs, production of computers, trading of shares, etc., are some examples of business. A person who is engaged in business is called a businessman or entrepreneur. Similarly, a firm formed for the purpose of carrying a business activity is called a business enterprise or a business firm. Any organization or economic system where goods and services are exchanged between one another for a fee or money is also referred to as a business.

What is the Profession?

The profession is an activity which involves the rendering of personalized services of a specialized nature, based on professional knowledge, education, and training is called a profession. Services rendered by doctors, lawyers, chartered accountants, and other professionals fall under profession and known as professional services. Professionals work for a fee in return for services they render.

What is Employment?

Any activity assigned to a person by the employer under an agreement or rules of service comes under the category of employment. A person who undertakes such activity is called an employee. For performing such activity, the employee receives remuneration from the employer in the form of a wage or salary. Employment is also called 'service'. Working in a factory, office, hotel or college are few examples of employment. Even professionally qualified persons can also work as employees in various organizations.

Features of Business

Given below are the key characteristics of any business:

Exchange of Goods & Services:

Business deals with goods and services. The goods may be consumer goods such as sweets, bread, cloth, shoes, electronics, etc. They may be producer's goods such as machinery, equipment, etc. which are used to further produce another set of goods for consumption. The business also deals with services such as accounting, transport, warehousing, banking, insurance, etc., which are intangible and invisible goods.

Production or Exchange:

You can call an economic activity a 'business' only when there is production or transfer or exchange or sale of goods or services for the value. If goods are produced for self-consumption or presentation as gifts, such activities shall not be treated as a business. In the business activity, there must be two parties i.e., a buyer and a seller. Such activity should concern with the transfer of goods or exchange of goods between a buyer and a seller. The goods may be bartered or exchanged for money.

Perpetuity in Dealings:

A single transaction shall not be treated as a business. An activity is treated as a business only when it is undertaken continually or at least recurrently. A business is believed to be a going concern. To understand this, assume that you sell your house for profit; it is not considered as business. Only when you start buying houses and selling them to others on a regular basis, this activity can be classified as a business.

Profit Motive:

Earning profit is the primary motive of business. This is not to undermine the importance of the social objectives or human element in the business activity. In fact, a business will flourish only when it is able to serve its customers to their satisfaction. Profits are essential to enable the business to survive, to grow, expand, and to get recognition. By reinvesting the profits the business increases its capital and contributes to the wealth of the owners.

Usage of Resources:

Any business needs one or many of the four productive factors or resources namely land, labor, capital, and enterprise to earn profit from the business. All the four resources are always in limited supply (scarcity) and the business must use them efficiently and effectively to produce goods and services. These resources allow for the creation of a product and/or service that customers buy for a value/price.

The element of Risk:

This is not true that all businesses make profits from day one, in every business; the possibility of incurring a loss is inherent in the nature of business. This possibility of incurring a loss is termed as risk. The element of risk exists due to a variety of factors that are outside the control of the business enterprise. There are two kinds of risks; one whose probability can be calculated and can be insured like losses due to fire, floods, theft, etc. and the other whose probability cannot be calculated and which cannot be insured against, e.g. changing technology, fall in demand, etc. Any business has to recognize this risk environment, survive within these risk constraints, and need to bear the risk if they happen.

Business Objectives:

All business activity is self-interested and competitive, and this competition may benefit people and society when it leads resources to be employed in their most profitable use. Business Organizations are economic in nature but they also have human and social aspects associated with them. Some of the main economic of any business enterprise are:

Earning of satisfactory profits and a fair return on investment for stakeholders
Creation of new customers and markets to sustain growth
Making innovations and improvements in goods and services
Providing employment opportunities
Supply of quality goods and services at reasonable costs
Avoidance of profiteering and unfair practices
Fair deal to employees in terms of wages and incentives
Providing better working conditions and environment to the employees
Provide job satisfaction