Business is such a universal term and the knowledge of business only comes from experience and learning. This is not the “theory about business” but this is just an introduction to the most universally misunderstood practice. Business in layman’s language is an exchange made for money. That’s about it. But that’s not all. Not at all.
What is the Need for a Business?
The answer is simple:
Human needs are unlimited and we engage in one or more activities to satisfy them. Since the resources are limited, people are busy all their lives to satisfy these needs.
We engage in two kinds of activities:
Economic activities and Non-Economic activities.
Include any activity for personal gain/ leisure that satisfy our psychological, emotional or social needs. This would include charity to an NGO etc. which incurs no profit.
Include any activity that we engage in to earn a living.It is concerned with the production and distribution of goods or services in order to satisfy human wants. When this activity is regularly engaged in- it is called an “occupation”. Broadly, there are three types of economic activities: Profession, Employment and BUSINESS.
Therefore the main distinction between the two lies in the motive. The motive of economic activity is to earn money whereas the main motive of non-economic activities is to help or it is non-monetary.
Overall, All economic activities have three essential features:
1) There is an objective of an economic gain
2) Through provision of goods/ services, there is utility creation
3) Other’s needs are satisfied
Business has evolved from barter system. There is an evaluation of the lack of the human requirements and therefore, a business involves regular or recurring purchase and sale of goods and services with the purpose of earning profit through satisfying a human need. Here, repeatedly dealings and not single transaction comprises of business.
Now, these enterprises vary in sizes, functions, nature, ownership etc.
Some Common Enterprises in Business Involve:
1. Manufacturing Enterprise: Engaged in production of goods. Be it of analytical concerns like an oil refinery, of synthetic concerns like soap mills that combine several materials to combine into one product or of assembling concerns like production of cars etc.
2. Agricultural Enterprise: Concerned with growing crops.
3. Trading Enterprise: Wholesalers and retailers engaging in distribution of products.
4. Service Enterprise: Concerning commercial services like running a theater or direct services like a Bank.
Being these the common types of enterprises, all types of enterprises have the same features.
Features of Business include:
1. There is a sale and a transfer/exchange of price
2. There are dealings in goods and services where every business buys/ produces goods or services for selling them to others (these can be consumer good like clothes or producer goods to make consumer goods like machinery or services like electricity)
3. There are Regular dealings: Selling your old bike is not business!
4. The motive is profit and not charity
5. There are certain and uncertain risks. Above all risks, there is uncertainty of profit and a possibility of loss.
6. There is a creation of utility. These utility is created by either modifying or changing the existing things known as the utility of form like converting cotton by mills to cloth, or by transporting goods to a place where there is a shortage and this is know as the utility of place or when commodity is stored till there is a time for it’s demand, calling it the utility of time. This could include woolen clothes in winters.
Since Business is an Economic Activity, there are certain objectives that are complimentary to it.
Economic Objectives of Business Include:
1. Earning adequate profits
To cover costs of production and generate surplus to provide additional capital for future expansion. Profit measures the success of the business.
Profit = (Revenue) – (Cost)
And a business with good profit attracts goodwill, competent employees and investors and thus completes a cycle of a growing business.
This is the main objective!
2. Creating Customers and a Market Standing
The more the customers, the more the profit. Therefore, marketing is a vital function of a business.
This requires identifying the need of a customer then planning and developing the product in a way to satisfy the need. And moreover, it should be done better than the competitors.
This is the main purpose!
Exploration and discovery of making products more useful and improving on methods of production and distribution. Business is the organ for growth and change. Especially with today’s competition, this is vital for survival of a business itself.
This is the main motto!
4. Making best possible use of scarce resources
that are the 4 M’s namely Men, Machinery, Material and Money.
Proper Management for spending money efficiently and making optimal use of these resources is required.
This is the main goal!
These economic objectives are incomplete with the Social Objective of an enterprise of Providing quality goods and services at a fair price.
Lastly, let’s talk about Profit.
Profit is good. Profit is very good. Over Profits or Profit maximization is Bad.
Profit takes a business through stages of:
Incentive > Survival > Growth and Expansion > Prestige > Measure of Efficiency
Profit Maximization takes business through:
Overstressing on end result, misguiding and it is of course this endangers long-term growth.
Therefore, a truly successful business is built on the objective of “service to society” where profits follow.
To conclude, the guiding principle of any business should be“Profit through Service”.