Business may be defined as production and purchase of goods and services and selling them with a view to satisfy human wants and thereby earn profits.
Business is an economic activity which is undertaken to provide goods and services to society with the aim of earning profits. It is concerned with the production and distribution of goods and services.
Characteristics of Business
The salient features of business are given below:
Creation of utilities:
Business makes goods more useful to satisfy human wants. It adds time, place, and form of possession utilities to various types of goods. In the words of Roger, “a business exists to create and deliver value satisfaction to customers at a profit”.
Business enables people to satisfy their wants more effectively and economically. It carries goods from place of surplus to the place of scarcity. It makes goods available for use in future through storage.
Dealings in goods and services: Every business enterprise produces and/or buys goods and services for selling them to others. Goods may be consumer goods or producer goods.
Consumer goods are meant for direct use by the ultimate consumers, e.g. bread, cloth, shoes, etc. Producer goods are used for the production of consumer or capital goods like raw materials, machinery, etc. Services like transport, warehousing, banking, insurance, etc. may be considered as intangible and invisible goods. Services facilitate buying and selling of goods by overcoming various hindrances in trade.
Continuity in dealings:
Dealings in goods and services become business only if undertaken on a regular basis. According to Peterson and Plowman, “a single isolated transaction of purchase and sale will not constitute business.
Recurring or repeated transactions of purchase and sale alone mean business”. For instance, if a person sells his old scooter or car it is not business though the seller gets money in exchange. But if he opens a shop and sells scooters or cars regularly, it will become business.
Sale, transfer or exchange:
All business activities involve transfer or exchange of goods and services for some consideration. The consideration called price is usually expressed in terms of money.
Business delivers goods and services to those who need them and are able and willing to pay for them. For example, if a person cooks and serves food to his family, it is not business. But when he cooks food and sells it to others for a price, it becomes business.
The primary aim of business is to earn profits. Profits are essential for the survival as well as growth of business. Profits must, however, be earned through legal and fair means. Business should never exploit society to make money.
Element of risk:
Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable environment.
Changes in customers’ tastes and fashions, demand, competition, Government policies, etc. create risk. Flood, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can reduce risks through correct forecasting and insurance. But all risks cannot be eliminated.
Business is primarily an economic activity as it involves production and distribution of goods and services for earning money. However, business is also a social institution because it helps to improve the living standards of people through effective utilisation of scarce resources of the society.