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Characteristics of Business

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Everything you need to know about the characteristics of business. Business refers to activities involving production or purchase and then sale of goods desired by the people, with the intention of earning profit.

Even if the businessman is providing services such as internet connectivity or transfer of money from one place to another, such activities are termed business and not profession.

Stephenson defines business as – “The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants”.

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Some of the characteristics of business are as follows:-

1. Sale, Transfer or Exchange 2. Dealings in Goods and Services 3. Regular Dealings 4. Profit Motive 5. Risk 6. Creation of Utilities 7. Economic Activity

8. Satisfaction of Consumers 9. Growth and Expansion 10. Social Institution 11. Continuous Process 12. Exchange of Goods and Services 13. Dealing in Numerous Transactions 14. Possession of Managerial Skills for Economic Success 15. Buyer and Seller

16. Connected with Production 17. Dealing in Goods and Services 18. Marketing and Distribution of Goods 19. Motive to Satisfy Human Wants 20. Managing Human Resources 21. Profit Earning 22. Uncertainty of Return 23. Regularity in Dealings 24. Profit Motive and a Few Others.


Characteristics and Features of Business: 24 Main Characteristics of Business

Characteristics of Business – 10 Characteristics: Dealings in Goods and Services, Profit Motive, Risk, Creation of Utilities, Economic Activity, Social Institution and a Few Others

The literal meaning of ‘Business’ is ‘the state of being busy’. Business refers to a set of organised activities for production and exchange of goods and services with an objective to earn profit. Business incorporates the entire human efforts directed towards the production or acquisition of wealth through the process of buying and selling of goods and services.

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The characteristics of business can be given as follows:

Characteristic # 1. Sale, Transfer or Exchange:

All business activities involve sale or exchange of goods and services for some consideration. Buying and selling of goods and services for a price are the essence of business. If there is no sale, transfer or exchange for a price, it will not be a business activity. For instance, cooking food for personal consumption is not business. But cooking food and selling it to others for a price, becomes business.

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Characteristic # 2. 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, clothes, shoes, etc. Producer goods are used for the production of consumer goods, e.g., tools, machinery, etc. Services are intangibles, such as supply of electricity, insurance, banking, etc.

Characteristic # 3. Regular Dealings:

Business involves a series of dealings. A single transaction cannot be called business, recurring purchase and sale is the hallmark of business, For instance, if a person sells his old scooter, it is not business. But if he sells scooters on regular basis as its dealer, it will become business.

Characteristic # 4. Profit Motive:

A business is not charity. The primary objective of business is to earn money and acquire wealth. A business that does not earn profit cannot survive for long. Profit is also essential for the growth and expansion of business. Business must earn profit by serving the society.

Characteristic # 5. Risk:

Risk or uncertainty of return is an essential feature of business. Risk involved in business is of two kinds- The first kind of risk can be forecasted and insured, e.g., loss by fire, flood, theft, etc. The second kind of risk cannot be forecasted and insured, e.g., loss due to fall in demand, change of fashion, etc.

Characteristic # 6. Creation of Utilities:

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A business makes the goods more useful to satisfy human wants. It adds time, place, form and possession utilities to various types of goods.

“A business exists to create and deliver value satisfaction to customers at a profit.” —ROGER

Characteristic # 7. Economic Activity:

Business is primarily an economic function as it involves production and distribution of goods and services for the satisfaction of human wants. However, business is a part of social activity and it reflects the aspirations, values and beliefs of people. Therefore, business may be described as socio-economic function.

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Characteristic # 8. Satisfaction of Consumers:

In business, businessman tries to satisfy the needs and wants of the consumers or customers of their product through economic pricing, better quality products and quick services.

Characteristic # 9. Growth and Expansion:

Business is started by an entrepreneur with an intention of rapid growth and expansion.

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Characteristic # 10. Social Institution:

Business in today’s competitive environment can survive and succeed only when it has goodwill within the eyes of its stockholders i.e., the owners, the public, the government, the customers and creditors. This makes business a social institution.


Characteristics of Business – 13 Important Characteristics of Business

(i) Continuous Process:

In order to be called a business enterprise, the activities must be continuous. For example, if a person buys fire crackers in bulk for Diwali and sells it at a profit to the neighbours, just one time, will not be called as a business.

(ii) Profit Motive:

The business enterprises carry on with the inten­tion of earning a profit. The profit is a reward for the services of a businessman.

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(iii) Risks and Uncertainties:

Business enterprises are subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due to change in demand or fall in price cannot be insured and must be borne by the businessman.

(iv) Exchange of Goods and Services:

All business activities are directly or indirectly concerned with the exchange of goods or services for money or money’s worth.

(v) Dealing in Numerous Transactions:

In businesses enterprises, the exchange of goods and services is a regular feature. A businessman regularly deals in a number of transactions and not just one or two transactions.

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(vi) Possession of Managerial Skills for Economic Success:

Anyone cannot run a business Enterprises. To be a good businessman, one needs to have good business qualities and skills. A businessman needs experience and skill to run a business.

(vii) Buyer and Seller:

Every business transaction has minimum two parties that a buyer and a seller. Business is nothing but a contract or an agreement between buyer and seller.

(viii) Connected with Production:

Business activity may be connected with production of goods or services. In this case, it is called as industrial activity. The industry may be primary or secondary.

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(ix) Dealing in Goods and Services:

In business there have to be dealings in goods and service. Goods may be divided into two categories:

(a) Consumer Goods:

Goods which are used by final consumer for consumption are called consumer goods e.g. T.V., Soaps, etc.

(b) Producer Goods:

Goods used by producer for further production are called producers goods e.g. Machinery, equipments, etc. Services are intangible but can be exchanged for value like providing transport, warehousing and insurance services, etc.

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(x) Marketing and Distribution of Goods:

Business activity may be concerned with marketing or distribution of goods in which case it is called as commercial activity.

(xi) Motive to Satisfy Human Wants:

The businessman also desires to satisfy human wants through conduct of business. By producing and supplying various commodities, businessmen try to promote consumer’s satisfaction.

(xii) Managing Human Resources:

For carrying on a successful business venture, it is very important to manage human resources efficiently.

(xiii) Social Obligations:

Modern business is service oriented. Modern businessmen are conscious of their social responsibility. Today’s business is service-oriented rather than profit-oriented.


Characteristics of Business

1. An Economic Activity:

Business is considered to be an economic activity because:

(a) It is undertaken with the object of earning money or livelihood and not because of love, affection, sympathy or any other sentimental reason.

(b) It involves exchange, sale, purchase of goods and services for mutual profit through the satisfaction of human wants.

(c) Requires use of scarce economic resources like land, labour, capital and machinery.

2. Production or Procurement of Goods and Services:

Business exists to satisfy the wants of the consumers. Thus, every business enterprise either manufactures the goods (pen, textbook, furniture, etc.) or acquires them from producers, to be further sold to consumers or users. Services include facilities offered to consumers in the form of transportation, banking, electricity, etc.

3. Sale or Exchange of Goods and Services for the Satisfaction of Human Needs:

One essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer, directly or indirectly.

For example, cooking food at home for family is not business. However, cooking food in a restaurant for customers and charging from them is a business.

4. Dealings in Goods and Services on a Regular Basis:

Business involves dealings in goods or services on a regular and recurring basis. One single transaction of sale or purchase, therefore, does not constitute business.

For example, if a person sells his/her domestic radio set even at a profit, it will not be considered a business activity. But if he/she sells radio sets regularly either through a shop or from his/her residence, it will be regarded as a business activity.

5. Profit Earning:

The main aim of every business is to earn income by way of profit. Businessmen maximise profits, by increasing the volume of sales or reducing costs. No business can survive for long without earning profit.

For example, business selling goods at less cost or free of cost (charity) cannot continue for long. Due to this reason, businessman makes all possible efforts to maximise profits.

6. 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. Thus, it is not certain as to what amount of profit will be earned. And, there is always a possibility of losses being incurred, in spite of the best efforts put into the business.

7. Element of Risk:

Risk implies the uncertainty of reward or the possibility of loss. It is caused by some unfavorable or undesirable event.

It is related with certain factors like strike or lockout in the work place, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can altogether eliminate risks, but can minimize it through insurance.


Characteristics of Business – 5 Characteristics: Sale Transfer or Exchange, Dealings in Goods and Services, Regularity in Dealings, Profit Motive and Risk or Uncertainty

1. Sale Transfer or Exchange:

The foremost characteristic of business is the exchange or transfer of goods and service for price or value. Production or purchase of goods and services for personal use or for presenting as gifts to others does not constitute business as no sale or transfer for value is involved. For example, a farmer who keeps cows to obtain milk for his family is not running a business.

But if he keeps a number of cows to sell the milk obtained from them it becomes business provided the other conditions are also satisfied. Business is different from church, army, etc., because it sells something. “Any organisation that fulfils itself through marketing a product or service is a business. Any organisation in which marketing is either absent or incidental is not a business”. Business is founded upon exchange and in buying and selling lies the essence of business.

2. Dealings in Goods and Services:

Dealing in goods and services is another distinguishing feature of business. Every business enterprise comes into existence to provide goods or services to society. The goods or services may be procured by an enterprise through production and/ or purchase. The goods may be consumers’ goods such as bread, rice, cloth, shoes, etc. or producers’ goods like tools, components, machinery, raw materials, etc.

The consumers’ goods are meant for direct consumption in the original or processed form. Producers’ goods or capital goods are used for producing other goods. Services are intangible and invisible like electricity, gas, insurance, transportation, banking, etc.

3. Regularity in Dealings:

Dealings in goods and services constitute business only when they are carried on regularly. A single transaction like sale of old newspaper by a housewife or the sale of one’s old scooter is not business though the seller gets money in exchange. But the Hindustan Times Ltd. and Bajaj Auto Ltd. are business concerns because they are regularly dealing in the same article. Recurring sale rather than an isolated deal is the hallmark of business. Usually no business is set up for liquidation after a single transaction.

4. Profit Motive:

Every business is carried on with the purpose of earning money and acquiring wealth. It is the hope of making money that induces people to go into business. No business can survive for long without earning profits. Even government enterprises are expected to earn profit or surplus. However, the exchange should be for the mutual advantage of both the seller and the buyer. Profits must be earned through legal and fair means or by serving the society and not by exploiting it. It is because of this reason that making of money through gambling, cheating, smuggling and black-marketing cannot be called business.

5. Risk or Uncertainty:

Risk implies the uncertainty of reward or the possibility of loss. The element of risk is present in almost all economic activities but it is more significant in business. Though business aims at profits, losses are quite possible and common. Before an activity can be called business there must, therefore, exist not only the goal of profit but the risk of loss. Risk or uncertainty arises because the future is unknown and business has practically no control over several factors affecting profits.

Business is exposed to the following risks:

(i) Changes in consumers’ tastes, fashions and demand;

(ii) Changes in technology resulting into obsolescence of plant machinery and techniques of production;

(iii) Changes in the degree of competition in the market;

(iv) Shortage of raw materials, power, fuel, etc.

(v) Deterioration in industrial relations leading to strikes, lock-outs, gheraos, etc.

(vi) Faulty managerial decisions concerning the use of capital and other resources; and

(vii) Fire, theft, and natural calamities which can be insured against.


Characteristics of Business – Features of Traditional Business and Modern Business

Stephenson defines business as – “The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants”.

According to Prof. Haney, “Business activities are all those human activities which are directed towards production and processing of wealth”.

Features of Traditional Business:

The features of business are as discussed below:

i. Deals in Goods and Services:

Every business transaction is concerned with either goods and/or services. In their absence, business cannot take place. Goods are tangible in nature. They may either be capital goods (like tools and machinery) or consumer goods (like clothes, shoes, toothpaste etc.). Services are intangible in nature. They include transport, banking, insurance etc.

ii. Involves Production and Distribution:

Every business deals with production of goods / creation of services and their distribution. Any activity or transaction that is required to complete the process of making goods or services available for a price to the consumers is called a business activity.

iii. Risk:

Risk and uncertainty are a part of any business activity. The element of risk exists due to a variety of factors such as – change in the demand of goods, risk of loss due to fire, earthquake, pilferage, theft etc., competition, changes in government policies etc. A businessman tries to predict the future uncertainties and plans his business activities accordingly. However, the element of risk always remains associated with a business.

iv. Involves Exchange:

Business means exchange of goods or services for money or money’s worth. When goods are exchanged for money’s worth, it is called monetary exchange. On the other hand, when goods exchanged for some other goods is called Barter Exchange. However, exchange does not include goods donated or gifted to someone. Also, business does not include goods used for personal consumption by a businessman.

v. Continuity:

Business involves a regular activity of production and/or distribution of goods and services. A single transaction of buying and selling cannot be termed as business, even if it involves monetary exchange. For e.g., if a person sells his old television for money, then it cannot be called as business. It can be just termed as an economic activity. However, a dealer dealing in second hand electronic goods can be called a businessman.

vi. Two Parties:

A business transaction involves an exchange. Every business transaction, thus, involves at least two parties i.e., a buyer and a seller. A business transaction is a result of an agreement; hence the presence of two parties is a must.

vii. Aims at Profit:

The primary aim of a business concern is to earn profit as it is a driving force behind every business. Every business transaction includes profit, though its amount may vary based on the nature and size of the transaction.

Features of Modern Business:

The above mentioned features of business are related to traditional businesses. However, the modern businesses operate in a much more competitive and dynamic world. Hence, in addition to the basic features mentioned above, modern businesses have some additional features too.

These additional features are listed below:

i. Information:

Information plays an important role in today’s business world. A business unit frames its plans and policies depending upon the information on market conditions, consumers’ tastes and preferences, government policies etc., gathered through various sources of information such as market surveys, internet, newspaper and journals. Information so collected helps the business units to take correct and timely decisions.

ii. Many Lines of Products:

With the expansion of markets, the business world has become very competitive. In order to survive, companies produce and distribute many products at the same time. Thus, even if one product does not yield sufficient profits, the company can recover the reduction in profit by selling other products.

iii. Large Scale of Business:

Owing to the development in transport and communication, businesses have crossed national boundaries. Thus, production and distribution of goods and services takes place on a large scale.

iv. Science and Technology:

Modern businesses make use of scientific techniques for making budgets, recruitment of employees, handling employees and overall control. They make use of latest technology for producing goods.

v. Adaptability:

The ability of a business to react as per the changing situation is known as adaptability. The business environment is ever changing. Factors like consumers’ tastes and preferences, government policies, technology, etc., change very rapidly and hence, the business has to change its policies to suit the changing environment.

vi. Role of Government:

In a modern business scenario, the government possesses a crucial role to play. It plays the role of a regulator by forming various acts and policies. Through such regulations, it regulates the working of the business units in national and international markets to restrict unfair and unethical trade practices. The government, by such acts, intends to protect the welfare of the consumers, investors, creditors, employees, etc.


Characteristics of Business: Quick Points

Business activities possess the following characteristics:

1. Dealing in goods and servicesBusiness deals with goods and services. The goods can be of two kinds – (a) Consumer goods (e.g. milk, sugar, T.V. etc.), and (b) Producer goods (e.g. machines, tools etc.) Business also deals with services (e.g. transport, insurance, banking etc.) which are tangible and invisible.

2. Production and/or exchange of goods and services with profit motive – Goods produced/purchased or services generated by business are sold to others for a value called price. Profit motive is the basic feature of business.

3. Element of risk and uncertainty – Risk and uncertainty are two important features of business. Profit is an incentive for taking business risk. In fact, there is no business without risk. Actions and reactions of competitors, changing social values, changing fashions, Governmental policies etc. are some of the many factors which create risk in business leading to uncertainty of sales and thereby profits.

4. Regularity in dealings – Business includes the exchange of goods and services which have regularity and continuity. Business means a regular and continuous process of dealings. An isolated transaction cannot be called as business.

5. Profit motive – Business is an economic activity, which is planned as a means of livelihood by the businessman for the satisfaction of his needs. In fact, profit is the reward for undertaking the element of risk inherent in a business activity.

6. Service motive – No business can succeed if there is no attitude of social service. Though profit making is an important objective of any business, it should not be the sole objective of business. Service motive towards society ensures success to the business.


Characteristics of Business: 5 Major Characteristics

1. Sale, Transfer or Exchange, Production or Procurement of Goods and Services for Satisfaction of Human Needs:

Business includes only economic activities. Production, if done with a profit and economic motive is business. It should be of mutual benefit to the producer and the consumer. To the producer it must give some profit and to the consumer some usage value. It will be noted that all business activities are, directly or indirectly, concerned with the transfer or exchange of goods, and services for value.

Production or purchase of goods or services for personal consumption or presentation ex-gratia (free of charge) are obviously outside the scope of business, for there is no sale or transfer for value involved in them. If, for instance, a person cooks at home for personal consumption, if is not business, for its does not entail any transfer for value or exchange.

But when a person cooks for those who patronize his restaurant and pay for their meals, it becomes his business. The ultimate object of production and sale is to meet some felt need of the people in the community.

2. Dealings in Goods and Service:

Business consists in dealings in goods and services. The goods produced or acquired for business purposes may be consumers’ goods like cloth, crockery, etc., or producers’ goods like tools and machinery. Services are those intangible and invisible goods supplied by business concerns which cannot be stored by the consumer. Concerns supplying electricity, water or gas, or those engaged in transportation of goods and passengers, deal in services and are business concerns like those dealing in tangible goods.

3. Recurrence of Transactions:

Properly speaking, the term business should be reserved for the exchange of goods and services undertaken continually or at least recurrently. If a person sells his radio set and gains thereon, it does not constitute business. But, if he keeps a stock of such sets and conducts a series of such deals it will be business.

4. Profit Motive:

The profit motive is an important distinguishing feature of business. Business is a human activity directed towards the acquisition of wealth. All business consists in an attempt on the part of men to reap more than what has been expended or invested. If a business enterprise despairs of making a profit in a particular line or dealing, it is likely to turn to another field which brings back something over and above what was initially invested.

This will be true even of Government-run business in the long run. This is not to undermine or belittle the importance of the element of service in business activity. In fact, business activity will flourish and its object will be realized only when it is able to serve the community to its satisfaction.

5. Element of Risk:

Risk means the possibility of loss. It arises out of the uncertainty that goes with the profit expected from a business activity. Profit generally depends not only upon the efforts of the business enterprise, but also upon a number of other factors over which it has little or no control.

These factors include:

(а) Changes in technology,

(b) Changes in consumer tastes and fashions,

(c) Wrong management decisions about use of capital and other resources,

(d) Labour trouble,

(e) Shortage of raw materials,

(f) Increase in competition in the market.

(g) Fire, theft or natural causes (these can be shifted to insurers).

In the light of the features of business activity discussed here, business may be defined as the organized production or sale of goods undertaken with the object of earning profits through the satisfaction of human needs and wants.


Characteristics of Business – Based on Definitions Given by Authors like James Stephenson, Peterson & Plowman and L.R.Dicksee

Business refers to activities involving production or purchase and then sale of goods desired by the people, with the intention of earning profit. Even if the businessman is providing services such as internet connectivity or transfer of money from one place to another, such activities are termed business and not profession.

Business may be defined as the regular production or purchase and sale of goods or services undertaken with the objective of earning profits and acquiring wealth through satisfaction of human wants. Many prominent personalities have defined business in different ways.

As per James Stephenson, “Economic activities performed for earning profits are termed as Business”.

In the words of Peterson and Plowman, “Business may be defined as an activity in which different persons exchange something of value, whether goods or services, for mutual gain or profit”.

Prof. L.R. Dicksee defines Business as “a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf the activity is conducted. It covers the whole complex field of commerce and industry, the basic industries and the network of ancillary services, distribution, banking, insurance, transport and so on, which serve and interpenetrate the world of business as a whole”.

The nature of business, very simply, what the business does. For example, the nature of a business named “J K Traders” would be to buy and sell some items in which they trade. The business of Infosys Technologies Limited would be to produce Software or to provide some technology solutions.

Based on the above definitions and discussion, we can list out the features of Business as under:

1. Economic Activity – Business is an economic activity. It involves money and is undertaken to fulfill an economic activity. They serve a useful purpose and involve optimal utilization of resources.

2. Exchange – Business involves exchange of goods and services for money or money’s worth. One way transactions such as gift given by one person to another do not constitute business.

3. Continuity of Operations – Business pre supposes continuity of operations. These should be a regular sequence of dealings. Isolated transactions such as sale of house do not constitute business.

4. Profit Motive – Business activity is motivated by desire to earn profit. Business has other objectives apart from profit, but profit is desired as a fair compensation for the efforts of the businessman.

5. Risk – Every business involves some element of uncertainty in the operating environment. For example, one may not be able to sell all the goods produced or purchased, amount due from credit sales may not be collected, etc. Risk is an inherent part of business.

6. Entrepreneur – A Business is started to fulfill a particular need felt by the society. The person who identifies the need and undertakes to carry on the various activities to earn desired rewards and is willing to bear the risk of any adverse developments is an Entrepreneur. A Business cannot exist without an Entrepreneur and hence is called an “Enterprise”.

7. Dynamic Nature – Business is dynamic in nature. The environment in which it operates is constantly changing. Changes in societal norms, political ideology, fashion trends, economic condition and regulation impact businesses in many ways. Business has to be dynamic in order to respond to such a changing environment.

8. Organised Activity – Business needs to be properly organised to be successful. There is a need for clear definition of roles and responsibilities of various people. Systems are designed and implemented so that there is co-ordination between the various activities.

9. Value to Customers – Business arises out of an opportunity to cater to an unmet demand of section of society. This section of society is willing to pay more for a product that maximizes their satisfaction. Thus, value is created by the business.

10. Wide Scope – A wide variety of activities come within the scope of Business. Business includes trade, industry and Commerce. It includes transactions in goods as well as services. Business could be local or it could be Global.

11. An Art and a Science – Business needs to be conducted in a specific manner. To that extent, there are certain principles that need to be followed. At the same time, the ability of a person to understand a business situation and respond to it on the basis of one’s intelligence and experience differs from person to person. Thus, Business is both a science and an Art.

12. Social Objectives – Business cannot exist solely to earn profits. It is part of society and must not ignore social good. There is greater recognition of social responsibility of business. Corporate Social Responsibility is now a regulatory requirement.


Characteristics of Business – Production or Acquisition of Goods, Sale or Transfer of Title, Dealings in Goods and Services, Regularity of Dealings and a Few Others

The activities termed “Business” possess the following characteristics:

(a) Production or Acquisition of Goods:

Since it is the business of “business” to provide goods to people for a price, it is necessary that there are goods to be supplied. They must therefore be either manufac­tured or produced or they must be procured so that they can be sold and supplied.

(b) Sale or Transfer of Title:

Goods which have been produced or procured for sale in return for price enter the realm of business. This activity of selling results in the production and acquisition of wealth. Goods produced or acquired for personal consumption, however, do not fall within the scope of business.

(c) Dealings in Goods and Services:

Business means dealing in goods and services. The goods may be consumers’ goods, such as cloth, bread, jams, shoes, watches, etc., or producers’ goods, Such as- machinery and tools. Services consist of those items which are not stored by consumers, such as- transport services.

(d) Regularity of Dealings:

Regularity and recurring nature of buying and selling which ensures continuity of transactions is a characteristic of business. A single transaction involving buying and selling does not become business. For instance, if a person sells his motor car and makes a profit, it does not amount to business. On the other hand, if he keeps a stock of cars and sells them to customers, he carries on a business.

(e) Profits as Reward for Service Rendered:

Business is an activity by which men make their living, or earn profit. Making profit is an essential characteristic of business. Profit is the biggest stimulus for maintaining the continuity of business. In other words, profit is essential for survival and development. The hope of making a good profit attracts men of ability to business. In fact, profit is, in a sense, a reward for the individual ability or efficiency of the enterpriser and also for the service that ne renders to the community.

(f) Uncertainty or Risk about Future:

Economic activity, because it is activity focuses on the future; and one thing certain about the future is its uncertainty, its risk. It is through risk-taking that any businessman earns his profit. The conduct of industry or business always involves a certain amount of risk and uncertainty of return to the entrepreneur.


Characteristics of Business – 6 Basic Characteristics of a Business Organization

Following are the basic characteristics of a business organization:

(i) Production or Goods Acquisition:

Since the main function performed by a business enterprise is to provide goods for customer satisfaction for a price, the supply of goods becomes essential. In order to assure a regular sale and supply of goods, they must be either manufactured or procured.

(ii) Sale or Transfer of Title:

The goods exchanged to earn profit are the only thing to enter the realm of business. A producer passes on or transfers the title of the product to the one who pays for it. This gives birth to production and acquisition of wealth. Those goods which are produced or acquired for personal consumption cannot be termed as business of any kind.

(iii) Dealing in Goods and Services:

Business primarily deals with goods and services. Goods involve consumer goods such as clothes, shoes, etc. or producer goods such as machinery and tools. Services include all those items which are not stored by consumers like that of transport services, warehousing, etc.

(iv) Regularity of Dealing:

One of the important characteristics of business enterprises is to ensure regular or continuous supply of goods which require recurring purchase of goods. A single transaction involving buying and selling goods may not be considered as business. For example, if a person sells off his used car and thereby earns profit, it may not be called a business. Whereas, if a dealer of second-hand cars is involved in sale and purchase of used cars in order to earn profits, it may be termed as business.

(v) Profit Motive:

Business is an activity of undertaking production in order to earn profits. Hence, profit making is an essential element of starting up a business and its continuity. The hope of making a good profit attracts men of ability to business. Hence, profit is a reward for individuals’ ability or efficiency of the enterprises and also for the service that he renders to the community.

(vi) Uncertainty or Risk about Future:

Starting up a business enterprise involves an element of risk or uncertainty in future. It is only this risk taking ability or nature of business which rewards him with a return on his entrepreneurial investments.


Characteristics of Business – An Economic Activity, Production of Goods and Services, Sale of Goods and Services, Profit Earning, Uncertainty of Return and a Few Others

Business refers to those activities which are concerned with providing goods and services with the aim of earning profit.

Business is an institution organised and operated to provide goods and services to society under the incentive of private gains. -B.O. Wheeler

Business is a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf the activity is conducted. -L.R. Dicksee

Characteristics of business are as follows:

1. An Economic Activity:

Business is an economic activity as it is undertaken primarily for earning money. Thus, business is a source of livelihood.

2. Production or Procurement of Goods and Services:

Business involves production or procurement of goods and services. Goods are those products which are in physical form like vehicles, fruits, etc. Services are those products which are in intangible form like banking, transportation, etc. Production of goods involves producing goods by a business organisation for sale. Procurement of goods involves procuring these from some sources for sale, for example, procuring goods by a retailer either from the producer or wholesaler.

3. Sale or Exchange of Goods and Services:

Business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but for personal consumption, it is not a business activity. Similarly, cooking food at home for personal consumption is not a business activity but cooking food in a restaurant for sale is a business activity.

4. Dealings in Goods and Services on a Regular Basis:

Business involves dealings in goods and services on a regular basis. A single dealing even with profit does not fall under business. For example, if a person sells his house and earns profit, it is not business because it is not done on a regular basis.

5. Profit Earning:

The basic objective of undertaking a business is to earn profit. No business can sustain for long if it does not make profit. Earning profit is necessary for the survival and growth of the business.

6. Uncertainty of Return:

There is uncertainty of return on amount invested in business. Thus, a business may not earn desired profit or it may even sustain a loss.

7. Element of Risk:

Risk is the uncertainty associated with an exposure to loss. Risk is caused by some unforeseen unfavourable events like change in consumer preference, change in production methods, increased competition in the market, strike or lockout at the workplace, theft, accident and natural calamities.


Characteristics of Business – Uncertainty of Profit, Business Includes Incidental Ancillary Activities, Profit Motive, Economic Activity, Satisfaction of Wants and a Few Others

Business and society are closely inter-related with each other and therefore, there is a great interaction between the two. Business influences the various elements of the society which, in turn, affect busi­ness. Although business activities also affect social outlook, values, attitudes, customers, way of think­ing etc. Yet it is basically business that has to adopt itself to its external environment.

It is for the reason that there has been a change in the concept and objectives of business as follows:

(i) Changing concept of Business

(ii) Old concept of Business

(i) Changing concept of Business – The modem business enterprise is a social and economic institution. It does not live in a vacuum. Business is not an end but a valuable means to achieve an end viz., human welfare and public good.

(ii) Old Concept of Business-The term business was conceived as – “the business of business is to do business” and they are not in business for their health. 

The term business has the following features:

1. Uncertainty of Profit:

Business is full of uncertainties. Profit anticipation is always difficult as profit depends several factors, e.g., market conditions, government policies, prevailing trends or fashion, etc. Therefore it is not possible to predict profit.

2. Business Includes Incidental Ancillary Activities:

Business is not only confined to production and sale/ purchase of goods with a profit motive but also includes the ancillary/ auxiliary and facilitating activities, e.g., banking, insurance, transportation and warehousing, etc.

3. Profit Motive:

A business enterprise is set up with the objective to earn some profit or gain. Business activities are carried on to earn profit and generate wealth. Profit motive is not only the prime objective but also an essential condition for survival of a business enterprise. Moreover an entrepreneur setting up a business expects some return on his investment. If there is no profit/ return people may not go for setting up any business.

4. Involves Production of Goods or Services:

Business involves production activities, e.g. production of goods by factories and craftsmen, mining activities, cultivation by farmers, etc. The goods are manufactured or produced with a view to sell them at a profit to people requiring them, This production of goods by manufacturing, processing, altering or any other similar process is also called creating ‘form utility’. The purpose behind the creation of form utility is to make the final product more useful and want satisfying.

5. Economic Activity:

An activity can be considered as business, if it involves production, exchanged and distribution of goods and services with some economic objectives. Non-economic activities e.g., charitable or religious, etc., are not considered business.

6. Repetitive and Recurring Transactions:

To quote Peterson and Plowman, “A single transaction of sale and purchase will not constitute business. Recurring and repetitive transactions of sale and purchase alone means business.” Therefore, there must be repetition and recurrence of transactions. A single transaction shall not be considered business. For example, if a person sells his car it shall not be a business, but if he starts dealing in cars as his occupation the sale of car shall be considered business.

7. Dealing in Goods and Services:

Goods and services are the centre of business. The goods or services may either be for consumption by consumers or for use in manufacture by producers. The goods for consumption by customer are known as consumer goods e.g., food, sweets, cloth, furniture, etc. The goods meant for use in manufacture by producers are called industrial or capital goods, e.g., tools, machinery, raw materials, parts of machines, etc. Services like gas, electricity, water, insurance, transportation are known as invisible or intangible goods.

8. Satisfaction of Wants:

The production and distribution functions of business create form, place and time utility. This is done by making goods and services more useful and suitable, making available at place of requirement and at time when demanded to satisfy human wants. The concept of business therefore revolves around satisfying human wants.

9. Sale, Transfer and Exchange:

Goods and services are produced to fulfil the requirements of customers. This involves flow of goods and services to customers by way of sale, transfer and exchange for some consideration. Therefore buying, selling and exchange of goods and services are essential features of any business. Unless there is a sale or transfer for a price, the activity cannot be considered business. For example, a teacher when teaches in a coaching institute on payment, it is business. But when he teaches in his own son it is not business activity.

10. Involves Distribution of Goods and Services:

Distribution of goods and services is a function which facilitates the flow of goods and services from producer to ultimate consumer. For example, wheat produced by farmers, needs to be transported to markets so as to reach the consumers.

This distribution function of business involving multiple activities creates two types of utilities:

(i) Place Utility:

Goods and services need to be transported to the places where these are needed. For example, wheat is produced in large quantities in Punjab and Haryana. But the same may not have any value when lying in abundance. Whereas, the moment it is transported to other state/ places where people need, it creates place utility.

(ii) Time Utility:

Production of several goods is seasonal but their demand remains throughout the year. Goods are graded, stored, and put in warehouse or cold storage plant, to save them from getting perished, to make things available for consumption throughout the year. This involves creation of time utility. The distribution feature of business, therefore, creates place and time utility.

(11) Economic Motive:

Business involves production and distribution of goods for sale for gain or profit or some reward. Profit motive dominates business. If an activity is carried out purely with service motive, it is non-economic activity and therefore, not a business. For example, a farmer grows rice, and keeps it for his family consumption. Though this involves production activity, but in absence of economic motive or gain, it cannot be considered an economic activity or business.

(12) Business Utilises Resources:

Business activities involve utilisation of men, material, machinery, labour, and capital so as to produce goods and services.


Characteristics of Business – With Examples

The term business literally means, ‘being busy’. In a layman’s language the term business refers to “any activity or enterprise entered into with the aim of earning profit.”

Business is an economic activity which is concerned with providing good and services to the society under the incentive of private gains or profit.

The term business has been defined differently by various eminent experts as stated below:

“Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling of goods.” – L. H. Haney

“Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.” – Wheeler, Bayard O

“Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted.” – Dicksee

“Human activity directed towards producing or acquiring wealth through buying and selling of goods.” – Lewis Henry

“Business is all those activities involved in providing the goods and services needed or desired by people”. – Stenford

In order to understand the concept of business completely, it is important to develop an understanding of the important characteristics of business which are outlined below:

1. An Economic Activity:

Every business activity is carried out with the aim to earn profit. The profit earned by the businessmen serves as a source of income/livelihood for them. Therefore, business is essentially an economic activity as it is undertaken to make profits and not merely to satisfy one’s emotion needs like that of charity sympathy etc.

For example, Rajesh is doing a wholesale business of artificial plants in Delhi. He sells them to the retailers at a profit margin of 40%.

2. Production or Procurement of Goods and Services:

If a business is carried out by providing goods to the society, the businessman may fulfil this objective in either or both of the following ways:

(i) Undertaking the production of the goods offered for sale themselves.

(ii) Procuring/obtaining the ready stock of goods from other producers and then offering it for sale.

Besides goods, a business may also seek to provide innumerable services like banking, transportation, insurance etc. to earn profit.

For example – Tarun has set up a factory to manufacture glassware and sell them through a retail shop in Faridabad. Whereas, his cousin Arun imports glassware and sells them through his outlet in the same market.

3. Sale or Exchange of Goods and Services:

An activity can be classified as a business activity only if involves sale or exchange of goods or service. Any activity which involves production of goods for self-consumption will not constitute a business activity.

For example, Ved, a computer professional makes a power point presentation as a part of his daughter’s project work.

4. Dealings in Goods and Services on a Regular Basis:

Regularity in dealings is one of the key feature of a business activity. This is because, one single transaction cannot be considered as a business activity even if it involves earning profit.

For example – Vivan sells one of his antique showcase at a profit to his colleague. Although he has made profit out of the activity, it will still not constitute a business activity for the very reason that Vivan does not engage in buying and selling of furniture on regular basis. On contrary, if this transaction had been carried out by an owner of a furniture shop, then it would be categorised as a business activity.

5. Profit Earning:

Earning profit is the prime motive of a business activity. Every business seeks to maximise its profits as it considered essential for its survival, growth and expansion.

6. Uncertainty of Return:

The term ‘return’ refers to the profit/financial benefits earned by a business in relation to the investments made into it by the owner(s). In general, higher sales indicate higher returns. Since a business operates is a dynamic environment, risk is inherent is every business. Consequently, there is no surety of the ‘return’ accruing from a business, as its income cannot be predicted with utmost accuracy.

For example, post demonetisation the real estate business was adversely affected as the monthly average housing sale fell by 40% in major cities.

7. Element of Risk:

No business is said to be risk free. Risk is present in every business due to uncertainty associated with it, as a result of happening of some unfavourable or undesirable event. The risks are related with certain factors like changes in consumer tastes and fashions, changes in methods of production, increased competition in the market, fire, natural calamities, etc.

For example, Farhan had to incur huge losses in business as a fire broke out in his restaurant due to a short circuit.


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