Nature of Business
ARUN KUMAR
Assistant Professor
Department of commerce
Hans raj College
University of Delhi
A business is an individual or group of individuals that
work together to produce and sell goods and services
for a profit. Businesses can either be run for profit,
such as restaurants, supermarkets, etc., or non-
profit organisations developed to serve a social
purpose. Non-profit organisations do not earn profits
from their services, as all earned profits are used in
achieving social objectives. An example of this is the
non-profit organisation Safe Night, which offers a
secure way for domestic violence shelters and anti-
trafficking service organisations to crowd source
funding for immediate shelter.
Definition
A business is defined as an organisation or entity
involved in commercial, industrial, or professional
activities providing goods or services to the public.
Business meaning
Business is a broad term but is usually referred to as the profit-
generating activities which include the provision of goods or
services wanted or needed by people in exchange for a
profit. Profit does not necessarily mean cash payments. It can also
mean other securities such as stocks or the classic barter system.
All business organisations have a few common characteristics: the
formal structure, aim to achieve objectives, use of resources, the
requirement of direction, and the legal regulations controlling
them. Based on the factors such as the degree of liability,
regulation on tax exemptions, business organisations are divided
into the following: sole-proprietorship, partnership,
corporations, and limited liability companies.
Example
1. Sole proprietorships - local food joints and grocery
stores, etc.
2. Partnerships - Microsoft (Bill Gates and Paul Allen)
and Apple (Steve Jobs, Ronald Wayne, and Steve
Wozniak).
3. Corporations - Amazon, JP Morgan Chase, etc.
4. Limited liability companies - like Brake Bros Ltd.,
Virgin Atlantic, etc., are also corporations.
What is a business concept?
A business concept is a statement representing a
business idea. It includes all the key elements – what it
offers, target market, Unique Selling Proposition
(USP), and feasibility of succeeding. It explains why
the businesses’ USP provides itself with a competitive
advantage in the market. A developed business
concept is then added to the business plan for the
successful implementation of the concept.
What is the purpose of business?
The purpose of every business is to offer/add value to their
customers’ lives through the products or services they offer.
Every business markets its offerings with the promise of making
its consumers’ lives a bit better by adding value. And the purpose
of business is to act on this promise. Businesses should make
sure that their corporate vision reflects their purpose.
Different stakeholders may have different answers as to what the
purpose of business is. A shareholder might say that the purpose
of business is to create profit, as it would only benefit him when
the business grows financially. A politician may believe that the
purpose of a business is to create long-term jobs. But profit and
job creation are means to run a business, as businesses cannot
generally be sustained without profits and employees combined.
What is the nature of business?
The nature of a business describes the type of business it is
and what its overall goals are. It describes its legal structure,
industry, products or services, and everything a business does
to reach its goals. It depicts the business’s problem and the
main focus of the company’s offerings. A company’s vision
and mission statement also provide an insight into its nature.
A mission statement provides an overview of the overall
purpose of an organisation. It is a short statement that
describes what the company does, who they do it for, and
what its benefits are. The company vision describes what it
aims to achieve in the future, to fulfill its mission. It should
provide guidance and inspiration to employees.
The following aspects determine the
nature of business
Regular process–the profit-generating processes that are regularly repeated.
Economic activity – activities that maximise profit.
Utility creation – a kind of utility the goods or services create for the
consumer, such as time utility, place utility, etc.
Capital requirement – the amount of funding required for the business.
Goods or Services – types of goods (tangible or intangible) offered by the
business.
Risk – the risk factor related to the business.
Profit earning motive – the businesses’ profit-earning motive.
Satisfaction of consumers’ needs – based on the consumers’ satisfaction.
Buyers and sellers – the type of buyers and sellers involved in the business.
Social obligations– all businesses have corporate social responsibilities to
undertake.
List of natures of businesses
The following are the ten important natures of a businesses
1. Economic activity:
Business is an economic activity of production and distribution
of goods and services. It provides employment opportunities in
different sectors like banking, insurance, transport, industries,
trade etc. it is an economic activity corned with creation of
utilities for the satisfaction of human wants.
It provides a source of income to the society. Business results into
generation of employment opportunities thereby leading to
growth of the economy. It brings about industrial and economic
development of the country.
2. Buying and Selling:
The basic activity of any business is trading. The business involves
buying of raw material, plants and machinery, stationary, property
etc. On the other hand, it sells the finished products to the
consumers, wholesaler, retailer etc. Business makes available
various goods and services to the different sections of the society.
3. Continuous process:
Business is not a single time activity. It is a continuous process of
production and distribution of goods and services. A single
transaction of trade cannot be termed as a business. A business
should be conducted regularly in order to grow and gain regular
returns.
Business should continuously involve in research and
developmental activities to gain competitive advantage. A
continuous improvement strategy helps to increase profitability of
the business firm.
4. Profit Motive:
Profit is an indicator of success and failure of business.
It is the difference between income and expenses of
the business. The primary goal of a business is usually
to obtain the highest possible level of profit through
the production and sale of goods and services. It is a
return on investment. Profit acts as a driving force
behind all business activities.
Profit is required for survival, growth and expansion of
the business. It is clear that every business operates to
earn profit. Business has many goals but profit making
is the primary goal of every business. It is required to
create economic growth.
5. Risk and Uncertainties:
Risk is defined as the effect of uncertainty arising on the
objectives of the business. Risk is associated with every
business. Business is exposed to two types of risk,
Insurable and Non-insurable. Insurable risk is predictable.
Predictable factors are controllable to some extent,
such as:
a) Taxes
b) Change in the volume of expected sales
c) Cost of supplies and equipment
d) Overhead costs
e) Salaries
f) Cost of goods and services offered
Unpredictable factors include:
a) Changes in trends and tastes of customers.
b) Impact of the local economy on customer base.
c) Any unexpected action taken by your competitors.
The calculation and management of the risk is vital to
ensure the success of a business firm. Insurance and
Risk management helps in minimizing the risk
associated with the business.
6. Creative and Dynamic:
Modern business is creative and dynamic in nature.
Business firm has to come out with creative ideas,
approaches and concepts for production and
distribution of goods and services. It means to bring
things in fresh, new and inventive way.
One has to be innovative because the business
operates under constantly changing economic, social
and technological environment. Business should also
come out with new products to satisfy the growing
needs of the consumers.
7. Customer satisfaction:
The phase of business has changed from traditional
concept to modern concept. Now a day, business adopts a
consumer-oriented approach. Customer satisfaction is
the ultimate aim of all economic activities.
Modern business believes in satisfying the customers by
providing quality product at a reasonable price. It
emphasize not only on profit but also on customer
satisfaction. Consumers are satisfied only when they get
real value for their purchase.
The purpose of the business is to create and retain the
customers. The ability to identify and satisfy the
customers is the prime ingredient for the business
success.
8. Social Activity:
Business is a socio-economic activity. Both business
and society are interdependent. Modern business runs
in the area of social responsibility.
Business has some responsibility towards the society
and in turn it needs the support of various social
groups like investors, employees, customers, creditors
etc. by making goods available to various sections of
the society, business performs an important social
function and meets social needs. Business needs
support of different section of the society for its proper
functioning.
9. Government control:
Business organisations are subject to government control.
They have to follow certain rules and regulations enacted by
the government. Government ensures that the business is
conducted for social good by keeping effective supervision and
control by enacting and amending laws and rules from time to
time.
Some important acts framed by the government include:
a. The Competition Act, 2002
b. Foreign Exchange Management Act, 1999
c. The Environment Act, 1986
d. Indian Companies Act, 1956
e. Consumer protection Act
10. Optimum utilisation of resources:
Business facilitates optimum utilisation of countries
material and non-material resources and achieves
economic progress. The scarce resources are brought
to its fullest use for concentrating economic wealth
and satisfying the needs and wants of the consumers.
Thank You!
