Introduction to Business

(a) Business

Business is an economic activity carried out regularly and lawfully to produce, buy, sell or exchange goods and services in order to earn profit by satisfying human wants.

(b) Functions of business

The main functions of a business are:

1. Production: converting inputs such as raw materials, labour and capital into goods or services that customers want.
2. Marketing: identifying customer needs and then pricing, promoting and distributing the product so that it reaches them.
3. Finance: raising funds from owners and lenders, and using them wisely for assets and day-to-day operations.
4. Human resource management: recruiting, training, motivating and paying people so that the business has a capable workforce.
5. Accounting and record keeping: recording transactions and preparing financial statements to show profit, loss and financial position.
6. Risk management: reducing and bearing risks such as fire, theft, price fluctuation and bad debts, often through insurance.

Meaning of business

Business is an economic activity carried on regularly by a person or an organization to produce or buy and sell goods and services with the aim of earning profit while satisfying human wants. It includes manufacturing, trading, banking, insurance, transport and other services. Its basic features are regular dealings, the profit motive, risk-taking and the satisfaction of customers' needs.

Importance of business

1. Production and supply of goods and services: business turns raw materials into useful goods and makes them available to consumers at the right time and place.
2. Employment generation: it creates jobs and self-employment for skilled and unskilled people, which reduces poverty and unemployment.
3. Income and standard of living: wages, salaries, rent, interest and profit paid by business raise people's income, and varied, better-quality goods improve the standard of living.
4. Capital formation and economic growth: profits are reinvested in new plant and enterprises, which raises output, national income and per capita income.
5. Government revenue: business pays income tax, VAT, customs duty and other charges, which the government uses for roads, schools, health and other services.
6. Use of natural and human resources: business makes productive use of land, labour, capital and skills that would otherwise remain idle.
7. Innovation and technology: competition pushes firms to research and introduce new products and better methods.
8. Balanced regional development: industries and trading centres in remote areas build infrastructure and spread opportunities.
9. Foreign trade and foreign exchange: exports earn foreign currency and imports supply goods the country cannot produce.
10. Social service: business supports education, health, sports and environmental programmes through its social responsibility.

Thus business is the backbone of a country's economy and of society's well-being.

A business succeeds when it earns reasonable profit, satisfies customers and keeps growing over time. The main requisites for such success are as follows:

1. Clear objectives and planning: the aims of the business should be stated clearly, with a sound plan on how to achieve them.
2. Adequate capital: enough funds are needed for fixed assets, raw materials and day-to-day expenses, and they should be used wisely.
3. Proper selection of business and location: the business should suit the owner's interest, skill and market demand, and be placed near customers, raw materials, labour and transport.
4. Efficient management: capable managers who plan, organize, direct and control the work well, and who make quick and correct decisions, are essential.
5. Skilled and motivated workers: well-trained, fairly paid and satisfied employees raise productivity and quality.
6. Good quality and fair price: goods and services that give value for money win customer loyalty and repeat purchases.
7. Customer satisfaction and good public relations: polite service, after-sales service and prompt handling of complaints build goodwill.
8. Sound financial management: careful budgeting, control of costs and proper record keeping prevent waste and keep the business liquid.
9. Knowledge of the market and competition: regular study of customers' wants and competitors' moves helps the business adjust its products and marketing.
10. Adoption of technology and innovation: modern methods reduce cost and keep the business ahead of rivals.
11. Honesty and business ethics: fair dealing, no hoarding or adulteration, and obeying laws build trust and a lasting reputation.
12. Ability to bear risk and adapt: the owner should be ready to face risks and adjust to changes in tastes, laws and the economy.

(b) Earning profit by satisfying human wants

Business is an economic activity whose primary objective is to earn profit, and it earns that profit by producing and distributing goods and services that satisfy human wants. Free goods, charity and tax collection are not business objectives.

Characteristics of Business

Business is an economic activity of producing and distributing goods and services for profit. Its main characteristics are explained below:

1. Economic Activity Business is an economic activity undertaken to earn a livelihood. It involves the production, purchase, sale or exchange of goods and services with the primary objective of earning profit. For example, a shopkeeper buying goods from a wholesaler and selling them to consumers is engaged in an economic activity.

2. Profit Motive The main objective of every business is to earn profit. Profit is the reward for the risk and effort involved, and it is also the means of survival and growth. Without profit, a business cannot sustain itself in the long run. However, profit should be earned through fair and legal means.

3. Risk and Uncertainty Business involves various risks such as loss due to changes in demand, price fluctuations, competition, natural calamities, theft, bad debts and changes in government policy. Since future conditions are uncertain, the businessman must bear these risks. The degree of risk may vary from business to business, but no business is completely free from risk.

4. Exchange of Goods and Services Business essentially involves the exchange of goods and services for money. Production or purchase of goods is not enough; those goods must be sold to consumers. Activities such as manufacturing, trading, banking, insurance and transportation all aim at satisfying human wants through exchange.

5. Continuity in Dealings Business is a continuous and regular activity, not a one-time transaction. A person selling goods only once cannot be said to be in business. To be called a business, the activity must be carried on regularly and continuously to earn profit. For example, a grocery store selling goods daily is a business, whereas a person selling his old furniture once is not.

Conclusion Thus, business is a regular economic activity involving the production and exchange of goods and services with the twin objectives of earning profit and satisfying human wants, while bearing the risks involved.

Distinction between Business and Profession

(Any five bases may be written.)

Objectives of Business

Business objectives are the goals that a business firm sets out to achieve through its activities. They guide the decisions, policies and day-to-day working of the enterprise. Business objectives are broadly classified into three groups:

1. Economic objectives — related to earning money and using resources efficiently.
2. Social objectives — related to the welfare of society and the people connected with the business.
3. Human or individual objectives — related to the satisfaction and development of the people working in the business.

The economic and social objectives are explained below in detail.

1. Economic Objectives of Business

The main purpose of a business is to earn profit, but profit alone is not enough. A business must also survive and grow. The economic objectives are:

(a) Earning Profit Profit is the reward for the risk and effort of the entrepreneur. It is the main source of funds for expansion and the best measure of a firm's efficiency. A business must earn enough profit to cover its costs and pay a fair return to the owners. However, profit should be earned through fair means, not by exploiting customers or workers.

(b) Creating Customers Without customers there is no business. Peter Drucker said that the purpose of a business is to create and keep customers. A business must identify the needs and wants of people and produce goods and services that satisfy them. It must also create demand through advertising and sales promotion. Only then can sales and profit grow.

(c) Innovation Business must bring new and better products, new methods of production and new ways of marketing. Innovation helps the business to stay ahead of competitors and to meet changing tastes of customers. For example, the change from ordinary mobile phones to smartphones is the result of innovation.

(d) Best Possible Use of Resources Resources like capital, labour, materials and machines are scarce. A business must use them in the most efficient way so that maximum output is obtained at minimum cost. This reduces wastage and increases profit.

(e) Survival and Growth A business must earn enough to survive in the long run. After survival, it should aim at growth — increasing sales, market share, number of branches and range of products. Growth gives the business strength to face competition and to earn more profit in the future.

2. Social Objectives of Business

A business is a part of society. It uses the resources of society and sells goods to society. Therefore, it has certain duties towards society. These are its social objectives:

(a) Supply of Quality Goods and Services The business should supply good quality goods and services at reasonable prices. It should not sell adulterated, duplicate or harmful products. Quality must be maintained so that customers get full value for their money.

(b) Avoidance of Unfair Trade Practices The business should not adopt unfair means such as black marketing, hoarding, false advertising, misleading labels or cheating in weights and measures. It should follow fair trade practices and respect the rights of consumers.

(c) Employment Generation Business should provide employment to people and pay them fair wages. It should also provide good working conditions, safety and welfare facilities. By creating jobs, business helps to reduce unemployment and poverty in society.

(d) Protection of Environment Business should not pollute air, water and land. It should control waste, treat harmful waste before disposal and use eco-friendly technology. This protects the health of people and keeps the environment clean for future generations.

(e) Contribution to Social Welfare Business should help in the welfare of society by contributing to education, health, sports and cultural activities. It should also help weaker sections of society and take part in relief work during natural disasters.

(f) Fair Return to Investors and Payment of Taxes The business should pay a fair dividend to shareholders and interest to lenders. It should also pay taxes honestly to the government so that the government can spend on public welfare.

Conclusion

Thus, business objectives are not only economic but also social. Earning profit is essential for survival and growth, but a business cannot ignore its duties towards society. A business that earns profit by fair means and also serves society is a successful and respected business. In this way, economic and social objectives together help the business and society to grow side by side.

A service enterprise is a business unit that earns income by providing intangible services, such as banking, transport, insurance, education, hotels or health care, rather than by producing or selling physical goods.

Business environment means the sum of all external and internal forces, factors and conditions that surround a business and affect its decisions, operations and results. The statement is true because a business cannot work in isolation: it takes its inputs from society, serves society, and is shaped by society's laws, culture, economy and technology. These forces are grouped into the internal and the external environment.

1. Internal environment

Factors within the control of the business:

• Mission, vision and objectives: these set the direction of every decision.
• Management and organizational structure: the quality of leadership, authority relations and decision making.
• Human resources: the skills, attitude and morale of employees.
• Financial and physical resources: the capital, machinery, location and technology available.
• Organizational culture: shared values and working habits.

2. External environment

Factors outside the control of the business, divided into the micro (task) environment and the macro (general) environment.

Micro environment: customers, suppliers, competitors, creditors, intermediaries and the public that directly deal with the firm.

Macro environment:

• Economic environment: inflation, interest rates, income level, banking and monetary policy, and the stage of economic growth. High inflation, for instance, raises costs and reduces buying power.
• Political and legal environment: political stability, government policy, and laws such as the Companies Act, labour, tax and consumer protection laws. A stable government encourages investment.
• Socio-cultural environment: population, education, customs, religion, tastes and lifestyle. Products must suit local values, for example demand rises for sweets and clothes during Dashain and Tihar.
• Technological environment: new machines, the internet, digital payments and automation change how firms produce and sell, and can make old products obsolete.
• Natural (physical) environment: climate, resources, geography and disasters, such as earthquakes and floods, which affect supply and costs.
• International environment: global trade, exchange rates, foreign competition and agreements affect import, export and prices.

Conclusion

Each of these forces creates opportunities and threats. A business that scans its environment regularly, uses its strengths and adjusts its strategies in time survives and grows, while one that ignores them is likely to fail.