Nature and Purpose of Business Class 11 Notes

Business is the organised activity of producing or supplying goods and services for the purpose of earning profit, and the profit is what makes it an economic rather than a personal activity. Profit is the reward for risk, not a guaranteed salary, and that single idea is what separates business from every other occupation.

• Specialisation: the activity is carried on by people who have chosen it as their regular occupation, not occasionally as a hobby.
• Provision of goods or services: something is supplied to satisfy human wants, whether tangible goods or intangible services.
• Income motive: the objective is profit, so the scale of the operation is decided by the size of the demand and the margin available.
• Continuous or regular supply: business supplies on a continuing basis rather than at a single occasion.
• Business risk: the possibility of loss is present in every business, and no business can be entirely free of it.
• Capital and organisation: business needs capital to start and a structure of roles, because the scale of activity exceeds what one person can manage.

These three are the most commonly confused categories in the examination. The difference is not in what the person does but in why the income is received, and in how the income behaves when the work stops.

• Business: income arises from the production or supply of goods or services for profit, and the activity continues to be carried on in the hope of further profit.
• Profession: income is a reward for knowledge and skill acquired through training, and the activity is not carried on for profit but for the professional return on expertise.
• Employment: income is a contractual salary, and the person works under an employer who decides the work, the hours and the method.
• A person may be in business and also in profession, as a doctor running a clinic, but the test of the identity of the principal activity still applies.
• The usual comparison is that business income is uncertain and shared with losses, professional income is relatively assured, and employment income is fixed and paid for a defined period.

Business risk is the possibility of loss arising from the operations of the business, as distinct from the general uncertainty of life. It is the price of profit, and it cannot be transferred entirely to the consumer or the worker.

• The basis of trade: because the future is uncertain, a business is rewarded with profit for accepting that uncertainty, and the reward has no size independent of the risk.
• It is not a personal risk: it is a commercial risk, attached to the transaction rather than to the person, so a person may carry business risk without bearing the liability.
• It cannot be insured fully: certain types of risk, such as a fall in market demand for a particular product, cannot be transferred to an insurer.
• It is not the same as a business liability: risk is a possibility, whereas a liability is an actual obligation, so a risk may never become a liability at all.
• The causes of the business risk are four, and the natural causes are the floods, the storms, the earthquakes and the diseases of the crops and the cattle, which no management can prevent, so the loss from them is accepted and shared through the insurance.
• The human causes are the mistakes of the persons themselves, such as the theft by the employees, the dishonesty, the negligence of a worker, the wrong estimate by the purchase department and the bad decisions of the management, and these can be reduced by the training, the supervision and the internal control.
• The economic causes are the changes in the market that are beyond the control of the firm, such as the change in the demand, the change in the prices, the change in the taste of the consumer, the competition and the obsolescence of the product, and the physical causes are the failure of a machine, the breakage of the goods, the fire, the flood and the mechanical damages, so the four are the natural, the human, the economic and the physical.

Business is run for profit, but profit is the means and not the end. The full statement of objectives has two halves: the economic objectives, which concern the survival and growth of the enterprise, and the social objectives, which concern what the enterprise owes to society.

• Economic objectives: earning adequate profit, survival, growth, and creating a secure future through continuous growth.
• Social objectives: providing employment, producing goods and services that society needs, and contributing to the development of less developed regions.
• Human objectives: providing a satisfying work environment, keeping employees satisfied, and using human resources properly, so that a satisfied employee supports the other objectives.
• Government objectives: complying with the law, paying taxes, and contributing to the economic development of the country.
• The role of profit: profit funds growth, pays for risk, and attracts further capital, which is why profit must be earned but never treated as the sole objective.

Every business activity falls into industry or commerce, and the distinction is the point at which the goods are produced as opposed to the point at which they are circulated. Commerce is the larger of the two, because it includes every activity that makes production possible.

• Primary industry: production that takes things directly from nature, such as agriculture, mining, forestry and fishing.
• Secondary industry: conversion of raw materials into finished or semi-finished goods, such as manufacturing, and also construction, water and electricity supply.
• Tertiary industry: provision of support services to primary and secondary industry, such as transport, storage, banking, insurance and communication.
• Commerce, or trade: buying and selling of goods and services with the objective of earning a profit, and it is divided into internal and external trade.
• Internal trade takes place within a country, and external trade takes place between two or more countries. Between them, internal and external trade are the two sub-divisions of commerce rather than separate activities.
• Auxiliaries to trade are the services that support trade, including banking, insurance, transportation, warehousing, communication and advertising, and they sit between the producer and the final consumer.

Indian commerce is far older than the colonial period, and the syllabus expects the development of the indigenous banking system, the rise of intermediaries, transport and trading communities, and the position of the sub-continent in the world economy. The commercial decline that followed British rule is part of the syllabus as well.

• The indigenous banking system operated through shroffs, sarafs and mahajans, who financed trade by issuing bills of exchange and by remitting money, and it handled both banking and the function of brokerage.
• The rise of intermediaries, particularly the sahukar and the gomastha, connected the producer with the market and supplied credit when the banks had not yet entered the interior.
• Transport developed along the great trade routes, with coastal shipping on the Arabian Sea, the Bay of Bengal and the Bay of Bengal–Ganges delta, and with road and river transport in the interior.
• Trading communities grew around the major trade centres, and the important centres included Multan, Surat, Dhamaka, Masulipatnam, Agra, Lahore, Surat and Calcutta, among others.
• The major imports and exports of the period reflected the same commodities that the modern trade of India trades in, which is why the geography of Indian trade is stable over centuries.
• The sub-continent occupied a central position in the world economy as the great supplier of cotton, spices, indigo, saltpetre, tea and fine cloth, and the arrival of the Europeans was itself a result of the desire to buy these goods at source.