What are the Characteristics of Business?
The term business is associated with manufacturing and distribution of goods as well as services for earning profits. It fundamentally refers to the economic activities that are carried out by individuals and organisations for the purpose of generating incomes. According to some of the definitions business is a human activity that is focused on the creation of wealth through the process of buying and selling of services. According to other definitions the business is termed as the form of economic activities targeted at earning income. We take a look at concepts and characteristics associated with business.
(Image to be added soon)
The above picture shows that there are several characteristics of business depending from one organisation to another. However, the motive is the same, that is, to satisfy the particular needs of customers.
The Concept of Business
The term business is derived from the word “busyness” and it means being engaged in any specific activity. The business process generally involves purchasing something at lower prices and selling it at higher prices. The margin that is generated between low cost price and high selling price is termed as profit. The fundamental objective of any business is to accrue profit.
The business usually refers to an occupation which involves certain activities that are linked with the manufacturing or acquisition of goods for sale. It also refers to the addition of profit margin for selling it to clients for satisfying their requirements. While the business is focused on generating profit, it is also associated with satisfying the requirements of the customers.
The Characteristics of Business
The characteristics are the important features that are necessary for classifying the business. Some of these characteristics include Government control, change, globalisation, competition, information etc. We will have a brief look at some of the characteristics associated with business.
Goods and Services Trade
If a business plans on selling a product or goods, then it has to either manufacture or purchase that product. This helps in adding profit margin to the services or goods provided by the business. Some of the services associated with sales are transportation, security, and housekeeping.
Economic Activity
One of the crucial characteristics associated with business is economic activity. Any economy that provides fiscal return refers to economic activity. These activities are primarily concerned with production or distribution of goods and services.
Continuity in Dealings
Business is an important commercial activity which generates money. Just a single transaction related to purchase or sale cannot be a business activity. Apart from regulations, the business should be continuous in terms of its dealings. The major business organisation features determine that businesses should continuously manufacture and sell products for gaining profits.
Sale of Exchange of Products
After the procurement or production, the other features associated with business are selling services or goods for money. The product or service can be sold by introduction in the market or through the offer of sale.
Profit Earning
The fundamental goal of any business is earning profits. If any business can’t generate profit then it will be considered a failure. This is why individuals and business organisations try all possible methods for earning profits through improving sales volume or the decrease of costs.
Risk Factor
Any business has its own set of risks, and the more the risks are involved, the higher is the potential return. When someone is starting a new business, it is never certain if the business would be successful or not. The new business might earn profit but the amount or quantity of profit that is gained might vary.
Legal Activity
By the concept and nature of business, every business should be legal and lawful. The regulation of a nation mandates putting clauses on the business operations for controlling its activities. Business can be owned by a group of individuals or a single person. Profit is one of the fundamental parts of business. The activities associated with manufacturing and distribution of goods as well as services are supported for making a profit.
FAQs on Business Concepts and Characteristics
1. What is the fundamental concept of 'business' as per the Commerce syllabus?
The fundamental concept of business is that it is an economic activity undertaken on a regular basis to earn profit by satisfying human needs. It involves the production or procurement of goods and services with the primary objective of selling them. A business is not a one-time transaction but a continuous process of creating and distributing value in society.
2. What are the key characteristics of a business activity?
According to the CBSE syllabus for Business Studies, any activity classified as a business must have the following key characteristics:
- An Economic Activity: The primary motive is to earn money or a livelihood, not for love or affection.
- Production or Procurement of Goods and Services: The business deals in tangible goods or intangible services, which it either produces or buys from others.
- Sale or Exchange: The activity must involve the transfer or exchange of goods and services for a price.
- Dealing on a Regular Basis: A single transaction does not constitute a business; there must be continuity and regularity in dealings.
- Profit Earning: The main purpose of the business is to generate profit, which is essential for survival and growth.
- Element of Risk: Every business faces uncertainty and the possibility of loss, which is known as business risk.
- Legality: The business must be lawful and not engage in activities forbidden by the law of the country.
3. Can a single transaction of buying and selling be considered a business? Why or why not?
No, a single transaction of buying and selling cannot be considered a business. A core characteristic of business is regularity and continuity in dealings. For an activity to be classified as a business, it must be performed repeatedly over a period of time. For instance, if you sell your old textbook once, it is not a business. However, if you open a shop to buy and sell textbooks regularly, it becomes a business.
4. How are the characteristics of 'profit motive' and 'element of risk' related in a business?
The 'profit motive' and the 'element of risk' are directly and intrinsically related in any business. Profit is considered the reward for taking risks. The principle is often summarised as 'higher the risk, higher the potential profit'. When an entrepreneur invests capital and effort, there is no guarantee of success; this uncertainty is the risk. The desire to earn profit is what motivates them to face these financial and market-related risks and innovate.
5. What are some real-world examples of business activities that involve both goods and services?
Many businesses provide a combination of goods and services. For example:
- A restaurant provides a tangible good (the food) and intangible services (the ambiance, seating, and serving staff).
- A car dealership sells a physical good (the car) and also offers services like financing, insurance, and after-sales maintenance.
- An electronics store sells goods like laptops and phones but also provides services such as installation, repair, and extended warranties.
6. What is the core difference between the 'concept' of business and the 'characteristics' of business?
The 'concept' of business refers to the broad, fundamental idea or definition—it is an organised human activity focused on earning a livelihood through commerce. In contrast, the 'characteristics' of business are the specific, testable features that an activity must exhibit to fit that concept. For example, the concept is 'earning a living through trade', while the characteristics are the specific pillars like 'regularity', 'profit motive', and 'risk element' that define and validate it as a business.
7. Why is 'legality' considered an essential characteristic of a business?
Legality is essential because a business must operate within the legal framework of the society it serves. An activity, even if it involves regular dealings and a profit motive, is not considered a business if it is illegal (e.g., smuggling or theft). A lawful enterprise contributes to the economy and operates under government regulations, ensuring it does not harm society. Illegal activities are anti-social and punishable, thus they fall outside the definition of business.
