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What do you mean by the word business? What are the classification of business and explain them.

Business refers to any occupation in which people regularly engage in an activity with a view to earning profit. These activities may be broadly classified into two groups — economic and non-economic. Economic activities are those by which we can earn our livelihood whereas non-economic activities are those performed out of love, sympathy, sentiments, patriotism, etc. For example a labour in a factory, a doctor doing a surgery and a teacher taking lessons are doing their work to earn their livelihood and so they are engaged in economic activity.


Write any three differences between business and profession

Basic Business Profession
1. Mode of establishment Entrepreneur's decision and other legal formalities, if necessary Membership of a professional body and certificate of practice
2. Nature of work Provision of goods and services to the public Rendering of personalized, Expert services
3. Qualification No minimum qualification is necessary Expertise and training in a specific field is a must



What do you mean by industrial activity and commercial activity and give examples

Industry is Concerned with the production or processing of goods and materials. Commerce includes all those activities groups of firms producing similar or related goods. For example, cotton textile industry refers to all manufacturing units producing textile goods from cotton. Similarly, electronic industry would include all firms producing electronic goods, and so on.


Write short notes on trade which is one of the two commercial activities


Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to ultimate consumers or users. These days goods are produced on a large scale and it is difficult for producers to themselves reach individual buyers for sale of their products. Businessmen are engaged in trading activities as middlemen to make the goods available to consumers in different markets. In the absence of trade, it would not be possible to undertake production activities on a large scale. Trade may be classified into two broad categories.





Internal or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country. This may further be divided into wholesale and retail trade. When goods are purchased and sold in bulk, it is known as wholesale trade. When goods are purchased and sold in comparatively smaller quantities, it is referred to as retail trade. External or foreign trade consists of the exchange of goods and services or organizations operating in two or more countries. If goods are purchased from another country, it is called import trade. If they are sold to other countries, it is known as export trade. When goods are imported for export to other countries, it is known as entrepot trade.


What are the multiple objectives of business?

The objectives define what the business is going to do in concrete terms that enable the business to analyze their own experience and as a result improve their performance. Objectives are needed in every area where performance and results affect the survival and prosperity of business. Some of these areas are described below:


(a) Market standing: This objective is an offshoot of the profit maximization objective. Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products to its customers and serving them to their satisfaction.


(b) Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made. Innovation is an important factor in the survival of the business entity. These days it is more of a necessity than a mere objective. Innovation may be brought about not just in the products or services but also in the way in which they are served to the market and in the way in which the business operations are run.


(c) Productivity and Efficiency: This objective is central to profit maximization. Profits can be reaped only if the rate of earning revenue is more than the rate of incurring costs. Efficiency can be expressed as achieving the maximum possible with the minimum available. The maximum output which can be achieved with the given level of inputs has to be aimed at. This can be ensured by minimizing wastages in raw materials, man-hours and money.

(d) Goodwill and Social Responsibility: Every business entity must realize that its existence is not just supported by its owners and promoters but by its stakeholders like investors, financiers, customers, employees, suppliers and the people living in the immediate environment of the entity. This attitude must be reflected in its understanding the needs of its stakeholders and respecting their interests and functioning in the best interests of the stakeholders. This will eventually spread goodwill among its stakeholders. It must also realize that it is a part of the society and that it must return to the society what it takes from it. It must do so by doing its part in uplifting the economic, social and environmental aspects of the region it functions. Many corporates like Tata Sons Limited, Ballarpur Industries Limited (Bilt) have exhibited their conviction to social responsibility by serving the causes of rural development and the like. They bring out their corporate social responsibility (CSR) plans to the public and involve the public in their endeavors too. Recently, the Jaagore initiative by Tata Tea Limited has won the company many accolades and has also brought about civic awareness among the public.


Write short notes on business risk.

The term 'business risks' refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers. Decrease in demand will result in lesser sales and profits. In another situation, the shortage of raw materials in the market may shoot up its price. The firm using these raw materials will have to pay more for buying them. As a result, cost of production may increase which, in turn, may reduce profits. Business enterprises constantly face two types of risk: speculative and pure. Speculative risks involve both the possibility of gain as well as the possibility of loss. Speculative risks arise due to changes in market conditions including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers. Favorable market conditions are likely to result in gains whereas unfavourable ones may result in losses. Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike is examples of pure risks. Their occurrence may result in loss whereas non-occurrence may explain absence of loss, instead of gain. It is to be noted that whereas pure risks can be insured, speculative risks should be managed by means of financial derivatives, forward trading and such other financial tools and measures.


What are the methods adopted by an organization to deal with risks?

Methods of Dealing with Risks


Though a firm can never escape from a presence of any risk it can still employ methods to avoid them. For instance, the firm can


(a) Avoid itself from entering into a risky transaction


(b) Preventive measures can be taken like firefighting


(c) Transfer the risk to an insurance company by taking a policy


(d) Assume risk by making provisions in the current earnings like it will be in a bad case or while in debt


(e) Share risks with other enterprises by making the manufacturers agree to compensate the losses in the case of falling prices.


Explain the characteristics of business activities?

In order to appreciate how business activity is different from other activities in society, the nature of business or its fundamental character must be explained in terms of its distinguishing characteristics, which are as follows:



(i) An economic activity: Business is Considered to be an economic activity Because its main aim to get profit. or livelihood and not because of love, affection, sympathy or any other sentimental reason.


(ii) Production or procurement of Goods and services: Before goods are Offered to people for consumption they Must be either produced or Procured by business enterprises. Thus, every Business enterprise either manufactures. The goods it deals in or it to be Further sold to consumers or users. The consumer acquires them from producers, to be Items of daily use such as sugar, ghee, Pen, notebook, etc. or capital goods like machinery, furniture, etc. Services may include facilities offered to consumers in the form of transportation, banking, electricity, etc.


iii) Sale or exchange of goods and services for the satisfaction of human needs: business involves transfer or exchange of goods and services .If goods are produced not for the purpose of sale . Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer.


(iv) Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis, on single transaction of sale and purchase. Thus, 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 it will be a business activities.


(v) Profit earning: the main aims in business to get high profit: No business cannot live without earning profits. the businessmen will make all possible to get high profit. for getting profit they will increase the sale and reduce the cost.


(vi) Uncertainty of return: Every business invests money (capital) is going to earn in given period. But it is not changes in consumer tastes and fashions, changes in methods Of production, strike or lockout in the work place, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can altogether do away with risks.


(vii) Element of risk: Risk is the uncertainty and it may take to loss. Some causes it unfavourable or undesirable event. The risk will change according to the consumer tastes and fashions. The consumer always changing there taste so it's a great risk for business. , changes in methods of production, strike or lockout in the work place, increased competition in the market, fire, theft, accidents, natural calamities, etc.


Compare and list out the differences between business, profession and employment

Comparison of Business, Profession and Employment



Basic Business Profession Employment
1. Mode of establishment Entrepreneur's decision and other legal formalities, if necessary Membership of a professional body and certificate of practice Appointment letter and service agreement
2. Nature of work Provision of goods and services to the public Rendering of personalized, Expert services Performing work as per service contract or rules of service
3. Qualification No minimum qualification is necessary Expertise and training in a specific field is a must Qualification and training as prescribed by the employer
4. Reward or return Profit earned Professional fee Salary or wages
5. Capital investment Capital investment required as per size and nature of business Limited capital needed for establishment No capital required
6. Risk Profits are uncertain and irregular; risk is present Fee is generally regular and certain; some risk Fixed and regular pay; no risk
7. Transfer of interest Transfer possible with some formalities Not possible Not possible
8. Code of conduct No code of conduct is prescribed Professional code of conduct is to be followed Norms of behavior laid down by the employer are to be followed



What are the three divisions in industry and explain them

Industries may be divided into three broad categories namely primary, secondary and tertiary.


(a) Primary industries: This is also known as a extractive industries. It include activity and connected with the production of wealth directly from natural resources. Such as like water, air and land etc. all those activities, which are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants etc. These industries may be further subdivided as follows:


1.Extractive industries: These industries extract or draw out products from natural sources. Extractive industries supply some basic raw materials that are mostly products of the soil. Products of these industries are usually transformed into many other useful goods by manufacturing industries. Important extractive industries include farming, mining, lumbering, hunting and fishing operation.


2.Genetic industries: IT means parentage or heritary. These industries remain engaged in breeding plants and animals for their use in further reproduction. For the breeding of plants, the seeds and nursery companies are typical examples of genetic industries. In addition, activities of cattle-breeding farms, poultry farms, and fish hatchery come under the class of genetic industries.


(b) Secondary industries: IN this converting raw material in to finishing product. These are concerned with using the materials, which have already been extracted at the primary stage. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. For example, the mining of an iron ore is a primary industry, but manufacturing of steel is a secondary industry. Secondary industries may be further divided as follows:


(i) Manufacturing industries: they are concerned with the changing of the raw material and semi finishing goods in to finished product. They turn out diverse finished products, that we consume, through the conversion of raw materials or partly finished materials in their manufacturing operations. Manufacturing industries may be further divided into our categories on the basis of method of operation for production.


• Synthetical industry: which combines various ingredients into a new product, as in the case of cement.


•Analytical industries: involves successive stages for manufacturing finished products, as in the case of sugar and paper.


• Assembling industry: which assembles different component parts to make a new product, as in the case of television, car, computer, etc.


(ii) Construction industries: These industries are involved in the construction of buildings, dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries.


(c)Tertiary industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These industries provide service facilities. As business activities these may be considered part of commerce because as auxiliaries to trade they assist trade. Included in this category are transport, banking, insurance, warehousing, communication, packaging and advertising.


Explain in detail about the auxiliaries to trade

Auxiliaries to Trade


Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally, referred to as services because these are in the nature of facilitating the activities relating to industry and trade. Transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries to trade, i.e., activities playing a supportive role. In fact, these activities not only support trade but also industry and hence, the entire business activity. However, auxiliaries are an integral part of commerce in particular and business activity in general. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Transport facilitates movement of goods from one place to another. Banking provides financial assistance to the trader. Insurance covers various kinds of business risks. Warehousing creates time utility with storage facility. advertising provides information


(i) Transport and Communication: Production of goods generally takes place in particular locations. For instance, tea is mainly produced in Assam; cotton in Gujarat and Maharashtra; jute in West Bengal and Orissa; sugar in U.P, Bihar and Maharashtra and so on. But these goods are required for consumption in different part of the country. The obstacle of place is removed by transport — road, rail or coastal shipping. Transport facilitates movement of raw material to the place of production and the finished products from factories to the place of consumption. Along with the transport facility, there is also a need for communication facilities so that producers, traders and consumers may exchange information with one another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities.


(ii) Banking and Finance: Business activities cannot be undertaken unless funds are available for acquiring assets and meeting the day-to-day expenses. Necessary funds can be obtained by businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance. Commercial banks generally lend money by providing overdraft and cash credit facilities, loans and advances. Banks also undertake collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders. In foreign trade, payments are arranged by commercial banks on behalf of importers and exporters. Commercial banks also help promoters of companies to raise capital from the public.


(iii) Insurance: Business involves various types of risks. Factory building, machinery, furniture etc. must be protected against fire, theft and other risks. Materials and goods held in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance provides protection in all such cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, can be recovered from the insurance company.


(iv) Warehousing: Usually, goods are not sold or consumed immediately after production. They are held in stock to be available as and when required. Special arrangement must be made for storage of goods to prevent loss or damage. Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Prices are thereby maintained at a reasonable level through continuous supply of goods.


(v) Advertising: Advertising is one of the most important methods of promoting the sale of products, particularly, consumers goods like electronic goods, automobiles, soaps, detergents etc. Most of these goods are manufactured and supplied in the market by numerous firms — big or small. It is practically impossible for producers and traders to contact each and every customer. Thus, for sales promotion, information about the goods available, its features, price, etc., must reach potential buyers. Also there is a need to persuade potential buyers about the uses, quality, prices, competitive information about the goods etc. Advertising helps in providing information about available goods and inducing customers to buy particular items.


Explain the causes for business risk.

Business risks arise due to a variety of causes, which are classified as follows:


(i) Natural causes: These include probability of loss due to floods, storms, cyclones, earthquakes and such other convulsions of nature. They result in heavy loss of life, property and income in business. These risks can be encountered by taking up specific and comprehensive insurance covers.


(ii) Human causes: Human causes include such unexpected events like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc. Risks from such causes have to be actively managed and alternative plans in case of stoppage of work and the like should be drawn up in advance.

(iii) Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes, etc., also come under these types of causes as they result in higher unexpected cost of operation of business. These will have to be countered by way of active risk management tools like risk avoidance, risk reduction and risk transfer by way of hedging operations using financial derivative products.


(iv) Other causes: These are unforeseen events like political disturbances, mechanical failures such as the bursting of boiler, fluctuations in exchange rates, etc., which lead to the possibility of business risks. Most of these risks will have to be borne by the business entity. The impact can be reduced by way of maintaining surplus reserves for emergency situations.


(v) Risk Management: Although no business enterprise can escape the presence of risk, there are many methods it can use to deal with risk situations. For instance, the enterprise may (a) decide not to enter into too risky transaction – this is called risk avoidance; (b) take preventive measures like firefighting devices to reduce risk – risk reduction; (c) take insurance policy to transfer risk to insurance company – risk transfer; (d) assume risk by making provisions in the current earnings as is the case of provision for bad and doubtful debts – risk retention and management; or (e) share risks with other enterprises as manufacturers and wholesalers may do by agreeing to share losses which may be caused by falling prices. Hence, risk management involves a gamut of decisions concerning identification of risks, estimating probable losses, ways of dealing with them like risk avoidance, risk reduction, risk transfer, etc. Risk management, by itself, is becoming a specialized service these days. Risk management which was mainly confined to financial enterprises has now become an integral part of every other kind of enterprise too in view of its being indispensable in the wake of modern day uncertainties.


What are the basic factors that should be considered before starting a business and explain them.

some of the basic factors, which must be considered by anybody who is to start business, are as follows:


(i) Selection of line of business: The first decision which has to be made is the line of business. Line of business refers, in plain words, to the specific products or services to be offered. This will also involve decisions on issues like whether the enterprise will be a manufacturing, ancillary or a trading one. All these decisions will depend upon the market prospects, market size, the capacity, ability and the level of expertise of the entrepreneur.


(ii) Size of the firm: Size of the firm or scale of its operation is another important decision to be taken at the start of the business. Some factors like economies of scale favour a large size whereas others tend to restrict the scale of operation. If the entrepreneur is confident that the demand for the proposed product is likely to be good over time and he can arrange the necessary capital for business, he will start the operation at a large scale. If the market conditions are uncertain and risks are high, a small size business would be better choice.


(iii) Choice of form of ownership: With respect to ownership, the business organization may take the form of a sole proprietorship, partnership, or a joint stock company. Each form has its own merits and demerits. The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of owners, division of profit, legal formalities, continuity of business, transferability of interest and so on. Tax considerations play a major part in the above decision too.


(iv) Location of business enterprise: The location of business enterprise makes or breaks the project. This decision revolves around factors like availability of raw materials, skilled labour, concentration of buyers and besides such natural factors, political factors like Government sops for industries in backward areas have been the major considerations behind the location of projects these days. While the first set of factors inherently attract industries, the second set of factors viz. political factors induce concentration of industries by making it attractive to start ventures in certain areas.


(v) Financing the venture: Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business. Capital is required for investment in fixed assets like land, building, machinery and equipment and in current assets like raw materials, book debts, stock of finished goods, etc. Capital is also required for meeting day-to-day expenses. Proper financial planning must be done to determine (a) the requirement of capital, (b) source from which capital will be raised and (c) the best ways of utilizing the capital in the firm.


(vi) Physical facilities: Availability of physical facilities including machines and equipment, building and supportive services is a very important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of business, availability of funds and the process of production.


(vii) Plant layout and Production systems: Once the requirement of physical facilities has been determined, the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout means the physical arrangement of machines and equipment needed to manufacture a product. Plant layout determines in which the way things are carried out which has a major impact on the cost considerations and efficiency. Plant layout and production systems are to be designed scientifically based on time and motion studies.


(viii) Competent and committed worked force: Materials and money alone do not make an enterprise. Manpower forms a pivotal make or break factor. A motivated and dedicated workforce is what every organization needs to translate its goals and capabilities into reality. Manpower planning spanning from job analysis, job specifications, manpower requirement analysis, recruitment, selection, promotion, transfer and compensation planning is basic to every organization. Besides business considerations, legal compliances like pension fund, working conditions are to be complied with properly.


(ix) Tax planning: Taxes have come to be the major factor which decides many of the questions relating to business. Various taxes like income tax, wealth tax, excise duties, sales tax, etc. are levied and the tax statutes do offer some concessions in order to further the economic objectives of the State policies. In order to make full use of such concessions and exemptions, proper tax planning has to be made by every enterprise. Tax planning is the right and duty of every economic entity.


(x) Launching the enterprise: After the decisions relating to the above mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilizing various resources, fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign. It would be in the best interests of the entrepreneur to engage the services of professionals like lawyers, finance and corporate law experts and technical experts to avoid any bottlenecks that may come up in the way of starting the venture.

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