The nature of business

What are the nature of business. Nature of the business may be described as follows.

1. Profit making institution: The business activities are run to earn money or make a profit. The chief objective behind the business is profit maximization or wealth or value maximization.

2. Risk: Risk is associated with business operation. Every business action is risky. Without risk business is impossible. So the risk is one of the inherent business features.

3. Creation of utility: Business creates utility. All business activities are run with an objective of value addition or utility creation.

4. Material in a Business: A businessman uses money, methods, men, machine, and materials in the business operation. The dealings are done in exchanging products and services for money and money for materials or other resources or inputs.

5. Enterprising: Business takes initiative to materialize a program and to convert raw material into finished products or one product into another.

6. Organization: Business is an organization. Business organizations men and machines to implement a production plan.

7. Use of Capital of Financial Resources: Business utilizes capital which is the lifeblood of business. Money makes money; is a proverb that happens in business.

8. Monetary Value: Business activities have a monetary value. Every activity is measurable in terms of money and non-monetary activities are usually kept outside the business purview.

9. Regular Transactions: Business survives by regular transactions. The proof of the existence of business is transactions. If transactions are stopped, business is liquidated. In accounting terminology, this is termed as ‘going concern’ situation.

10. Service Organization: Business cannot survive by only profit-making. The business will better survive by better service to customers. So there is a general serving attitude among the businessman. 



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Characteristics of Business

Business, as an organization, is different from other social, religious, or welfare organizations. As an organization, business process the following characteristics.

1. Social Institution: Business is a social institution. It is a recognized legal institution of the members of the society. Business is the society, for the society, and by the society. It uses social resources and works for society.

2. Dealing items of the Business: Business deals in goods and services. Its operation is in the materialistic area. By using different commodities or raw materials, the business manufactures the different product.

3. Creation of utility: Major contribution of the business is the creation of utility or value addition. Business creates utility for the society and in this way it serves the society.

4. Going Concern: Business presupposes continuity regularity of operations. In most cases, business survives almost perpetually.

5. Dealing by consideration: Business is not a religious or charitable activity. In every transaction business requires consideration, i.e, business dealings are for a price.

6. Profit as objective of business: Profit is the prime motive of business. Profit is the yardstick of the survival of the business. It is an index of efficiency and effectiveness. Only profitable business survives ultimately.

7. Administration in Business: Business needs administration. Proper administration or management ensures profitability, success, growth of the business.

8. Gradual Growth of Business: Business survives or disappears. Successful business must grow and expand. Gradually business expands from a single proprietorship to a Multi-National Company (MNC).

9. Deliverer of Standard of Living: Modern business is an influential institution in the society. It provides employment, income generation, and consumable goods to the society. Thus business is one of the determinants of the standard of living in the society.

10. Business is Inventor: Business tries to develop new products for the society. Business functions include research and development. So business invents different uses of the natural resources and thus provides new goods to the society.

Activities of the business:

There is general uniformity of activities among different types of business organizations that are engaged in the procurement, production, and/or sale or distribution of goods or services. A small business organization or proprietorship firm is usually engaged in a trade or merchandising or in small-scale manufacturing, usually known as handicraft or cottage industry. Partnership firm operates in the almost same type of business like sole- proprietorship firm, except with some extended operation. A company or corporation chooses a larger-scale operation or manufacturing.

  1. Activities of Business from Financial Viewpoint
  2. Activities of Business from Operational Viewpoint

1. Activities of Business from Financial viewpoint

Normally, the activities of the business, especially companies or corporate type of business, are grouped, usually, from financial viewpoint, which are as follows:

a) Financing Activities: Financial resources is the pre-condition for business operation. Arrangement of capital or money is financing activity. In the case of company, distribution of dividend or dividend decision is also financing activity. A corporation is financed usually by equity capital- ordinary or common stock and preferred stock and/ or debt capital. So share issue and debt servicing are major financing activity of a joint-stock company type of firm.

b) b) Interesting Activities: Business makes money with the help of money, which is the result of the investment. Investment creates value. Direct investment creates value or economic value. Financial or portfolio investment indirectly helps investment. Investing activity includes purchases (or sale) of land, construction of buildings, procurement and erection of machines, etc.

c) Operating Activities: Operating activities or operations include procurement of material for manufacturing of goods, or purchase, or procurement of finished goods and sale or marketing and distribution of those intermediate of final goods.

2) Activities of Business from Operation Viewpoint:

Operating activity is the main activity of the business. Operations or manufacturing and distribution are facilitated by or include engineering, finance, accounting and control, marketing, etc. These are support services to production, the details of which, are as follows:

  • Administration or management function
  • Production Marketing and
  • Distribution Engineering
  • Finance and Banking
  • Accounting and Control
  • Establishment of Information Systems
  • Research and Development
  • Other Related Activities