Nature and Purpose of Business

Concept and Characteristics of Business

We have been amidst businesses for as long as we can remember. It is absolutely not an overstatement to say that everything that surrounds you is ‘business’. From your computer screen to the chair you sit on, everything is a chain of business. Further, we will learn about the Concept and Characteristics of Business.

Suggested Videos

previous arrow
next arrow
previous arrownext arrow


Concept of Business

In Layman terms, business means to get something at low cost and sell it at a higher cost, meanwhile, the margin produced between that is the profit. Business’s only purpose is profit, it is driven by it. Business is derived from the word ‘busyness’ meaning engaged in an activity.

If we were to define business in much finer terms, we can say that “Business is any occupation which includes all activities which are connected with production or procurement of goods for sale and adding a profit margin to that costs for further selling it to the customer for the satisfaction of their needs.”

Most importantly, the business aims at a profit but only through the satisfaction of the needs of the customers. The business includes every occupation in which people are busy in earning the income by the means of either producing, purchasing, selling or exchanging goods or services to fulfill needs of other people with the objective of making a profit.

Concept and Characteristics of Business

(Source – Amazon services)

Characteristics of Business

Characteristics are the features which are necessary to classify the business.  Therefore let’s have a look at them.

Economic Activity

Business necessarily has to be an economic activity. But what exactly is an economic activity? Any activity that gives a monetary return is an economic activity. For example, if your friend’s father picks you up and drops you at college every day, he is doing this act out of kindness. But if he starts a transportation service of picking up and dropping by charging money then it’s an economic activity.

Production or Trading of Good or Services for Sale

If a business plans on selling a product, it has to either manufacture that product or purchase it and add a profit margin to it and sell it further. Business is interested in every activity that is concerned with the production or purchase of goods for selling, this makes it one of the most important characteristics of a business. Services for sale include transportation, housekeeping, and security. Whereas, goods are mostly consumable items.

Sale or Exchange of Goods and Services

The third and crucial one of the characteristics of business after production or procurement is to sell that product for the money. The way to sell a product or service is by launching it in the market or to offer it for sale. A sale or exchange must take place between the seller and the buyer.

Regularity in Dealings

Business is a repeatable economic activity that generates money. For example, if you sell your old bike and it generates money. Also, it’s an economic activity but is you doing this on a regular basis? No. As it has no regularity in it, it cannot be accepted as a business activity. Similarly, there is a dealer who deals in the purchase and sells of second-hand bikes. For him, it’s a business activity as there is a regularity in his dealing. A single transaction of purchase or sale cannot be classified as a business.

Profit Earning

The sole purpose of business is the maximization of profit. It steps into the market with the main objective of earning a profit. For the survival of business in a market, generating profit is extremely necessary. If a business can’t produce profit, it is expected of it to go downhill financially. Therefore the businessman does all the possible tricks to maximize its profits by increasing the volume of sales or decreasing the costs

Risk Factor

It is well known “Higher the risks, higher the return”. Business attracts risk. While initiating business it is not guaranteed 100% that the business will be successful. There is an anticipation that there might be demand for its product or service in the market. But the market is always dwindling the subject to risk. The business may even earn profit but the amount of profit earned may vary.

Uncertainty of Returns

Businessmen invest huge capital in their activities to sustain and extract profit from the business. As we discussed the risk above, it is very uncertain as to what amount the profit will be earned. Often there are situations where is no return of profit. There are always chances of losses in the business activities.

Legal Activity

The business has to be legal and lawful. Business is an extremely important activity for a country but it is not above the law. Every economic activity has to be within the limits of the law. The country’s legislation puts clauses on the functioning of the business to control its activities.

Solved Question for You

Q: Which of the following is not a characteristic of a business activity

  1. Manufacturing goods and services
  2. The factor of risk.
  3. Sale of product.
  4. Wages.

Ans: The correct answer is option D. Wages is not a characteristic of a business activity. The payment of receipt of wages is not a proof of a business activity, so it is not one of the characteristics of business.

Share with friends

Customize your course in 30 seconds

Which class are you in?
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
Ashhar Firdausi
IIT Roorkee
Dr. Nazma Shaik
Gaurav Tiwari
Get Started

One response to “Nature of Business Risk”

  1. Laban Mussa says:

    How portfolio diversification can reduce the risk expected by an investor?

Leave a Reply

Your email address will not be published. Required fields are marked *

Download the App

Watch lectures, practise questions and take tests on the go.

Customize your course in 30 seconds

No thanks.