Explain any six essential characteristics of business.

Question

Accepted Answer

Business is a continuous human economic activity with the objective of earning profit by producing, buying and selling goods and services. Irrespective of size, nature, scale or ownership, an activity is referred to as business only if it exhibits the following essential characteristics.

(i) Entrepreneur's presence: There must be someone who takes the initiative to establish the business and undertakes the risk associated with it. Without an entrepreneur to launch and drive the enterprise, no business can come into existence.

(ii) Economic activity: Business consists of activities related to the production and/or distribution of goods and services, carried out with the motive of profit. This distinguishes business from non-economic activities, which are undertaken out of love, care, affection or self-satisfaction and not for money.

(iii) Production or procurement of goods and services: A business either produces or procures goods and services for offering to consumers. These may be consumers' goods, producers' goods, or services, and form the basis of every business transaction.

(iv) Sale or exchange of goods and services: A business must involve the sale, exchange or transfer of goods and/or services for the satisfaction of human needs against a value or price. Goods or services produced for personal or self-consumption do not constitute business, however useful they may be.

(v) Regularity: A one-time transaction is not business, even if it is profitable. Business must be carried on regularly and repeatedly over a period of time, which distinguishes it from isolated or occasional dealings.

(vi) Utility creation: Business activities result in the creation of utilities — form utility (changing raw material into finished products), place utility (transporting goods from the place of production to the place of consumption), and time utility (storing goods when they are not required and supplying them when needed).

In addition, business is characterised by profit earning as its reward — no business survives long without profits — by uncertainty of return of both the principal invested and the profit, and by the element of risk, where 'higher the risk, higher the profit'. These characteristics together distinguish genuine business activity from all other human activities.