The term business is derived from the word ‘busy’. Business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services to earn profits. The activity may consist of production or purchase of goods for sale, or exchange of goods or supply of services to satisfy the needs of other people.

Characteristics of Business

(i) An economic activity: Business is considered to be an economic activity because it is undertaken to earn money or livelihood and not out of love, affection, sympathy or any other emotion. It may be mentioned here that this activity can be undertaken either on a small and individual level, on a large scale in a more formal and organized level.

(ii) Production or procurement of goods and services: Before goods are offered to people for consumption, these must be either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods or acquires them from producers, sold to consumers. Goods may consist of consumable items of daily use, such as sugar, ghee, pen, notebook, etc. Services may include facilities offered to consumers, business firms and organisations in the form of transportation, banking, electricity, etc.

(iii) Sale or exchange of goods and services: Directly or indirectly, business involves transfer or exchange of goods and services for the value. If goods are produced not for sale but personal consumption, it cannot be called a business activity. For example-Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business.

(iv) Goods and services are deal regularly: Business involves dealings in goods or services regularly. 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 residence, it will be regarded as a business activity.

(v) Profit earning: One of the main purposes of business is to earn income by way of profit. No business can survive for long without profit. That is why; businessmen make all possible efforts to maximize profits, by increasing the volume of sales or reducing costs.

(vi) Uncertainty of return: Uncertainty of return refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period. Every business invests money (capital) to run its activities to earn a profit. But it is not certain as to what amount of profit will be earned. Also, there is always a possibility of losses being incurred, despite the best efforts put into the business.

(vii) The element of risk: Risk is the uncertainty associated with exposure to loss. It is caused by some unfavourable or undesirable event. Risks are related with factors, like changes in consumer taste and fashion, changes in the method of production, strike or lockout at the workplace, increased competition in the market, fire, theft, accidents, natural calamities, etc.