Business Studies Chapter 1 Nature And Purpose Of Business

For example, cotton textile industry refers to all manufacturing units producing textile goods.

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2. For all round development of a country, commerce, trade and industry have to work together efficiently. 

3. Industry is the back-bone of commerce and trade.

4. Industry includes all the processes of converting raw materials into consumable goods.

5. Trade depends on industry. There can be no trade without industry. The more the goods are manufactured, through industry, the more the need to trade.

6. While industry is concerned with the production of goods, commerce is concerned with the removal of various hindrances between the producers and customers.

7. For the success of any business, industrial and commercial functions have vital roles. 

8. Development of industry is greatly facilitated by commerce by way of vital services like, banking, transport, insurance, advertising, publicity etc.

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1. Source of funds for expansion of business.
2. Index of performance of business 
3. Reward for risk taking by the stakeholders
4. Means of livelihood for shareholders.
5. Provides better employee remuneration and amenities.
6. Better working conditions.

2. The auxiliaries help in removing the various hindrances which arise in connection with production, distribution and sale of goods. The hindrances may be in respect of persons, place, time, risk, finance, etc.

3. For example, transport removes the hindrances of place by moving goods from the places of production to the markets for sale, storage and warehousing activities removes the hindrance of time by facilitating holding of stocks of goods to be sold as and when required.

4. Goods held in stock as well as goods in course of transport are subject to the risk of loss or damage due to theft, fire, accidents, etc. Hence insurance and banking provide risk cover or capital for business to continue.

5. This is how Auxiliaries facilitate movement, storage, financing, risk coverage and sales promotion of goods.

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(i) Speculative

(i) Pure

Speculative risks involve both the possibility of gain as well as the possibility of loss.

Pure risks involve only the possibility of loss. Their occurrence may result in loss, whereas non-occurrence may explain absence of loss, instead of gain.

Nature of business risk:

(a) Business risks arise due to uncertainties.

(b) Risk is an essential part of every business.4

(c) Degree of risk depends upon the nature and size of business.

(d) Profit is the reward of risk taking.

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1. Industry,

2. Commerce.

Industry : 

(i) Industry is concerned with the production or processing of goods and materials. 

(ii) Industry refers to economic activities, which are connected with conversion of resources into useful goods.

(iii) The term industry is generally used for activities in which mechanical appliances and technical skills are involved.

(iv) These includes activities relating to producing or processing of goods as well as breeding and raising animals.

Commerce :

Commerce includes all those activities which are necessary for facilitating the exchange of goods and services. 

(i) Commerce includes two types of activities viz. 

      (a) Trade and,

      (b) Auxiliaries to trade.

Buying and selling of goods is termed as trade. But there are lots of activities that are required to facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and include transport, banking, insurance, communication, advertisement, packaging and warehousing.

All activities involving removal of hindrances in the process of exchange are included in Commerce. 

It includes all those activities, which are concerned with the extraction/ production from natural resources and reproduction and development of living organisms, plants etc. These industries may be further sub-divided as follow :

    (i) Extractive industries.

    (ii) Genetic industries.

Secondary industries

    (i) They are concerned with using the materials which have already been extracted at the primary stage e.g., the mining of iron ore is primary industry but manufacture of steel is secondary industry.

    (ii) Secondary industries may be further divided as follows :

   (a) Manufacturing industries : Which may even further divided into:

              1. Analytical industry, which analyses and separates different materials from the same material, like oil refineries.

              2. Synthetical industry, which combine different elements to form a product, like Cement indsutry

              3. Processing industry, which involves successive stages for manufacturing finished products, as in the case of sugar and paper.

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

 (b) Construction industries.

Tertiary industries

    (i) They are concerned with providing support services to primary and secondary industries as well as activities relating to trade.

    (ii) These industries provide Service Facilities

    (iii) Examples include transport, banking, insurance, warehousing, communication, packaging and advertising.

     (i) Transport, banking, insurance, warehousing and advertising are regarded as auxiliaries to trade.

     (i) These are services that help in removing various hindrances which arise in connection with the production and distribution of goods.

     (i) Transport and Communication

     (i) Insurance

Transport and Communication

     (i) Production of goods generally takes place in particular locations but these goods are required for consumption in different parts of the country.

     (i) Transportation helps in movement of raw material to the place of production and the finished goods from factories to the place of consumption.

     (i) 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

Insurance

     (i) Business involves various types of risks. Factory building, machinery, furniture etc. must be protected against fire, theft and other risks.

     (i) Materials and goods held in stock or in transit are subject to the risk of loss or damage.

     (i) Employees are also required to be protected against the risks of accident and occupational hazards.

     (i) Insurance provides a protection cover in all such cases against a premium that they charge. 

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         a) Business is an human activity directed towards the acquisition of wealth through the production and exchange of goods and services.
         b) According to Wheeler, 'Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.'

    (ii) Profession

          Profession is an occupation involving the provision of personal services of a specialised and expert nature. Example : Lawyer, doctor. Minimum educational qualifications is required to practice a profession.

    (iii) Employment or Service

          It involves working under a contract of employment for or under someone known as the employer in return for wages or salary.

Business risks arise due to uncertainties
Uncertainty is an essential condition of business because business decisions are concerned with future which cannot be forecasted with 100 per cent accuracy. Uncertainties arise due to the ever-changing environment within which a business operates. Natural calamities, changes in demand and prices, improvements in technology, changes in government policies and rules, etc. are example of uncertainties which create risks in business.

Business risks vary according to the nature and size of business
All business enterprises are not exposed to the same type of degree of risk. The degree of risk is much higher in big business than in small scale operations. Similarly, a business dealing in articles which are subject to frequent changes in fashion or demand faces greater risks. The time and place of business also influence the degree of business risks.

Profit is the reward for risk taking
Where there is no risk there is no gain. Greater the risks inherent in a business, higher is the chance of profits. Higher profits are the consideration which an entrepreneur gets for bearing risks inherent in business. However, greater risk is no guarantee of higher profits. Profits is the reward for inherent risk rather than artificially created or speculative risks.

Business risks cannot be evaluated easily
It is difficult to measure accurately or calculate business risk. The risk arises due to conditions, many of which are beyond the control of management. A businessman can make an intelligent guess about business risks but cannot predict them with certainty.

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An economic activity
Business is considered to be an economic activity because it is undertaken with the objective of earning money or livelihood and not because of love, affection, sympathy or any other sentimental reasons.

Production or procurement of goods and services
Before goods are offered to the people for consumption, they must either be produced or procured by the business enterprise. Thus, every business enterprise either manufactures the goods it deals in or it acquires them from producers, to be further sold to the end user.

Sale or exchange of goods and services
Business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but say for internal consumption, it is not a business activity. Thus, the important characteristics of business is that there should be exchange of goods between the buyer or the seller.

Dealing in goods and services on a regular basis
Business is a ongoing activity. it involves dealings in goods or services on a regular basis. One single transaction of sale or purchase does not constitute business.

Profit earning
One of the main purpose of business is to earn profits. No business can survive for long without earning profit. That is why businessmen make all possible efforts to maximize profits, by increasing the volume of sales or reducing costs.

Uncertainty of returns
 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 to run its activities with the objective of earning profits. However, the amount of profits that can potentially be earned is not consistent. Additionally, there is a possibility of losses being incurred, in spite of the best efforts put into the business.

Elements of risk
Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event. The risks are related with certain factors like 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. 

1. Primary Industry

Primary industry includes all those activities, which are connected with the extraction and production from natural resources as well as reproduction and development of living organisms, plants. These industries may be further sub-divided as follows:

   (i)Extractive Industries : These industries extract or draw out products from natural sources. Extractive industries supply some basic raw-material that are mostly the products of the soil. Products of these industries are usually transformed into many other useful goods by manufacturing industries. e.g Mining etc.

   (ii) Genetic Industries : The 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 example of genetic industries.

2. Secondary Industries    

Secondary industries 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. Secondary industries may be further divided as follows :

    (i)Manufacturing Industries : These industries are engaged in producing goods through the processing of raw materials and thus creating for utilities. Manufacturing industries may be further divided into four categories on the basis of method of operation for production :

         (a)Analytical industry : Analytical industry which analyses and separates different elements from the same materials, as in the case of a oil refinery.

         (b) Synthetic industry : It combines various ingredients into a new products, as in the case of cement industry. 

         (c) Processing industry : It involves successive stage for manufacturing finished products, as in the case of sugar and paper industry. 

         (d) Assembling industry : It assembles different component parts to make a new product, as in the case of television, car, computer industry. 

         (e) 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 important part in the construction industries.

3. Tertiary Industries

Tertiary industries 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, they assist trade. These are typically financing, insurance, transportation and communication industries.

(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 and so on. But these goods are required for consumption in all parts of the country. The limitations in sale from a single place of production is removed by transport—road, rail or 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 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. 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 perform various tasks on behalf of traders such as collection of cheques, remittance of funds to different places, and discounting of bills.

(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 cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, be recovered from the insurance company.

(iv) Warehousing : 

 Not all goods are 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.

(v) Advertising :

Advertising is one of the most important methods of promoting the sale of products, particularly, the consumers goods like electronic goods, automobiles, soaps etc. Most of these goods are manufactured and supplied in the market by numereus firms-big or small. It is practically impossible for producer and trader to contact each and every customer.

Thus, for promoting sales, advertising plays an important role. it helps the seller to educate the buyer about the products and services.
such as their availability, prices and features.

2. 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 favour the large size whereas others tend to restrict the scale of operation. If the entrepreneur is confident that the demand of the proposed product is likely to be good over time and he can arrange the necessary capital for business, he will start the operation on a large scale. If the market conditions are uncertain and risks are high, a small size business would be a better choice.

3. Choice of form of ownership :
In relation of ownership, the business origination 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 ownership, division of profit, legal formalities, continuity of business, transferability of interest and so on.

4. Location of business enterprise :
An important factor to be considered at the start of the business is the place where the enterprise will be located. Availability of raw materials and labour, power supply and services like banking, transportation, communication, warehousing etc. are important factors while making this choice.

5. Financing the proposition :
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 equipments 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 these following things:
(a) the requirements of capital.
(b) source from which capital will be raised and,
(c) the best ways of utilizing the capital in the firm.

6. Plant layout :
Once the requirement of physical facilities has been determined, the entrepreneur should draw a layout plan showing the arrangement of these facilities. It can also be termed as blueprint of proposed business. Layout mean the physical arrangement of everything needed to manufacture a product including machines, persons, raw materials and finished goods.

7. Competent and committed work force :
Every enterprise needs competent and committed work force to perform various activities so that physical and financial resource are converted into desired outputs. Since no individual entrepreneur can do everything himself, he must identify the requirement of skilled and unskilled workers and managerial staff. Plans should also be made about how the employees will be trained and motivated to give their best performance.

8. Tax planning :
Tax planning has become necessary these days because a number of tax laws in the country influence almost every aspect of the functioning of modern business. The founder of the business has to consider in advance, the tax liability under various tax laws and its impact on business decisions.

9. Launching the enterprise :
After the decisions relating 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 sale promotion campaign.

Trade is confined to buying and selling of goods and is a part of commerce, which is wider term that includes trade and aids to trade. 

Trade may be classified in two categories :

1. Internal Trade

2. External Trade.

Internal Trade :
Internal trade is done within the geographical boundaries of a country. As an example, trade done amongst the traders of Delhi, Mumbai, Chennai, Kanpur and Amritsar etc. is called Internal Trade.

Types of Internal Trade :

(i) Wholesale Trade : It involves purchase and sale of goods in wholesale quantities. Large quantities of goods purchased from manufacturer are sold in small quantities to various retailers.

(ii) Retail : It involves the sale of goods to consumers by the retailers. A retailer buys the goods from a wholesaler and sells them to customers in their required quantities. It is a link between a wholesaler and consumer. Different types of goods are available at a retailer shop so that a customer could buy the goods of his own choice.

Internal trade can also be classified as : (a) Local Trade, (b) State Trade, (c) Inter-State Trade.

External Trade : 
Whenever trade occurs between two countries, it is known as external trade. In foreign trade, both buyer and seller live in different countries. If Reliance Ltd. sells Polyester Yarn to a French firm or L&T Ltd. purchases a heavy machine from a Swiss firm, these would classified as external trade.

Types of External Trade :

1. Import Trade : When the trader of one country buys the goods from foreign countries, it is known as import trade for the trader who buys the goods.
2. Export Trade : When the trader of a country sells goods to a foreign country, it is known as export trade for the trade who sells the goods e.g., if a tea firm of Darjeeling sells tea to U.K., it is export trade.

3. Entrepot Trade : The goods imported from one country for export to another country, is known as entrepot trade. It is also known as Re-export. It is done when a country does not have her own seaport or not having good political relations with other countries or no direct access to those countries from where goods are to be imported.

Causes of business risks are as given under :

1. Natural causes : Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc. they result in heavy loss of life, property and income of business.

2. Human causes : Human causes include such unexpected events like dishonesty, carelessness or negligence of employees; stoppage of work due to power failure; strikes, riots;

3. Economic causes : These includes uncertainties relating to demand for goods, competition, price, collection of dues from customers, change to technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes, etc. also come under this type of causes as they result in higher unexpected cost of operation of business.

4. 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.

It consists of trade, and the activities which facilitate trade.

The process of exchange is full of hindrances. The principal function of commerce is to remove these hindrances so as to ensure a free and uninterrupted flow of goods and services from producers to consumers.

These hindrances have been described below :

1. Hindrance of place : Very often goods are produced at places far away from the points of consumption. Various means of transportation remove this barrier of distance and help to establish a link between the two. Packaging of goods to protect them from damage and pilferage in the course of transit, help remove the hindrance of place and thereby creates place utility.

3. Hindrance to Time : Goods are generally produced in anticipation of demand. Therefore, it becomes necessary to store them and make them available as and when the consumers demand them.

4. Hindrance of risk : During transportation and storage, goods are subject to several types of risk. Goods may be stolen or damaged. Insurance covers this risk.

5. Hindrance of exchange : Exchange or sale of goods requires safe and economic arrangement for the payment of price. Dealing in goods involve the problems of time and place of payment. Money serves as the medium of exchange and thereby removes the hindrance of exchange.

6. Hindrance of knowledge : Exchange of goods can take place only when the seller brings his products to the notice of prospective buyers. Advertising and publicity provide the necessary information to prospective buyers about the utility and features of various products. In this way, they help to remove the hindrance of knowledge.
Therefore, commerce plays a role in ensuring that the hindrances are minimized and a smooth flow of trade happens between the producer and the consumer. 

This may result in the non-cooperation of affected people against the malpractices of business enterprises. Hence they should focus on multiple objectives.

Some of the objectivs are as follows :

  (a) Market standing : It refers to the position of business enterprise in the market with regard to its competitors. The business enterprise should work hard to maintain its position in the market.

  (b) Innovation : If a business enterprise desires to win the confidence of its customers and goodwill in the market, it has to adopt the concept of innovation. Innovation is an introduction of new ideas or methods in a way something is done or made. In business there are broadly two kinds of innovations.

(i) Innovation in product or service.

(ii) Innovation in the various skills and activities needed to supply them.

  (c) Profitability : It refers to profit in relation to capital investment. Every business must maintain minimum level of profitability in order to survive in the market.

  (d) Productivity : It is used as a measure of efficiency. It is calculated by comparing the value of output with the value of input.

  (e) Physical and financial resources : Any business requires physical resources like plants, machines and offices etc. and financial resources to be able to provide  products and services to the end user. Thus, to acquire and use these resources efficiently become very necessary.

  (f) Manager performance & development/ Worker performance & attitude : Manager's performance is an important parameter in the success of business. However, this is not possible without the efficient and positive performance of workers. Workers' performance and attitudes determine their contributions towards productivity and profitability of any enterprise.

  (g) Social responsibility : Social responsibility refers to the obligation of business firms to contribute resources for solving social problems and work in a socially responsible manner.

Hence, a business enterprise must have multiple objectives to satisfy different individuals and groups, for its own survival and prosperity.

D.

1. Profit Motive: Business means production, purchase and sale of goods with profit motive. Earning profit for satisfying needs make the business an economic activity.

2. Business activities require use of scarce resources: To run business concern the owner must have adequate capital, raw materials, skilled workers. Business requires sufficient funds to be invested in it. All these activities involve monetary transactions. So business is an economic activity.

3. Satisfying human wants: Business is a source of income for businessmen and their families. Business can, therefore, be regarded as an economic activity not only as a means of earning income by businessmen but also as a means of satisfying the wants of people.

1. Industry, commerce and trade are closely related to each other. For example, industry provides goods and services which are distributed through commerce. No commercial activity is possible in the absence of industry and production.
2. At the same time industry and production can not work unless the goods and services are distributed among consumers through commerce. Therefore, industry provides the base of commerce and commerce serves as the backbone of industry.

3. Trade involves buying and selling of goods. It is the nucleus of commerce because all business activities revolve around transfer or exchange. Trade provides the solid foundation upon which the superstructure of commerce has been raised. It provides necessary support to industry and maintains a smooth flow of commerce. This interrelationship is shown in figure.

(i) Incentive - Profits provide the basic stimulus to establish and operate business enterprises. Profit is the driving force behind private enterprise. It is the return on capital and reward for the risk of entrepreneurship.
(ii) Survival - Profit covers the risk and costs of staying in business. Profit helps to maintain intact the revenue generating capacity of business. Through profits, an enterprise can replace obsolete machinery and equipment.
(iii) Growth - In order to expand and grow, an enterprise needs funds. Retained earnings or ploughing back of profits is an important source of capital for expansion and innovation. Profits provide the means of self-financing. 
(iv) Measure of efficiency - Profit is an important measure of success for a corporation. Profit is the criteria by which people evaluate the efficiency and performance of business enterprise.
(v) Prestige - A losing concern has no goodwill or image in society. Accumulation of wealth through business earning has enabled people to build business empires. Society, too, can progress only when human effort yields profit because a losing organisation leaves less for all to share.

(i) Incentive - Profits provide the basic stimulus to establish and operate business enterprises. Profit is the driving force behind private enterprise. It is the return on capital and reward for the risk of entrepreneurship.
(ii) Survival - Profit covers the risk and costs of staying in business. Profit helps to maintain intact the revenue generating capacity of business. Through profits, an enterprise can replace obsolete machinery and equipment.
(iii) Growth - In order to expand and grow, an enterprise needs funds. Retained earnings or ploughing back of profits is an important source of capital for expansion and innovation. Profits provide the means of self-financing. 
(iv) Measure of efficiency - Profit is an important measure of success for a corporation. Profit is the criteria by which people evaluate the efficiency and performance of business enterprise.
(v) Prestige - A losing concern has no goodwill or image in society. Accumulation of wealth through business earning has enabled people to build business empires. Society, too, can progress only when human effort yields profit because a losing organisation leaves less for all to share.

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 and so on. But these goods are required for consumption in different parts of the country. The limitations in sale from a single place of production is removed by transport—road, rail or 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 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. 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.

(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 cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, 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 facilities the availability of goods when needed.

(v) Advertising :

Advertising is one of the most important methods of promoting the sale of products, particularly, the consumers goods like electric goods, automobiles, soaps etc. Most of these goods are manufactured and supplied in the market by numereus firms-big or small. It is practically impossible for producer and trader to contact each and every customer. Thus, for sales promotions, information must reach the potential buyers about the goods available it favours price etc. Advertising helps in providing information about available goods and including customers to buy particular item.

2. 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 favour the large size whereas others tend to restrict the scale of operation. If the entrepreneur is confident that the demand of the proposed product is likely to be good over time and he can arrange the necessary capital for business, he will start the operation on a large scale. If the market conditions are uncertain and risks are high, a small size business would be better choice.

3. Choice of form of ownership : 
In relation of ownership, the business origination 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 ownership, division of profit, legal formalities, continuity of business, transferability of interest and so on.

4. Location of business enterprise :
An important factor to be considered at the start of the business is the place where the enterprise will be located. Availability of raw materials and labour, power supply and services like banking, transportation, communication, warehousing etc. are important factors while making a location choice.

5. Financing the proposition : 
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 equipments 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 requirements of capital, (6) source from which capital will be raised and (c) the best ways of utilizing the capital in the firm.

6. Plant layout : 
Once the requirement of physical facilities has been determined, the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout mean the physical arrangement of everything needed to manufacture a product including machines, persons, raw materials and finished goods.

7. Competent and committed work force : 
Every enterprise needs competent and committed work force to perform various activities so that physical and financial resource are converted into desired outputs. Since no individual entrepreneur can do everything himself, he must identify the requirement of skilled and unskilled workers and managerial staff. Plans should also be made about how the employees will be trained and motivated to give their best performance.

8. Tax planning : 
Tax planning has become necessary these days because a number of tax laws in the country influence almost every aspect of the functioning of modern business. The founder of the business has to consider in advance, the tax liability under various tax laws and its impact on business decisions.

9. Launching the enterprise : 
After the decisions relating the above mentioned factors 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 sale promotion campaign.

It consists of trade, and the activities which facilitate trade.

The process of exchange is full of hindrances. The principal function of commerce is to remove these hindrances so as to ensure a free and uninterrupted flow of goods and services from producers to consumers.

These hindrances have been described below :

1. Hindrance of place : Very often goods are produced at places far away from the points of consumption. Various means of transportation remove this barrier of distance and help to establish a link between the two. Packaging of goods to protect them from damage and pilferage in the course of transit, help remove the hindrance of place and thereby creates place utility.

3. Hindrance to Time : Goods are generally produced in anticipation of demand. Therefore, it becomes necessary to store them and make them available as and when the consumers demand them.

4. Hindrance of risk : During transportation and storage, goods are subject to several types of risk. Goods may be stolen or damaged. Insurance covers this risk.

5. Hindrance of exchange : Exchange or sale of goods requires safe and economic arrangement for the payment of price. Dealing in goods involve the problems of time and place of payment. Money serves as the medium of exchange and thereby removes the hindrance of exchange.

6. Hindrance of knowledge : Exchange of goods can take place only when the seller brings his products to the notice of prospective buyers. Advertising and publicity provide the necessary information to prospective buyers about the utility and features of various products. In this way, they help to remove the hindrance of knowledge.
Therefore, commerce plays a role in ensuring that the hindrances are minimized and a smooth flow of trade happens between the producer and the consumer. 

2. For expansion and growth of business.

(ii) Banking and finance.

(b) Non-economic activity.

(ii) Medical risk.

(ii) Negligence on the part of a worker.

Two examples:

1. Textile industry,

2. Sugar industry.

C.

C.

D.

B.

A.

B.

A.

B.

A.

C.

B.

D.

B.

B.

B.

A.

B.

C.

D.

D.

D.

A.