Nature And Purpose of Business

 

Business Risk :-

The term business risk refers to possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes & preferences of consumers, strike, increased competition, change in Government policy etc. These are of two types speculative & pure.

Nature of Business Risks :-

  1. Business risks arise due to uncertainties :- Natural calamities, change in demand and prices, change in technology etc. are some of the examples of uncertainty which create risks.

  2. Risk is an essential part of every business :- No business can avoid risk. Risk can be minimized but can not be eliminated.

  3. Degree of risk depends mainly upon the nature and size of business :- For small scale business it is less and for large scale business it is more.

  4. Profit is the reward for risk taking :- An entrepreneur assumes risks and in consideration he gets reward which is called profit. Greater the risk higher is the chance of profit.

Causes of Business Risk :-

  1. Natural causes : are beyond human control e.g., flood, earthquake, heavy rains, famine etc.

  2. Human causes : include carelessness or negligence of employees e.g., theft, strikes, riots, misappropriation of cash and goods etc.

  3. Economic causes : related to a chance of loss due to change in market condition e.g., fluctuations in demand and prices, competition, change in technology etc.

  4. Physical causes : Mechanical defects or failures may also lead to losses e.g., bursting of boiler or machine may cause death or destruction.

  5. Other causes : These include unforeseen events like political disturbances, fluctuation in exchange rates etc.

Starting a Business :- Basic Factors

  1. Selecting the line of business : - The first thing to be decided by the entrepreneur is the line and type of business to be undertaken.

  2. Scale or size of business :- After deciding the line of business the businessman must decide whether he wants to set up large scale or small scale business.

  3. Choice of form of Business organization :- The next decision must be taken is to finalize the form of business i.e., to set up sale proprietorship., partnership or joint stock company.

  4. Location of Business Enterprise :- The entrepreneur has to decide the place where the enterprise will be located. Before taking this decision he must find out availability of raw materials, power, labour, banking, transportation etc.

  5. Financial Requirement : The businessman must analyze the amount of capital he might require to buy fixed assets and for working cses) Proper financial planning must be done to determine the amount of funds needed.

  6. Physical facilities : include machinery, equipment building etc. This decision depends upon the size, scale and type of business activities he wants to carry on.

  7. Plant layout :- Showing the physical arrangement of machines and equipment needed to manufacture a product.

  8. Competent and committed workforce :- The entrepreneur must find out the requirement of skilled and unskilled workers and managerial staff to perform various activities.

  9. Tax planning :- The entrepreneur must try to analyze the types of taxes because these are a number of tax laws in the country which affect the functioning of business.

  10. Setting up the Enterprise :- After analyzing the above mentioned points carefully the entrepreneur can start the business which would mean mobilizing various resources and completing legal formalities.

EXPECTED QUESTIONS :-

(ONE MARK QUESTION)

  1. Give an example of activity which is economic in one side and non-economic on other side.
  2. Why is business considered an economic activity?
  3. It a person sells his domestic computer at a profit, will it be considered a business? Also explain the characteristic of business which is being stressed upon in the above said example.
  4. Name the economic activity in which specialized knowledge is required.
  5. Why is the insurance known as a tertiary industry?

    6. 3/4 marks

  6. Write four differences among business, profession and employment.
  7. “No business is risk free” in the light of this statement, explain the concept of business risk and its any three causes.
  8. Explain any four objectives of business
  9. Define commerce, why is it of great importance in modern life?
  10. Distinguish between primary & secondary industry. Give examples.

    11. 5/6 marks

  11. Define business. Explain the characteristics of business (any four)
  12. “Commerce is the sum total of activities that remove hindrances in the free flow of goods from producers to consumers.” Explain.
  13. Explain any six factors that are important to be considered while starting a business.
  14. Write difference among industry, commerce and trade on any five basis.
  15. "Profit maximization can't be the sole objective of a business". Explain.

CBSE Business Studies Class XI ( By Mr. Kailash Gururani )
Email Id : [email protected]

Business Studies - Mr. Kailash Gururani

 

 

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