Unit 1: Evolution and Fundamentals of Business

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Meaning

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Business is any economic activity that involves the exchange of product and services for profits, or other motives. It is a transaction activity. The purpose behind most business activities is to earn money by meeting people’s demands for goods and services. Business is central to our lives.

Trade and commerce have played a vital role in making India to envolve as a major actor in the economic world in ancient times.
Archaeological evidences have shown that trade and commerce was the mainstay of the economy of ancient India carried out by water and land.
Commercial cities like Harappa and Mohenjodaro were founded in the third millennium B.C.
The civilisation had established commercial connections with Mesopotamia and traded in gold, silver, copper, coloured gemstones, beads, pearls, sea shells, terracotta pots, etc.
The period was marked by substantial commercial activities and urban development.
Political economy and military security during ancient times united most of the Indian subcontinent and trade regulations were carefully planned.
There were diverse types of coins and weighing practices which used to vary from place to place with the help of money changers and by resorting to certain commonly accepted weights and measures.

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INDIGENOUS BANKING SYSTEM:-

Indigenous banking system is a banking system in which private firms or individuals act as banks by providing financial services such as loans and accepting deposits. This system is made up of indigenous bankers who are not subject to government regulation. indigenous banking system is a banking system in which private firms or individuals act as banks by providing financial services such as loans and accepting deposits. The indigenous banking system dates back to the Middle Ages.

Documents such as Hundi and Chitti were in use for carrying out transactions in which money passed from hand to hand. Hundi as an instrument of exchange, which was prominent in the subcontinent. It involved a contract which- (i) warrant the payment of money, the promise or order which is unconditional (ii)capable of change through transfer by valid negotiation

Methods of Indigenous Banking System

Promissory Note Lending money on a promissory note is one of the common methods. The one who wants to borrow money goes to a moneylender, negotiates an interest rate with him, and secures the loanafter signing a promissory note guaranteeing to pay the principal and interest on demand.

Dastavez Dastayez, or bonds, are another type of security against which loans are granted. They are written on legal forms that have been stamped and are correctly executed. Their unique feature is that they record all of the loan’s terms in writing and in a detailed manner, increasing reliability.

Rahan It is also a widely known method and refers to borrowing money through a mortgage on a property or land.

Functions of Indigenous Banking Systems

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Advancing Loans- Indigenous bankers offer loans in exchange for land, jewellery, crops, and other valuables. On the basis of a promissory notes, loans are made to identified parties.

Discounting Hundis -One of the most significant functions of indigenous bankers is to discount hundis. They write hundis, which are bills of exchange, and buy and sell them. These can be of two types: Darshni or sight hundi, which is paid on demand, and Muddati or time hundi, which is paid after the period specified on the hundi.

Accepting Deposits The indigenous bankers accept current accounts and fixed-term deposits from the general mass. Local bankers also borrow money from commercial banks, acquaintances, relatives, and even others.

Credit transaction:- With the development of credit facilities and availability of loans and advances, the commercial activities and operations enhanced and the Indian subcontinent.
Evolvement of Indigenous banking:- The indigenous banking system not only benefitted the manufacturers or traders by facilitating trade but they also helped those merchants with additional funds

RISE OF INTERMEDIARIES:-

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Intermediaries played a prominent role in the promotion of trade.
They provided considerable financial security to the manufactures by assuming responsibility for the risks involved, especially in foreign trade.
It comprised commission agents, brokers and distributors both for wholesale and retail goods.
An expanding trade brought in huge amounts of silver bullion into Asia and a large share of that bullion gravitated towards India.
The institution of Seths also developed and exercised great influence during the Mughal period and the days of the East India Company.
Bankers began to act as trustees and executors of endowments. Foreign trade was financed by loans. However, the rate of interest for longer voyages was kept high in view of the huge risk involved.

TRANSPORT:-

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Transport refers to the activity that facilitates physical movement of goods and individuals from one place to another. Individuals or business firms that engage themselves in such activities are called transport

Transport by land and water was popular in the ancient times.
Trading and shipping of goods through water bodies that is called maritime trade.
Roads as a means of communication had assumed key importance in the entire process of growth, particularly of the inland trade and for trade over land.
The northern roadway route is believed to have stretched originally from Bengal to Taxila.
There were also trade routes in the south spreading east and west.
Trade routes were structurally wide and suitable for speed and safety.

TRADING COMMUNITIES

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In different parts of the country, different communities dominated trade. Punjabi and Multani merchants handled business in the northern region, while the Bhats managed the trade in the states of Gujarat and Rajasthan. In western India, these groups were called Mahajan, chatt is were important traders from the South. In urban centers, such as Ahmadabad the Mahajan community collectively represent by their chief called nagarseth. Other urban groups included professional classes, such as hakim and vaid (physician), wakil (Lawyer), pundit or mulla (teachers) painters, musicians, calligraphers, etc.

MERCHANT CORPORATIONS:-

The merchant community also derived power and prestige from guilds, which were autonomous corporations formed to protect the interest of the traders.
These corporations, organised on formal basis, framed their own rules of membership and professional code of conduct, which even kings were supposed to accept and respect.
Trade and industry taxes were also a major source of revenue.
Traders had to pay octroi duties that were levied on most of the imported articles at varying rates.
They were paid either in cash or in kind.

MAJOR TRADE CENTRES:-

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Pataliputra
Peshawar
Taxila
Indraprastha
Mathura
Varanasi
Mithila
Ujjain
Surat
Kanchi
Madura
Broach
Kaveripatta
Tamralipti

MAJOR EXPORTS AND IMPORTS:-

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Exports consisted of spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and animal products hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli, granites, turquoise and copper etc.

Imports included horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, etc.

POSITION OF INDIA SUBCONTNENT IN WORLD ECONOMY ( 1 AD UP TO 1991):-

Population:- The Indian subcontinent is home to a significant portion of the world’s population, with countries like India and Bangladesh being among the most populous nations globally. This large consumer base contributes to the subcontinent’s economic importance.
Growth Potential:- Countries like India have been experiencing rapid economic growth in recent years, driven by factors such as urbanization, industrialization, and technological advancements. This growth potential attracts global investments and influences international trade.
Diverse Economy:- The Indian subcontinent boasts a diverse economy, encompassing various industries such as agriculture, manufacturing, services and technology. This diversity contributes to its resilience and adaptability in the face of global economic fluctuations.
Strategic Location:- The geographical location of the Indian subcontinent offers strategic advantages for trade and commerce, serving as a bridge between East and West. Ports such as Mumbai, Karachi, and Colombo facilitate international trade and shipping routes.
Emerging Markets:- Countries in the India subcontinent, particularly India, are considered emerging markets with immese potential for growth and investment opportunities. These markets attract foreign investors seeking high returns and market expansion.

CONCEPT OF BUSINESS:-

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The business concept is the fundamental idea behind the business. The business model, plan, vision, and mission are developed based on this concept. The term business is derived from the word ‘busy’. Thus, business means being busy. However in a specific sense .Business refers to an occupation in which people regularly engage in an activity related to purchase, Production and/or sale of goods and services with a view to earning profits.

For Example, a worker working in a factory, a doctor operating in his clinic, a manager working in an office and a teacher teaching in a school are doing so to earn their livelihoods and are, therefore, engaged in an economic activity.

CHARACTERISTICS OF BUSINESS ACTIVITIES:-

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An economic activity: – A business is economic activities which include the purchase & sale of goods or rendering of services to earn money. It is not concerned with the achievement of social and emotional objectives.
Profit Earning: – No business can last for long, without making a profit. The purpose to conduct the business is to earn profits and minimize the cost.
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 enterprises either manufacture the goods it deals in or acquires them from producers, to be further sold to consumers or users.
Uncertainty of return: – The possibility of earning profit or loss is very uncertain and can’t be anticipated by the entrepreneur. Hence no Business can totally do away with risks.
Element of Risk: – Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavorable or undesirable event. Risk is related with factors like changes in consumer taste and fashion, etc. No business can altogether do away with risks.

COMPARISON OF BUSINESS, PROFESSION AND EMPLOYMENT:-

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OBJECTIVES OF BUSINESS:-

Economic Objective:- Business is an economic activity and therefore, its purpose is to show economic results.
Market standing/creation of customer:- Business can survive for a longer period only if is able to capture a big share in the market & has market standing.
Innovations:- Innovation means making new products or adding new features of old products for making it more useful, improving methods of production & distribution exploring new markets, etc.
Earning profit:- Profit means excess of income over the expenditure. The foremost and prime objective of every businessman is to earn profit .
Optimum utilization of resources:- It refers to the best use of men, material, money and machinery employed in business.
Improving Productivity:- It is used as a measure of efficiency. Every business enterprise must aim at greater productivity to ensure continuous survival and growth.

Social Objectives:- Business is an integral part of society. It earns profit by selling its products or services to members of society.
Quality Goods and Services at Fair Price:- The first social objective of business is to provide better quality product at reasonable rice and in proper quantity on continuous basis to consumers examples. Example:- Consumers look for ISI mark on electrical goods, FPO mark on food products. Hallmark on jeweller.

INDUSTRY:-

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Industry refers to all those economic activities which are concerned with converting the raw materials and resource into useful goods. The following are the various types of industry;

Primary industry:-These include all those activities which are concerned with the extraction and production of natural resources and reproduction and development of living organisms etc. These are divided as follow;
Extractive industry: – These industry deal with extraction and refinement of natural resources. The products of these industries serve as raw materials for other industries, which further process these products into useful goods by manufacturing industries. Example farming, mining, hunting, fishing.
Genetic industries: – These are the industries that undertake breeding of plants and animals which can be used for further reproduction. Seeds and nursery industries and poultry farming are examples of genetic industries.
Secondary industries:- These industries, also known as manufacturing industries, acquire raw materials and convert them into final goods after further processing and value-addition. In other words, these industries aim at making the raw materials that they procure more readily consumable by the final consumer. Secondary industries can be further classified in the following manner.
Manufacturing industries: – These industries further process raw materials or semi-finished goods into finished product that can be used by the consumer.

COMMERCE:-

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Commerce includes two types of activities (i) trade and (ii) auxiliaries to trade. But there are a lot 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, etc. Therefore commerce includes both buying and selling of goods i.e., trade, as well as, auxiliaries, such as transport, banking, etc.

TRADE:-

Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to the consumers or users. These days’ goods are produced on a large scale and it is difficult for producers to themselves reach out to individual buyers for selling their products.

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Transport and communication: – It involves all the activities which are concerned with the movement of goods from one place to another. As we know that production takes place at various places and these goods are required at other places for consumption. For Example, jute is produced in west Bengal, but it is consumed in various other places. Communication is one of the most important services. It serves as a link between manufacturers, Producers, Wholesalers and consumer and help in exchanging information. Postal services, Fax, internet, etc.
Banking and finance: – It involves activities which are related with providing finance for various business activities. Business activities cannot start without having adequate funds. Funds are needed acquiring machinery, raw materials, etc. Banking solves the problem of finance. It helps to overcome the hindrance of finance. Banks also undertake collection of cheques, issue of bank drafts, etc.
Insurance: – It involves all the activities which are concerned with protection from various kinds of risks. Business involves many kinds of risks and insurance help to protect the businesses from such risks. Insurance removes the hindrance of risks by protection against various risks. Employees should also be protected against the risk of accidents and occupational hazards.
Warehousing: – Usually, goods are not sold or consumed immediately after production. They are held in stock to make them available as and when required. Special arrangement must be made for the storage of goods to prevent loss or damage. Warehousing help business firm to overcome the problem of storage the availability of goods when needed.

BUSINESS RISKS:-

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The term ‘Business Risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers. Lower demand results in long sales and profits. In another situation, the shortage of raw materials in the market may shoot up its price. The firm using these raw materials will have to pay more for buying them.

NATURE OF BUSINESS RISKS:-

Business risks arise due to uncertainties:- uncertainties is when it is not known what is going to happen in future, Example of uncertainties that affect a business are, change in government policy, change in demand, etc.
Risk is an essential part of the business: – The risk involved in a business can be reduced to some extent but it is not possible to eliminate the risk involved.
Degree of risk depends mainly upon the nature and size of business: – Nature of business and size of business are the main factors which determine the amount of risk in a business. Example, a business dealing in fashionable items has a high degree of risk.
Profit is the reward for risk taking: – No risk, no gain is an age old principle which applies to all types of business. Greater the risk involved in a business, higher is the chance of profit.

CAUSE OF BUSINESS RISKS:-

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Natural causes: – Human beings have little control over natural calamities, like flood, earthquake, etc. Property and income in business.
Human causes: – Human Causes include such unexpected events like dishonesty, carelessness, etc.
Economic causes: – These include uncertainties relating to demand for goods, competition, price, etc. financial problem like rise in interest rate for borrowing, etc.
Other causes: – These are unforeseen events, like political disturbance, such as the bursting of boiler, etc. which lead to the possibility of business risks.

STARTING A BUSINESS-BASIC FACTORS:-

Selection of line business: – The first thing to be decided by any entrepreneur of a new business is the nature and type of business to be undertaken. He/she will obviously like to enter that branch of industry and commerce. This has the possibility of greater amount of profit.
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 a large size, whereas, other tend to restrict the scale of operation.
Choice of form of ownership: – With respect to ownership, the business organization may take the form of a scale proprietorship, partnership, or a joint stock company.
Plant layout: – Once the requirement of physical facilities has been determine, the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout means the physical arrangement of machines and equipment needed to manufacture a product.

Short Answer Questions

1.Why is business considered as economic activity?

Ans- Economic activity means when it is done with a view to earning money. Every business motive is earn profit . However, there are some other objectives as well like increasing market share, improvement in productivity, employee satisfaction, consumer satisfaction, social objectives but the main and basic objective of a business is to make profits. business considered as economic activity.

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2.How does business contribute to the economic development of a country?

Ans-The business helps to economic development in the following ways:

Investing in People’s demand
Bringing employment Opportunities to economy
Increase technology development
Solution to new challenges
Active competition

3.State the different type of economic activities.

Ans-There are three type of economic activities

Business
Profession
Employment

For example a person running a garment business, a doctor operating a clinic and a teacher teaching in a school. All three are doing so to earn there livelihood so this is an economic activity

4.State the meaning of business.

Ans- Business is any economic activity that involves the exchange of product and services for profits, or other motives. It is a transaction activity. The purpose behind most business activities is to earn money by meeting people’s demands for goods and services. Business is central to our lives.

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5.How would you classify business activities?

Ans-Business activity classify in two type

Industry

Industry refers to all those economic activities which are concerned with converting the raw materials and resource into useful goods.

Commerce

Commerce includes two types of activities

(i) Trade and (ii) Auxiliaries to trade. But there are a lot 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, etc. Therefore commerce includes both buying and selling of goods i.e., trade, as well as, auxiliaries, such as transport, banking, etc.

6.Explain any two business activities which are auxiliaries to trade.

1.Transport and communication: – It involves all the activities which are concerned with the movement of goods from one place to another. As we know that production takes place at various places and these goods are required at other places for consumption. For Example, jute is produced in west Bengal, but it is consumed in various other places. Communication is one of the most important services. It serves as a link between manufacturers, Producers, Wholesalers and consumer and help in exchanging information. Postal services, Fax, internet, etc.

2.Banking and finance: – It involves activities which are related with providing finance for various business activities. Business activities cannot start without having adequate funds. Funds are needed acquiring machinery, raw materials, etc. Banking solves the problem of finance. It helps to overcome the hindrance of finance. Banks also undertake collection of cheques, issue of bank drafts, etc.

7.What are the various types of industries?

Primary industry:-These include all those activities which are concerned with the extraction and production of natural resources and reproduction and development of living organisms etc.
Secondary industries:- These industries, also known as manufacturing industries, acquire raw materials and convert them into final goods after further processing and value-addition. In other words, these industries aim at making the raw materials that they procure more readily consumable by the final consumer.
Tertiary industries:-These industries are regarded as a lifeline of an economy and act as the basic facilitators for the operation of primary and secondary industries. Example of tertiary industry are transport, banking, insurance, warehousing, communication and advertising.

8.What is the role of profit in business?

Every business motive to earn more than what has been invested and profit is the excess of revenue over cost. Profit plays an important role in business:

(i) It is a source of income for business owner.

(ii) It can be a source of finance for meeting expansion requirements of the business.

(iii) It indicates the efficient working of business

(iv) It can be taken as society’s approval of the utility of business.

(v) It create the reputation of a business.

9.What is meant by business risk?

Ans The term ‘Business Risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers. Lower demand results in long sales and profits. In another situation, the shortage of raw materials in the market may shoot up its price. The firm using these raw materials will have to pay more for buying them.

10.State the causes of risks involved in business?

Ans-

Natural causes: – Human beings have little control over natural calamities, like flood, earthquake, etc. Property and income in business.
1. Human causes: – Human Causes include such unexpected events like dishonesty, carelessness, etc.
1. Economic causes: – These include uncertainties relating to demand for goods, competition, price, etc. financial problem like rise in interest rate for borrowing, etc.
1. Other causes: – These are unforeseen events, like political disturbance, such as the bursting of boiler, etc. which lead to the possibility of business risks.

Long Answer Questions

1.Discuss the development of indigenous banking system subcontinent.

Ans- Indigenous banking system is a banking system in which private firms or individuals act as banks by providing financial services such as loans and accepting deposits. This system is made up of indigenous bankers who are not subject to government regulation. indigenous banking system is a banking system in which private firms or individuals act as banks by providing financial services such as loans and accepting deposits. The indigenous banking system dates back to the Middle Ages.

Advancing Loans- Indigenous bankers offer loans in exchange for land, jewellery, crops, and other valuables. On the basis of a promissory notes, loans are made to identified parties.

Discounting Hundis -One of the most significant functions of indigenous bankers is to discount hundis. They write hundis, which are bills of exchange, and buy and sell them. These can be of two types: Darshni or sight hundi, which is paid on demand, and Muddati or time hundi, which is paid after the period specified on the hundi.

Accepting Deposits The indigenous bankers accept current accounts and fixed-term deposits from the general mass. Local bankers also borrow money from commercial banks, acquaintances, relatives, and even others.

Credit transaction:- With the development of credit facilities and availability of loans and advances, the commercial activities and operations enhanced and the Indian subcontinent.
Evolvement of Indigenous banking:- The indigenous banking system not only benefitted the manufacturers or traders by facilitating trade but they also helped those merchants with additional funds

The development of indigenous banking system can be traced with the help of the following point

2.Define business. Describe its important characteristics.

CHARACTERISTICS OF BUSINESS

An economic activity: – A business is economic activities which include the purchase & sale of goods or rendering of services to earn money. It is not concerned with the achievement of social and emotional objectives.
Profit Earning: – No business can last for long, without making a profit. The purpose to conduct the business is to earn profits and minimize the cost.
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 enterprises either manufacture the goods it deals in or acquires them from producers, to be further sold to consumers or users.
Uncertainty of return: – The possibility of earning profit or loss is very uncertain and can’t be anticipated by the entrepreneur. Hence no Business can totally do away with risks.
Element of Risk: – Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavorable or undesirable event. Risk is related with factors like changes in consumer taste and fashion, etc. No business can altogether do away with risks.

3.Compare business with profession and employment.

4.Define industry. Explain various types of industries giving examples.

Industry refers to all those economic activities which are concerned with converting the raw materials and resource into useful goods. The following are the various types of industry;

Primary industry:-These include all those activities which are concerned with the extraction and production of natural resources and reproduction and development of living organisms etc. These are divided as follow;
Extractive industry: – These industry deal with extraction and refinement of natural resources. The products of these industries serve as raw materials for other industries, which further process these products into useful goods by manufacturing industries. Example farming, mining, hunting, fishing.
Genetic industries: – These are the industries that undertake breeding of plants and animals which can be used for further reproduction. Seeds and nursery industries and poultry farming are examples of genetic industries.
Secondary industries:- These industries, also known as manufacturing industries, acquire raw materials and convert them into final goods after further processing and value-addition. In other words, these industries aim at making the raw materials that they procure more readily consumable by the final consumer. Secondary industries can be further classified in the following manner.
Manufacturing industries: – These industries further process raw materials or semi-finished goods into finished product that can be used by the consumer.
Construction industries: – These industries are concerned with the construction and development of infrastructure such as buildings, dams road as well as tunnel etc.
Tertiary industries:-These industries are regarded as a lifeline of an economy and act as the basic facilitators for the operation of primary and secondary industries. Example of tertiary industry are transport, banking, insurance, warehousing, communication and advertising,

5.Describe the activities relating to commerce.

Ans-Commerce includes two types of activities (i) trade and (ii) auxiliaries to trade. But there are a lot 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, etc. Therefore commerce includes both buying and selling of goods i.e., trade, as well as, auxiliaries, such as transport, banking, etc.

TRADE Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to the consumers or users. These days’ goods are produced on a large scale and it is difficult for producers to themselves reach out to individual buyers for selling their products.
AUXILIARIES TO TRADE: Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally, referred to as services because these are in the nature of support service facilitating the activities relating to industry and trade. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Auxiliaries to trade are briefly discussed below
Transport and communication: – It involves all the activities which are concerned with the movement of goods from one place to another. As we know that production takes place at various places and these goods are required at other places for consumption. For Example, jute is produced in west Bengal, but it is consumed in various other places. Communication is one of the most important services. It serves as a link between manufacturers, Producers, Wholesalers and consumer and help in exchanging information. Postal services, Fax, internet, etc.
Banking and finance: – It involves activities which are related with providing finance for various business activities. Business activities cannot start without having adequate funds. Funds are needed acquiring machinery, raw materials, etc. Banking solves the problem of finance. It helps to overcome the hindrance of finance. Banks also undertake collection of cheques, issue of bank drafts, etc.
Insurance: – It involves all the activities which are concerned with protection from various kinds of risks. Business involves many kinds of risks and insurance help to protect the businesses from such risks. Insurance removes the hindrance of risks by protection against various risks. Employees should also be protected against the risk of accidents and occupational hazards.
Warehousing: – Usually, goods are not sold or consumed immediately after production. They are held in stock to make them available as and when required. Special arrangement must be made for the storage of goods to prevent loss or damage. Warehousing help business firm to overcome the problem of storage the availability of goods when needed.
Advertising: – Advertising is one of the most important methods of promoting the sale of products, particularly, consumer goods, like soaps, detergents, etc.

6.Explain any five objectives of business.

Ans The business concept is the fundamental idea behind the business. The business model, plan, vision, and mission are developed based on this concept. The term business is derived from the word ‘busy’. Thus, business means being busy. However in a specific sense .Business refers to an occupation in which people regularly engage in an activity related to purchase, Production and/or sale of goods and services with a view to earning profits.

CHARACTERISTICS OF BUSINESS ACTIVITIES

An economic activity: – A business is economic activities which include the purchase & sale of goods or rendering of services to earn money. It is not concerned with the achievement of social and emotional objectives.
Profit Earning: – No business can last for long, without making a profit. The purpose to conduct the business is to earn profits and minimize the cost.
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 enterprises either manufacture the goods it deals in or acquires them from producers, to be further sold to consumers or users.
Uncertainty of return: – The possibility of earning profit or loss is very uncertain and can’t be anticipated by the entrepreneur. Hence no Business can totally do away with risks.
Element of Risk: – Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavorable or undesirable event. Risk is related with factors like changes in consumer taste and fashion, etc. No business can altogether do away with risks.

7.Explain the concept of business risk and its causes.

Ans -The term ‘Business Risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers. Lower demand results in long sales and profits. In another situation, the shortage of raw materials in the market may shoot up its price. The firm using these raw materials will have to pay more for buying them.

Cause of business risk

Natural causes: – Human beings have little control over natural calamities, like flood, earthquake, etc. Property and income in business.
Human causes: – Human Causes include such unexpected events like dishonesty, carelessness, etc.
Economic causes: – These include uncertainties relating to demand for goods, competition, price, etc. financial problem like rise in interest rate for borrowing, etc.
Other causes: – These are unforeseen events, like political disturbance, such as the bursting of boiler, etc. which lead to the possibility of business risks.

8.What factors are to be considered while starting a business? Explain.

Basic factors that are considered while starting a business are:

Selecting the line of business: The first thing to be decided by the entrepreneur is the line and type of business to be undertaken.
Scale or size of Business:- After deciding the line of business the businessman must decide whether he wants to set up a large or small- scale business.
Choice of a form of business organization: The next decision that must be taken is to finalize the form of organisation that is to be set up, example a sole proprietorship, partnership, joint-stock company, etc.
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 the availability of raw material, power, labor, banking, transportation, etc.
Financial requirement: The businessman must estimate the amount of capital he might require to buy fixed assets and for working capital. Proper financial planning must be done to determine the amount of funds needed.
Setting up of 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.

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