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CH 1 PDF
CH 1 PDF
Foundations of Business
CHAPTER 1
LEARNING OBJECTIVES
Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After
their exams are over, they happen to meet at a common friend Ruchika’s house.
Just when they are sharing their experiences of examination days, Ruchika’s
father, Mr. Raghuraj Chaudhury intervenes and asks about their well-being. He
also enquires from each one of them about their career plans. But none of them
has a definite reply. Mr. Raghuraj, who himself is a businessman, suggests to
them that they can opt for business as a promising and challenging career.
Joseph gets excited by the idea and says, “Yes, business is really good for making
lots of money even more than is possible by becoming an engineer or a doctor.”
Mr. Raghuraj opines, “Let me tell you, young man, there is a lot more to business
than merely money”. He then gets busy with some other guests. However, the
four classmates begin raising many questions: What exactly business is all about?
What else is there in business besides money? How is business different from
non-business activities? What does one require to start a business? And, so on.
their occupation. Such activities are Bar Council of India and Chartered
generally subject to guidelines or codes Accountants belong to the accounting
of conduct laid down by professional profession and are subject to the
bodies. Those engaged in professions regulations of the Institute of Chartered
are known as professionals. For Accountants of India.
example, doctors are engaged in the Employment refers to the
medical profession and are subject to occupation in which people work for
the regulations of the Medical Council others and get remunerated in return.
of India, the concerned professional Those who are employed by others are
body. Similarly, lawyers are engaged known as employees. Thus, people who
in the legal profession, governed by the work in factories and receive wages and
and every customer. Thus, for sales is the excess of revenue over cost. Profit
promotion, information about the may be regarded as an essential
goods available, its features, price, etc., objective of business for various
must reach potential buyers. Also there reasons: (i) it is a source of income for
is a need to persuade potential buyers business persons, (ii) it can be a source
about the uses, quality, prices, of finance for meeting expansion
competitive information about the requirements of business, (iii) it
goods etc. Advertising helps in indicates the efficient working of
providing information about available business, (iv) it can be taken as society’s
goods and inducing customers to buy approval of the utility of business and
particular items. (v) it builds up the reputation of a
business enterprise.
1.8 OBJECTIVES OF BUSINESS However, too much emphasis on
profit to the exclusion of other objectives
An objective is the starting point of can be dangerous for good business.
business. Every business is directed to Obsessed with profit business
the achievement of certain objectives, managers may neglect all other
which refer to all that the business responsibilities towards customers,
people want to get in return for what employees, investors and society at
they do. It is generally believed that large. They may even be inclined to
business activity is carried on only for exploit various sections of society to
profit. Business persons themselves earn immediate profit. This may result
proclaim that their primary objective is in the non-cooperation or even
to produce or distribute goods or opposition from the affected people
services for a profit. Every business is against the malpractices of business
said to be an attempt on the part of enterprises. The enterprises might lose
business people to get more than what
business and may be unable to earn
has been spent or invested or, in other
profit. That is the reason why there is
words, to earn profit which is the excess
hardly any sizable business enterprise
of revenue over cost. However, it is
whose only objective is maximisation
widely accepted nowadays that
of profit.
business enterprises are part of society
and need to have several objectives,
1.8.1 Multiple Objectives of Business
including social responsibility to
survive and prosper in the long run. Continuous increase in the profits
Profit is found to be the leading objective of any enterprise is possible only
but not the only one. through performing useful services
Although earning profit cannot be to society. In fact, objectives are
the only objective of business, its needed in every area that influences
importance cannot be ignored. Every the survival and prosperity of
business is an attempt to reap more business. Since a business has to
than what has been invested and profit balance a number of needs and
NATURE AND PURPOSE OF BUSINESS 13
minimum cost. This is especially true business, he will start the operation at
of the modern business world where a large scale. If the market conditions
competition is very tough and risks are are uncertain and risks are high, a
high. Some of the problems, which small size business would be better
business firms encounter, are of a basic choice.
nature. For example, to start a factory, (iii) Choice of form of ownership:
plans must be made and implemented With respect to ownership, the
about such problems as the location business organisation may take the
of the business, the possible number form of a sale proprietorship,
of customers, the kind and amount of partnership, or a joint stock company.
equipment, the shop layout, purchasing Each form has its own merits and
and financing needs, and hiring of demerits. The choice of the suitable
workers. These problems become more form of ownership will depend on such
complex in a big business. However, factors as the line of business, capital
some of the basic factors, which must requirements, liability of owners,
be considered by anybody who is to division of profit, legal formalities,
start the business are as follows: continuity of business, transferability
(i) Selection of line of business: The of interest and so on.
first thing to be decided by any (iv) Location of business enterprise:
entrepreneur of a new business is the An important factor to be considered
nature and type of business to be at the start of the business is the place
undertaken. He will obviously like to where the enterprise will be located.
enter that branch of industry and Any mistake in this regard can result
commerce, which has the possibility of in high cost of production,
greater amount of profits. The decision inconvenience in getting right kind of
will be influenced by the customer production inputs or serving the
requirements in the market and also customers in the best possible way.
the kind of technical knowledge and Availability of raw materials
interest the entrepreneur has for and labour; power supply and
producing a particular product. services like banking, transportation,
(ii) Size of the firm: Size of the firm communication, warehousing, etc., are
or scale of its operation is another important factors while making a
important decision to be taken at the choice of location.
start of the business. Some factors (v) Financing the proposition:
favour a large size whereas others tend Financing is concerned with providing
to restrict the scale of operation. If the the necessary capital for starting as well
entrepreneur is confident that the as for continuing the proposed
demand for the proposed product is business. Capital is required for
likely to be good over time and he can investment in fixed assets like land,
arrange the necessary capital for building, machinery and equipment
NATURE AND PURPOSE OF BUSINESS 17
and in current assets like raw materials, to perform various activities so that
book debts, stock of finished goods, etc. physical and financial resources are
Capital is also required for meeting converted into desired outputs. Since
day-to-day expenses. Proper financial no individual entrepreneur can do
planning must be done to determine everything himself, he must identify the
(a) the requirement of capital, requirement of skilled and unskilled
(b) source from which capital will be workers and managerial staff. Plans
raised and (c) the best ways of utilising should also be made about how the
the capital in the firm. employees will be trained and motivated
(vi) Physical facilities: Availability of to give their best performance.
physical facilities including machines (ix) Tax planning: Tax planning has
and equipment, building and become necessary these days because
supportive services is a very important there are a number of tax laws in the
factor to be considered at the start of country and they influence almost
the business. The decision relating to every aspect of the functioning of
this factor will depend on the nature modern business. The founder of the
and size of business, availability of business has to consider in advance
funds and the process of production. the tax liability under various tax laws
(vii) Plant layout: Once the and its impact on business decisions.
requirement of physical facilities has (x) Launching the enterprise: After
been determined, the entrepreneur the decisions relating to the above
should draw a layout plan showing the mentioned factors have been taken,
arrangement of these facilities. Layout the entrepreneur can go ahead with
means the physical arrangement of actual launching of the enterprise
machines and equipment needed to which would mean mobilising various
manufacture a product. resources, fulfilling necessary legal
(viii) Competent and committed formalities, starting the production
worked force: Every enterprise needs process and initiating the sales
competent and committed work force promotion campaign.
Key Terms
Business Profession Primary Innovation Warehousing
Profit Employment Secondary Insurance Social responsibility
Risk Industry Tertiary Mining Manufacturing
18 BUSINESS STUDIES
SUMMARY
EXERCISES
Projects/Assignments
1. Choose a locally operated trading or business unit. Find out the kind of
risks it faces in business and the way it deals with them.
2. Select a local business enterprise and find out the objectives it pursues.
Check why it does not pursue other objectives.