The purpose and nature of business

Humans have endless needs, and to satisfy these we need business activities. It is

the purpose of business to provide the economy and the society with the goods
and services it requires. All economic, commercial and trading activities are parts
of a business. Let us study this further.

 understand what a business is and the reasons for starting a business

(including producing goods, supplying services, distributing products, fulfilling
a business opportunity and providing a good or service to benefit others)
 understand the difference between goods and services, needs and wants
 understand the meaning of factors of production – land, labour, capital,
enterprise
 define opportunity cost
 define the three sectors of primary, secondary and tertiary and give examples
of types of business that operate in each sector
 understand the term enterprise and what is meant by an entrepreneur
 outline the characteristics of an entrepreneur, such as hard working,
innovative, organised and willingness to take a risk
 outline the objectives of an entrepreneur, including to be their own boss,
flexible working hours, to pursue an interest, earn more money, identify a gap
in the market and dissatisfaction with current job
 understand that businesses face a constantly changing business environment
due to changes in technology, economic situation, legislation and
environmental expectations

Nature of Business Risk

Business risk is the possibilities a company will have lower than anticipated profits
or experience a loss rather than taking a profit. Business risk is influenced by
numerous factors, including sales volume, per-unit price, input costs, competition,
and the overall economic climate and government regulations.

Causes of Business Risk

Natural Causes

Nature is an independent phenomenon and human beings have no control over it.

Natural calamities like earthquake, flood, drought, famine etc. Affect a business a
lot and can result in heavy losses. The natural causes are such type of uncertain
factors that human beings cannot make any preparation against.
Human Causes

Human causes are related to a chance of loss due to human being or employees of
the organization. The dishonesty of employees can bring heavy losses for business
e.g., the employees may leak a business secret to a competitor and may commit
fraud also bring heavy losses by wastage of resources.

The employees may hamper the production by going on strikes, riots etc. This can
also lead to heavy loss of business condition. There can be price fluctuations in the
market, there can be a change in fashion, taste, preferences, and demands of
customers

Economic Causes

Economic causes are related to a chance of loss due to change in the market. There
can be a change in the degree of competition. All these have a direct impact on the
earnings of the business.

Even change in Government policy affects the business a lot. For example, in 1971
when Janata government came to power the Coca-Cola Company and many other
foreign companies were sent back to India

Physical Causes

All the causes which result in damage of assets are considered as a physical cause,
for example, change in technology may result in machinery being outdated, use of
old technology, mechanical defects may also result in damage of assets such as the
bursting of a boiler, accident to employee etc.