Chapter: Business System

01. Business is the outcome of the combined efforts of one or more than one individual to fulfill
a social need i.e. producing and selling goods/services in order to earn profit.

02. Forms of Business:

 Sole proprietorship: A sole proprietorship, also known as a sole trader, is owned by one
person and operates for their benefit. The owner operates the business alone and may
hire employees. A sole proprietor has unlimited liability for all obligations incurred by the
business, whether from operating costs or judgments against the business. All assets of the
business belong to a sole proprietor, including, for example, a computer infrastructure,
any inventory, manufacturing equipment, or retail fixtures, as well as any real
property owned by the sole proprietor.
 Partnership: A partnership is a business owned by two or more people. In most forms of
partnerships, each partner has unlimited liability for the debts incurred by the business.
The three most prevalent types of for-profit partnerships are general partnerships, limited
partnerships, and limited liability partnerships.
 Cooperative: Often referred to as a "co-op", a cooperative is a limited-liability business that
can organize as for-profit or not-for-profit. A cooperative differs from a corporation in that
it has members, not shareholders, and they share decision-making authority. Cooperatives
are typically classified as either consumer cooperatives or worker cooperatives.
Cooperatives are fundamental to the ideology of economic democracy.
 A company limited by shares: The most common form of the company used for business
ventures. Specifically, a limited company is a "company in which the liability of each
shareholder is limited to the amount individually invested" with corporations being "the
most common example of a limited company." This type of company is common
in England and many English-speaking countries. A company limited by shares may be:
 Publicly traded company or
 Privately held company
 A company limited by guarantee with a share capital: A hybrid entity, usually used
where the company is formed for non-commercial purposes, but the activities of the
company are partly funded by investors who expect a return. This type of company may no
longer be formed in the UK, although provisions still exist in law for them to exist.

 A limited liability company: "A company—statutorily authorized in certain states

—that is characterized by limited liability, management by members or managers,
and limitations on ownership transfer", i.e., L.L.C.  LLC structure has been called
"hybrid" in that it "combines the characteristics of a corporation and of a
partnership or sole proprietorship". Like a corporation, it has limited liability for
members of the company, and like a partnership, it has "flow-through taxation to
the members" and must be "dissolved upon the death or bankruptcy of a member".
 An unlimited company with or without a share capital: A hybrid entity, a
company where the liability of members or shareholders for the debts (if any) of
the company are not limited. In this case, the doctrine of a veil of incorporation
does not apply.

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
  Less common types of companies are:
Statutory companies: Relatively rare today, certain companies have been formed by a private
statute passed in the relevant jurisdiction.

03. Features of Business Or Nature of Business Or Characteristics of Business:

Economic Activity
Business necessarily has to be an economic activity. But what exactly is an economic activity? Any
activity that gives a monetary return is an economic activity. For example, if your friend’s father
picks you up and drops you at college every day, he is doing this act out of kindness. But if he starts
a transportation service of picking up and dropping by charging money then it’s an economic
activity.

Production or Trading of Good or Services for Sale

If a business plans on selling a product, it has to either manufacture that product or purchase it and
add a profit margin to it and sell it further. Business is interested in every activity that is concerned
with the production or purchase of goods for selling, this makes it one of the most important
characteristics of a business. Services for sale include transportation, housekeeping, and security.
Whereas, goods are mostly consumable items.

Sale or Exchange of Goods and Services

The third and crucial one of the characteristics of business after production or procurement is to
sell that product for the money. The way to sell a product or service is by launching it in the market
or to offer it for sale. A sale or exchange must take place between the seller and the buyer.

Regularity in Dealings
Business is a repeatable economic activity that generates money. For example, if you sell your old
bike and it generates money. Also, it’s an economic activity but is you doing this on a regular basis?
No. As it has no regularity in it, it cannot be accepted as a business activity. Similarly, there is a
dealer who deals in the purchase and sells of second-hand bikes. For him, it’s a business activity as
there is a regularity in his dealing. A single transaction of purchase or sale cannot be classified as a
business.

Profit Earning
The sole purpose of business is the maximization of profit. It steps into the market with the main
objective of earning a profit. For the survival of business in a market, generating profit is extremely
necessary. If a business can’t produce profit, it is expected of it to go downhill financially. Therefore
the businessman does all the possible tricks to maximize its profits by increasing the volume of
sales or decreasing the costs.

Risk Factor
It is well known “Higher the risks, higher the return”. Business attracts risk. While initiating business
it is not guaranteed 100% that the business will be successful. There is an anticipation that there

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
might be demand for its product or service in the market. But the market is always dwindling the
subject to risk. The business may even earn profit but the amount of profit earned may vary.

Uncertainty of Returns
Businessmen invest huge capital in their activities to sustain and extract profit from the business.
As we discussed the risk above, it is very uncertain as to what amount the profit will be earned.
Often there are situations where is no return of profit. There are always chances of losses in the
business activities.

Legal Activity
The business has to be legal and lawful. Business is an extremely important activity for a country
but it is not above the law. Every economic activity has to be within the limits of the law. The
country’s legislation puts clauses on the functioning of the business to control its activities.

Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come out with creative
ideas, approaches and concepts for production and distribution of goods and services. It means to
bring things in fresh, new and inventive way.

Government control:
Business organizations are subject to government control. They have to follow certain rules and
regulations enacted by the government. Government ensures that the business is conducted for
social good by keeping effective supervision and control by enacting and amending laws and rules
from time to time.

04. Objectives of Business Or Importance of Business:

It is generally believed that a business has a single objective. That is, to make profit. But it cannot be
the only objective of business. While pursuing the objective of earning profit, business units do keep
the interest of their owners in view. However, any business unit cannot ignore the interests of its
employees, customers, the community, as well as the interests of society as a whole. Thus, the
objectives of business may be classified as:

A. Economic Objectives
B. Social Objectives
C. Human Objectives
D. National Objectives
E. Global Objectives

A. Economic Objectives:
Economic objectives of business refer to the objective of earning profit and also other objectives
that are necessary to be pursued to achieve the profit objective, which includes creation of
customers, regular innovations and best possible use of available resources. The following are the
economic objectives of business:

 Profit Earning
 Creation of customers
 Regular innovations

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
  Best possible use of resources

B. Social Objectives:
Social objective are those objectives of business, which are desired to be achieved for the benefit of
the society. Since business operates in a society by utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the business should be aimed at giving any kind of
trouble to the society. The following are the social objectives of business:
 Production and Supply of Quality Goods and Services
 Adoption of Fair Trade Practices
 Contribution to the General Welfare of the Society
 Raise General Standard of Living

С. Human Objectives:
Human objectives refer to the objectives aimed at the well-being as well as fulfillment of
expectations of employees as also of people who are disabled, handicapped and deprived of proper
education and training. The human objectives of business may thus include economic well-being of
the employees, social and psychological satisfaction of employees and development of human
resources. The following are the human objectives of business:

 Economic Well-being of the Employees

 Social and Psychological Satisfaction of Employees
 Development of Human Resources
 Well-being of Socially and Economically Backward People

D. National Objectives:
Being an important part of the country, every business must have the objective of fulfilling national
goals and aspirations. The goal of the country may be to provide employment opportunity to its
citizen, earn revenue for its exchequer, become self-sufficient in production of goods and services,
promote social justice, etc. Business activities should be conducted keeping these goals of the
country in mind, which may be called national objectives of business. The following are the national
objectives of business:

 Creation of Employment
 Production According to National Priority
 Contribute to the Revenue of the Country
 Self-sufficiency and Export Promotion

E. Global Objectives:
Previously India had very restricted business relationship with other nations. There was a very
rigid policy for import and export of goods and services. But, now-a-days due to liberal economic
and export-import policy, restrictions on foreign investments have been largely abolished and
duties on imported goods have been substantially reduced. This change has brought about increase
in competition in the market. Today because of globalisation the entire world has become a big
market. Goods produced in one country are readily available in other countries. The following are
the global objectives of business:

 Reduce Disparities among Nations

 Make Available Globally Competitive Goods and Services

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
05. Quality or Components or Characteristics of a successful business:

The best-of-the-best are committed to doing the “work” of business. They don’t avoid the stuff they
don’t like or the tough stuff that defines a leader’s determination to win. Just like profitability,
success is an outcome. Leaders and companies that master the disciplines of success stand out from
their competition. The following are the quality or components or characteristics of a successful
business:

Leadership: First and foremost, the owner of a successful business functions as a businessperson.

This means that the owner is engaged, accountable and drives performance by paying attention to
the business. That being said, it’s easy to identify owners that are so engrossed in their non-
leadership work that the business is essentially free-floating without direction, structure or
systems. This is the equivalent of trying to run a business by remote control. It just doesn’t work.

Business Culture: The culture of a business represents the collective behavior of its leaders and
employees. Businesses that possess well-defined cultures stand out from the crowd because they’re
a joy to interact with. Customer points of contact at the front desk, retail areas, and service
departments – everything throughout the business feels natural yet orchestrated. What you don’t
see are employees that are indifferent and disengaged. Great business cultures require leadership,
systems, training, coaching, accountability and commitment.

Financial Literacy: Financial literacy is a non-negotiable skill in business. This doesn’t mean that
the owner needs to be an accountant or have the skills of a bookkeeper, but it does mean that the
owner knows how to read and understand financial reports and use them to make the best possible
business decisions. More importantly, the owner is capable of building a cash-flow plan to project
service and retail sales goals complete with a budget to manage expenses. The result is a business
that is fiscally solid and has the cash and resources to fund growth. What you don’t see are owners
in a perpetual state of financial stress with difficulty paying bills and retail shelves that have more
room for dust than they do products to sell. Cash is the fuel of business. Successful businesses learn
and master the skills to be financially responsible in order to ensure that they will have enough fuel
to achieve their goals.

Structure and Systems: If your intent is to grow a dynamic, efficient, quality-driven business,
structure is non-negotiable. Structure ensures efficiency, productivity, consistency and
predictability. Systems produce predictable results. Lack of structure and the absence of systems all
but ensure inconsistency in how work is done, conflicting agendas, dissension, stagnancy and,
worst of all, uncertainty. Call it leadership, accountability, systems, standards of performance, or
policies and procedures; it all refers to the structure that supports success. Anything less than a
deliberate and structured approach to business infuses mediocrity into all activities. Mediocrity
never wins in business.

Skill development: Success is the result of acquiring knowledge and mastering the skills to use
that knowledge to the best of your ability. A commitment to training and education is non-
negotiable for both technical and non-technical skill development. And the ultimate measurement
of a company’s commitment to training and education is found in its first-time client retention rate
Skill development is an investment in your brand and quality assurance. “Getting better” is a
company value.

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
Everyone sells: When it comes to the topic of “selling,” there is always a “love/hate” relationship.
The “love” part is that selling is what every business is all about. Everyone recognizes this. The
“hate” part is best summed up by the fact that not all people are comfortable with the concept of
“selling.” Some people are natural at it while others feel their gut twisting when in close proximity
to a sales situation. The process of selling is just like producing a hit Broadway show. There are
writers, choreographers, set designers, lighting and sound technicians, an orchestra … and the
actors. The applause and success is earned by the collective efforts of all. It doesn’t matter what an
individual’s role is in a company … his or her paycheck depends on the company’s collective ability
to sell.

Work environment: Success has a “look.” It’s common for owners to ask me, “What’s the first and
most important thing I can do to turn my business around?” More often than not, my response is,
“Clean it, paint it and refurbish it.” Front door to back door, everything about the facility should
communicate and support its brand identity. Every piece of equipment should work. Lighting
fixtures should be functioning. Walls, décor, posters, pictures, bathrooms and dressing rooms
should be spotless. Reception areas should look organized and professional. Dress for success
applies to work environments too.

Compensation: Compensation is perhaps one of the most hotly debated topics for owners and
leaders. Commission, Team-Based Pay, fixed rate, sliding scales, product/service charges, or
independent contractor – there is no one right way that will serve the needs of all. But when all the
debating is done, a compensation program must achieve three goals:

 Inspire and reward the right performance and behaviors: If you keep rewarding
performance and behavior you don’t like … you continue to enable that behavior.
Commission-based pay is notorious for rewarding individual sales while paying for
performance and behaviors you don’t want.
 Fit the financial reality of the business: There are only 100 pennies in a dollar. Whenever
payroll exceeds a company’s financial reality, it instantly initiates a cash crisis that, if left
unchecked, can be destructive and even kill the company.
 Provide income growth for employees: The best companies provide employees with growth
paths for income and achieving their full potential. It is up to both parties to make it work.

Brand Identity: When it comes to brand identity, businesses fall into one of three categories:
nondescript, blends in, or stands out from the competition. Nondescript businesses are just bland
places. There’s nothing about the facility, signage, logo, print materials, service or personality that
makes the “wow” meter show signs of movement. There’s nothing overly special. Businesses with
strong brand identities send the “wow” meter flying into the success zone. It’s a complete package,
from web site, print materials and phone experiences to its facility, décor, team personality,
execution of work and all those special touches that radiate success. Each and every one of the
previous eight success characteristics must rate high in order for a strong brand identity to emerge
and endure.

Community Service: The true character of a successful company is defined by how it gives back to
the community. Community service comes in many forms, from fundraising to employees donating
personal time to a worthy cause. Business success simply does not appear complete if it’s all about
making money and generating profit. A business, no matter how profitable or magnificent, is never
truly successful without a warm heart and sincere compassion for the wellbeing of others.

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
06. Different Environment of Business:

Dimensions of business environment mean all the factors, forces and institutions which have direct
or indirect influence over the business transactions. General Environment is the most important
dimension of business environment as businessman cannot influence or change the components of
general environment rather he has to change his plans and policies according to the changes taking
place in general environment.

(i) Economical Environment:
Economic Environment consists of Gross Domestic Product, Income level at national level and per
capita level, Profit earning rate, Productivity and Employment rate, Industrial, monetary and fiscal
policy of the government etc.

The economic environment factors have immediate and direct impact on the businessman so
businessmen must scan the economic environment and take timely actions to deal with these
environments. Economic environment may put constraints and may offer opportunities to the
businessman. After the new economic policy of 1991, lots of opportunities are offered to
businessmen. Some aspects of economic environment are:

1. Role of Private and Public sector

2. Rate of growth of GDP, GNP, and Per Capita Income
3. Rate of Saving and Investment
4. Balance of Trade
5. Balance of Payment
6. Transport and Communication System
7. Money Supply in the Economy

(ii) Social Environment:

Social Environment consists of the customs and traditions of the society in which business is
existing. It includes the standard of living, taste, preferences and education level of the people living
in the society where business exists. The businessman cannot overlook the components of social
environment as these components may not have immediate impact on the business but in the long
run the social environment has great impact on the business.
For example, when the Pepsi Cola Company used the slogan of “Come Alive” in their advertisement
then the people of a particular region misinterpreted the word “Come Alive” as they assumed it
means Coming out of Graves. So, they condemned the use of the product and there was no demand
of Pepsi Cola in that region. So, the company had to change its advertisement slogan as it cannot
survive in market by ignoring the sentiments of the people. Some Aspects of Social Environment:

1. Quality of life
2. Attitude of customers towards innovation, life style etc.
3. Education and literacy rates
4. Consumption habits
5. Population
6. Tradition, customs and habits of people

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University
(iii) Political Environment:

Political environment constitutes all the factors related to government affairs such as type of
government in power, attitude of government towards different groups of societies, policy changes
implemented by different governments etc. The political environment has immediate and great
impact on the business transactions so businessman must scan this environment very carefully.
The businessman has to make changes in his organisation according to the changing factor of
political environment. For example, in 1977 when Janata Government came in power they made the
policy of sending back all the foreign companies. As a result the Coca Cola Company had to close its
business and leave the country. Some Aspects of Political Environment:

1. Present political system

2. Constitution of the country
3. Government intervention in business
4. Foreign policy of government

(iv) Legal Environment:

Legal environment constitutes the laws and various legislations passed in the parliament. The
businessman cannot overlook the legislations because he has to perform his business transactions
within the framework of legal environment.
The common legislation passed which has affected the business transactions are Trade Mark Act,
Essential Commodity Act, Weights and Measures Act, etc. Most of the time legal environments put
constraints on the businessman but sometimes they provide opportunities also. Some Aspects of
Legal Environment:

1. Various laws and legislative acts.

2. Legal policies related to licensing.
3. Legal policies related to foreign trade.

(v) Technological Environment:
Technological environment refers to changes taking place in the method of production, use of new
equipment and machineries to improve, the quality of product. The businessman must closely
monitor the technological changes taking place in his industry because he will have to implement
these changes to remain in the competitive market. Technological changes always bring quality
improvement and more benefits for customers. Some Aspects of Technological Environment:

1. Various Innovations and Inventions.

2. Scientific Improvements.
3. Developments in IT sector

Md. Al-Amin
Lecturer, Department of Finance & Banking
Cumilla University