Introduction to Business

Chapter 1: Business, Trade, and Commerce

What is Business?
Business is any economic activity that includes the purchase or sale of goods or services
with the basic objective of earning profit and satisfying the individuals’ needs of the
society. Business activities can be classified into two categories: Industry and Commerce.
Economic and Non-Economic Activities
Every individual has different needs, and to fulfill these needs, they perform different
activities. These activities are categorized as economic and non-economic activities. 
Economic Activities
Economic activities refer to those activities which are performed with the objective of
earning money and creating wealth. Economic activities are of three types, namely,
Business, Profession, and Employment. For example, an individual running an
organization is a business, a teacher teaching at a school is a profession, and an employee
working in an organization is employment. 
Non-Economic Activities
Non-economic activities refer to those activities which are performed with the objective
of satisfying emotional, social, and psychological needs. Earning money and livelihood is
not the motive of human beings while performing non-economic activities; instead,
people perform them out of sympathy, love, affection, etc. For example, a mother
cooking food for her children, a sports teacher coaching his daughter, and friends
teaching each other before exams are considered non-economic activities. 
Concept of Business
All economic activities that involve the sale and/or purchase of goods and services with
some element of risk and motive of earning profits are known as business. All business
activities also aim at satisfying the needs of human beings in society. It is an activity that
is performed on a regular basis and hence also means ‘being busy.’
Characteristics of Business
 Economic activity: Business is an economic activity, as it involves performing
activities with the basic objective of earning money and profits.
 Sale or exchange of goods and services: A business should include the sale or
exchange of goods and services for some consideration or value in return between the
buyer and seller directly or through some third party. No internal consumption is
involved in business activities.
 Procurement or production of goods and services: Procurement means trading
goods and services, and production means manufacturing the goods and services in an
organization. In procurement, businesses do not manufacture goods or services on
their own; instead, they purchase them from other companies and then sell them to
different consumers and businesses. Here goods include any consumable item, and
services consisting of banking, insurance, transportation, etc.
 Regular basis: An activity will be considered as a business if it takes place on a
regular basis. It means that selling or purchasing goods and services for one time only
is not considered a business. For example, manufacturing and selling chairs on regular
basis is a business. However, selling your school books for one time is not a business.
 Profit earning: The main objective of any business is to earn profits. No business can
survive only on the sale and purchase of goods and services without making profits.
Therefore, the efforts of a businessman are always directed towards earning more and
more profits.
 Uncertainty of return: The environment in which a business operates is quite
uncertain. Therefore, no matter how much money is invested in a business, one cannot
say for sure how much profit the business will earn in a specific time period. Hence,
the chances of losses are also present in a business.
 Element of risk: Uncertain business environment and different natural, human,
social, economical, political, financial, or personal factors exist in every business that
exposes them to certain risks. Therefore, a business has to consider these elements of
risks while performing activities.
Objectives of Business
 Profit earning: Profit is the amount of a business’s revenue over expenditure. Profit
earning is the prime motive of every organization as it ensures the survival and
growth of the business. Even though profit is essential for a business, it can’t be the
sole motive of a business.
 Innovation: To attain success and growth, it is essential for a business to innovate.
Innovation can be done by making new products or making better changes, or adding
new features to the existing products. It helps a business in improving its production
and distribution methods and explore new markets. In the present world, innovation is
essential for every business to compete with other businesses and remain in the
market.
 Market standing: Another important objective of any business is market standing
which can be attained by providing goods and services to its customers to meet their
needs and wants. By doing so, a business can maintain a market standing, attain
goodwill, and survive for a long time.
 Social responsibility: Besides economic objectives, there are some social obligations
that a business has to follow, also known as social responsibility. Simply put, social
responsibility means contributing business resources to solve social problems and
work in a socially desired manner.
 Productivity/optimum utilization of resources: The next objective of a business is
optimum utilization of resources and productivity. It means that a business has to use
its inputs or resources like money, material, labor, machinery, land, etc., in the best
possible and optimum manner so as to achieve maximum result or output in return.
 Physical and Financial resources: For the production and sale of goods and
services, a business requires some physical and financial resources. Physical resources
consist of plant, machinery, land, labor, etc. However, financial resources consist of
 the funds or money to run and operate the business for the production and distribution
of goods and services. Therefore, acquiring the required financial and physical
resources is an objective of a business.
 Quality goods and services at a fair price: It is another social objective of a
business that aims at providing better quality goods and services to the customer at a
reasonable price. For example, providing goods with ISI mark on electrical goods,
Hallmark on jewelry, etc.
 Workers Development: Human beings are the most important resource of a business,
and their development is one of the most crucial objectives. It includes providing
equal opportunities to all irrespective of caste, creed, religion, etc., proper
remuneration, medical, entertainment, training, and welfare facilities to its employees.
Classification of Business Activities
The business activities are classified as Industry and Commerce.

Industry
Industry is concerned with the processing and production of goods and services with the
motive of earning profit. Simply put, it involves changing the raw materials into finished
products for the purpose of selling them to the customers. The goods sold by industry can
be either used by other companies for further production or can be used by the end
consumers for final consumption. The goods produced in the former case are known as
producer goods. For example, machinery, etc. However, the goods produced in the latter
case are known as consumer goods. For example, bread, milk, butter, cloth, groceries,
medicines, etc. An organization can also produce materials that can be used by other
companies to further process and convert into finished goods. These goods are known as
intermediate goods. For example, rubber, copper, plastic, etc. Industry can be further
classified into three parts: primary, secondary, and tertiary industry. 
Commerce
Commerce is concerned with the activities involving taking goods and services from the
manufacturers and delivering them to the users. The basic motive of commerce is
ensuring the proper flow of goods and services in the market for the ease of
manufacturers and consumers. With the help of commerce, an individual can purchase
the goods produced in any part of the world. Commerce not only includes the buying and
selling of goods but also consists of all the activities or services like transportation,
banking, insurance, communication, packaging, advertisement, warehousing, etc.,
required to facilitate the process of trade, i.e., buying and selling of goods. Hence,
commerce provides the required link between the manufacturers and consumers.
Commerce can be further classified into two parts: trade and auxiliaries to trade. 
 Difference between Business,
Profession, and Employment
What is Business?
Business is an economic activity that includes activities related to the sales and purchase
of goods and services on a regular basis with the objective of earning profit. For
example, fishing, farming, etc. According to Wheeler, “Business is an institution
organised and operated to provide goods and services to society under the incentive of
private gain.” People running a business earn income in the form of profit. Some of the
basic characteristics of a business include an element of risk, an economic activity, profit
earning, sale or exchange of goods and services, etc.

What is a Profession?
A profession is an economic activity that includes activities requiring special skills and
knowledge in their occupation. For example, teachers, doctors, lawyers, etc. An
individual engaged in a profession is known as a professional. People providing
professional services earn income in the form of fees. Some of the basic characteristics of
a profession include a well-defined body of knowledge, restricted entry, code of conduct,
service motive, reward or return, etc.
What is Employment?
Employment is an economic activity including occupation in which individuals work for
their superiors with the motive of earning remuneration in return. For example, clerks,
managers, peons, etc. An individual employed by others is known as an employer. People
performing their work as per their service contract earn income in the form of salary.
Some of the basic characteristics of employment include contractual relations, capital
investment, reward or return, qualification, etc.
Difference between Business, Profession, and Employment
Basis  Business Profession Employment

Business is an Employment is an
economic activity Profession is an economic activity
which includes economic activity which includes
activities related to which includes occupation in which
Meaning the sale and purchase activities requiring individuals work for
of goods and services special skills and their superiors with
on a regular basis with knowledge in their the motive of earning
the objective of occupation. remuneration in
earning profit.   return. 

It requires
membership of a
Starts after legal
professional body Employment starts
Mode of formalities like MOA,
like the Bar after receiving an
establishment  AOA, etc., are
Council, etc., and a appointment letter. 
completed. 
certificate of
practice. 

Qualification
Formal
requirements in
qualification,
No minimum employment vary
expertise, and
Qualification qualification is according to the type
training from a
required in business. of job and training
professional body
prescribed by the
are essential.
employer.

It includes work given

It involves
It involves providing by the employer as per
Nature of rendering
goods and services to the employment
work specialized
society.  contract and the rules
services. 
of service.

Reward Profit  Professional fees Salary and wages

 Basis  Business Profession Employment

It depends on the
It requires limited It does not require any
Capital nature and size of the
capital. capital. 
business.

In employment, rules
or codes of conduct
It consists of a
Code of It does not have any are set by the
professional code
conduct code of conduct. employer in the terms
of conduct.
and conditions of the
service contract. 

A business involves In profession, there Employment does not

Risk
high risk. is low risk. involve any risk. 

In profession one In employment also

Transfer of In business transfer of
cannot transfer transfer of interest is
interest interest is possible.
interest. not possible. 

Doctors, Lawyers,
Teachers, Jobs in firms, shops,
An individual having
Professors, and banks, etc. are
Example a manufacturing plant
Chartered considered
of automobiles.
Accountants are the employment. 
professionals. 
 Trade and Auxiliaries to Trade
Commerce is a wide term consisting of all those activities, which are necessary for sale,
transfer or exchange of goods and services. Commerce includes two kinds of
activities trade and auxiliaries to trade. Buying and selling of goods is termed trade.
But there are a lot of activities involved between this buying and selling, which are
known as auxiliaries to trade or aids to trade. These include transport, banking,
warehousing, insurance, etc. Thus, commerce includes both trade and auxiliaries to trade.
The link between producers and consumers is provided by commerce, which ensures
distribution of goods and services. The hindrance of persons is removed by trade, by
making goods available to the customers. Transport removes the hindrance of place by
moving the goods from one place to another. Hindrance of time is removed by storage
and warehousing by storing the goods and making them available when needed. As goods
kept in storage and warehouses are prone to many risks, to remove such risks, insurance
is helpful. Banking is required to remove the hindrance of capital and funds, and
advertising helps producers in informing customers about various goods and services. So,
commerce removes various hindrances in the process of exchange of goods and services,
hence all the activities which involve the removal of hindrances, be it in respect of
persons, place, time, risk, finance, etc., is done by commerce. 
Trade
Buying and selling of goods and services with the aim of earning profits is known
as Trade. It is one of the most essential parts of commerce. It enables to make the goods
available to the consumers or users. These days goods are manufactured on a large scale
and it is very difficult for the producers to reach the consumers by themselves.
Middlemen serve as a link between the producers and consumers by making the goods
available to them. In the absence of trade, both producers and consumers will have to
search for each other, and it would not be possible to carry on business on a large scale.
Trade can be carried out on small scale, like in the case of Hawkers and small shops, or
large scale, like Departmental stores.
Trade may be classified on the basis of the geographical area into two bases: 1) Internal
Trade and 2) External Trade
1. Internal Trade: Internal trade is concerned with buying and selling of goods and
services within the geographical boundaries of a nation. It is also known as Home trade
or domestic trade. Here, both buyers and sellers belong to the same country. 
Internal trade is further divided in two parts: i) Wholesale Trade and ii) Retail Trade
i) Wholesale Trade: Wholesale trade involves buying and selling of goods in large
quantities or in bulk. Wholesaler buys goods directly from the manufacturer in large
quantities and sells them in relatively less quantities to retailers. Wholesaler serves as an
important link between manufacturers and retailers, and maintain large stock of goods.
ii) Retail Trade: It involves buying goods in small quantities from the wholesalers and
selling them to the final for final consumption is known as retail trade. A retailer serves a
link between the wholesaler, manufacturers and consumers. They maintain direct contact
with the customers and provide feedback to the wholesalers about the likings and
dislikings of the customers.
2. External Trade: External or foreign trade consists of the exchange of goods and
services between persons or organisations operating in two or more countries. It is also
known as foreign trade or international trade.
External trade is further divided in three parts: i) Import Trade ii) Export
Trade iii) Entrepot Trade
i) Import trade: When goods are purchased from another country, it is known as import
trade. For example, India imports crude oil from the Middle-east countries.
ii) Export Trade: When goods are sold to other country, it is known as export trade. For
example, India exports cereals, spices and other products to USA.
iii) Entrepot trade: When goods are imported from a country for purpose of exporting it
to another country, it is known as entrepot. For example, India imports many
commodities from European countries to export them to Nepal.
Auxiliaries to Trade
Activities which are made for assisting trade are known as auxiliaries to trade. These
activities or services facilitate the purchase and sale of goods and services. These are
generally referred to as services because their nature is to facilitate the activities related to
industry and trade. These include banking, transport, warehousing, warehousing and
insurance. These not only support trade but also industry, and hence entire business
activity. These activities help in the removal of various hindrances which arise in the
exchange of goods and services. 
The various auxiliaries are as follows:
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. The hindrance of place is removed by means of transportation, like
road, rail, etc. Transport helps in the movement of raw material to the place of production
and finished products from the factories to the place of consumption.
Communication is one of the most important services. It serves as a link between
manufacturers, producers, wholesalers and consumers, and helps in exchanging
information. Postal services, Telephone services, Fax, Internet, etc., help in
communication and are regarded as auxiliaries to trade.
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, meeting expenses, etc.
Banking solves the problem of finance. It helps to overcome the hindrance of finance.
Various facilities are provided by the bank, like overdraft, cash credit, and various types
of loans and advances. Banks also undertake collection of cheques, issue of bank drafts,
discounting of bills, etc. Banks also help exporters in collecting money from importers, in
case of foreign trade. They also help in raising capital from public.
3. Insurance: It involves all the activities which are concerned with protection from
various kinds of risks. Business involves many kinds of risks. and insurance helps to
protect the businesses from such risks. Insurance removes the hindrance of risks by
protecting against various risks. Factory, building and other assets must be protected
against fire, theft, burglary, etc. Employees should also be protected against the risk of
accidents and occupational hazards. Insurance protects against all these risks. Businesses
have to pay a nominal amount known as a premium, and in return, the amount of loss or
compensation can be recovered.
4. Warehousing: It is concerned with storing goods in order to facilitate their supply to
the market at the right time. There is always a time gap between production and
consumption of goods as goods are not produced immediately after they are produced.
This time gap is because of irregular demand or irregular supply. Warehousing helps in
the storage of goods and providing goods at the right time, and thus, removes the
hindrance of time. Warehousing ensures stable prices in the market, as goods are supplied
continuously when needed. To maintain a smooth flow of goods throughout the year and
protect goods from various damages, like moisture, insects, thefts, etc., they are stored in
warehouses and storages.
5. Advertising: It involves all those activities which are concerned with providing
information about products and services. It is one of the most important ways of
promoting the sale of products and services, especially in the case of consumer goods. It
is not possible for the manufacturers, producers and traders to meet each and every
consumer and inform them about the product. Thus, advertising informs the consumers
about the product and various other useful information, like features, price, uses, quality,
etc., related to the product. Thus, it removes the hindrance of information.
Last Updated : 06 Apr, 2023
 What is Business Risk?
The chance of inadequate profits or even losses due to uncertainties or unexpected events
is known as Business Risk. In simpler terms, business risk is the possibility of incurring
losses or generating less profit than projected. These factors are beyond the control of
businessmen. 
For example, there is a decrease or change in the demand for a firm’s product, as a result
of a change in the product’s quality, a change in the market scenario, and an increase or
decrease in competition. As a result, a fall in demand will result in lower product sales,
which will lead to a decrease in firm profit.
It is the convergence of internal and external factors that create risks to a firm and its
management team. These risks might arise from:
 The external business environment, which includes macroeconomic influences
outside management’s control (like inflation, foreign exchange rates, or prevailing
interest rates).
 Industry-specific risks, such as industry concentration, regulatory risk, entry
barriers, disruption risk, and other aspects.
 Concerns at the corporate or business level, such as inadequate management,
reputational risk, a toxic corporate culture, and customer or supplier concentration
risk.
Types of Risk
Business Risk can be of two types: Pure Risks and Speculative Risk
1) Pure Risk
Pure risk refers to risks that are uncontrollable by humans and result in a loss or no loss
with no chance of financial gain. Pure risk situations include fires, floods, and other
natural disasters, as well as unexpected incidents, such as terrorist actions or untimely
deaths.
Risk managers handle risk in four ways: they minimize, avoid, accept, or transfer it.
Many forms of pure risk are dealt with by getting insurance coverage for the possible
loss, so transferring the risk to an insurance provider.
2) Speculative Risk
Speculative risk is a type of risk that, when taken, might result in an unpredictable
amount of gain or loss. All theoretical risks are decided consciously and are not only the
result of uncontrollable events. Speculative risk differs from pure risk in that there is a
chance of both a gain and a loss.
Since an investor has no way of knowing whether an investment will be a spectacular
success or a complete disaster, nearly all investing techniques include such speculative
risks. Contract options are an asset that carries both investing risk and risk you can cover.

Nature of Business Risk

Business risk refers to the possibility that a company’s earnings will be lower than
expected or it will lose money instead of profit. Numerous factors impact business risk,
including sales volume, per-unit pricing, input costs, competition, the broader economic
situation, and government restrictions.
1) Uncertainties in Business
Uncertainties cause business risk. Uncertainties refer to a lack of knowledge. It is a
situation when you do not know what will happen in the future. Uncertainties affecting a
firm include changes in government policy, changes in demand, changes in technology,
etc.
2) Risk is an essential part of every business
No business firm can avoid risk. Risk can be reduced, but not eliminated. However, a
business company can minimize business risks by avoiding too many risky transactions,
purchasing insurance, making provisions in current profits (e.g., provision for bad and
dubious debts), and using preventative measures, such as firefighting systems.
3) Degree of risk depends on the nature and size of business
Small businesses are less exposed to business risks since their operations are flexible and
can rapidly adjust to changing conditions. On the other side, the larger the firm, the less
flexible it is. As a result, larger companies are more vulnerable to business risks.
There is less risk in the case of business companies engaged in the manufacture/purchase
of necessary commodities, such as salt, sugar, oil, cotton, etc., because demand for most
of the necessary items is inelastic or less elastic. Business firms engaged in the
manufacturing or acquisition of luxury products, on the other hand are more exposed to
business risks since the demand for luxury things is highly elastic.
4) Profit is the reward for taking risks
No risk, no gain is an age-old business philosophy that applies to all sorts of businesses.
When a company or organisation is willing to take a risk, the chances of profit are higher
than the company or organisation who is unwilling to take a risk. Hence Profit is the
payoff for taking risks since the larger the risk, the higher the chance of profit.

Causes of Business Risks

Some risks are common to all humans everywhere, such as fire, robbery, flood,
earthquakes, cyclones, drought, war, civil uprisings, and so on. As such, these are not
risks that are specific to business. Furthermore, some risks are insurable through
insurance firms. As a result, in today’s world with many different forms and sorts of
insurance, these risks cannot be considered risks in the true meaning of the term. As a
result, business risks are those that are unique to the company and are not insurable.
1) Natural Causes
Nature is a self-contained phenomenon over which humans have no control. Natural
disasters such as earthquakes, floods, droughts, and famines have a significant impact on
businesses and can lead to major losses. Natural causes are the sort of unpredictable
circumstances against which humans have no control. Natural risks are those that arise as
a result of nature’s activity and are hence uncontrollable. For example, Farmers face a
major risk if rainfall does not occur on time or if heavy rainfall causes flooding. Again,
there is a chance that a hail storm would destroy crops in the field.
2) Human Causes
Human causes are associated with the possibility of loss due to human resources of the
organisation. Employee dishonesty may result in significant losses for businesses. For
example, employees may leak a corporate secret to a rival or conduct fraud, resulting in
significant losses due to resource waste. Employees may disrupt production by going on
strike, rioting, and so forth. This might also result in a significant loss of business
situation. 
A few examples of Human Causes
 Bad Debts due to non-payment of debts by debtor.
 Misappropriation of cash by employees
 Strike or low productivity by workers
 Damage of machines by employees
 Leakage of business secrets to competitors
3) Economic Causes
Economic factors are associated with the possibility of loss as a result of change in
market conditions. There may be a shift in the level of competitiveness. Even changes in
government policy have a significant impact on business. Uncertainties about the demand
for goods, competition, pricing, collection of customer dues, change in technology or
technique of production, and so on are also included in economic causes of risk. It also
includes financial problems, such as an increase in interest rates for borrowing, levy of
increased taxes, and so on, since they result in greater unexpected costs of operation or
business. All of these have a direct influence on the profits.
4) Physical and Other Factors
There are also a number of other factors. All physical causes that result in asset damage
are considered physical causes. For example, changes in technology may result in
machinery becoming outdated, use of old technology, and mechanical defects may also
result in asset damage, such as the bursting of a boiler, an employee accident, etc.

How to deal with Risks?

1) Prioritising the risk
Prioritising risks and threats should always be the first step in developing a risk
management plan. Using a scale based approach on the probability of each risk occurring,
you may do this:
Very likely to take place
Some probability of occurrence
Low probability of occurrence
Very low probability of occurring
Naturally, a risk that falls into the top category should take priority over the others, and a
strategy should be put in place to avoid, or at least mitigate, these risks. There is a catch,
though. Priority should be given to a risk if it is on a lower rank, but has the potential to
cause greater financial harm.
2) Buying Insurance
Determine the types of insurance that your company will need by evaluating liabilities
and legal requirements. This might have included: life insurance, disability protection,
specialised insurance, operation-specific insurance. When compared to the potential cost
of uninsured risk, purchasing insurance offers you the opportunity to shift your risk to
insurance firms for a relatively low fee.
3) Implement a programme for quality control
If you want a successful business, having a solid reputation is essential. Customer service
is essential for success. To ensure the highest quality, make sure to test your goods and
services. You will have the chance to make necessary adjustments by analysing and
testing what you’re giving. Consideration should also be given to improving your testing
and analysis methods.
4) Restrict High-Risk Customers
If you’re just starting a business, put in place a policy that requires customers with bad
credit to pay in advance. This will assist you in avoiding issues later on. You need a
method to spot high-risk borrowers with bad credit in advance in order to achieve this.
Some other points that can help to deal with Risks are as follows:
 Too risky transactions should be avoided.
 Preventive measures should be uses, like firefighting devices, etc.
 Provisions should be made in the current earning.
 Risks should be shared with other enterprises. For example, an agreement can be
signed with other enterprises to share losses in case of falling prices.
 Basic Factors for Starting a Business
All those economic activities, which are connected with production, purchase and sale of
goods or supply of services with the objective of earning profit is known
as Business. The term ‘Business’, means busy-ness or ‘state of being busy’ in economic
activities. The activities consist of production or purchase of goods for sale, or exchange
of goods or supply or services to satisfy the needs of people. Business requires dealing in
goods and services on a regular basis and there is always uncertainty of return. 
In the words of Lewis H. Haney, “Business may be defined as human activity directed
towards producing and acquiring wealth through buying and selling goods.” 
In the words of Wheeler,” Business is an institution organised and operated to provide
goods and services to society under the incentive of private gain”.   

Starting a Business:

Starting a business requires effort and various resources are employed to achieve the
objectives of business. Now the complexities of business have increased a lot and various
human, physical and financial resources are required to start a business. The success of
the business depends upon the ability of the entrepreneurs or the starters who anticipate
problems and solve them with minimum cost and time. For example, to start a factory,
plans are made regarding the location of the business, kind of equipment, the layout of
the shop, purchasing and financing needs, recruiting and hiring workers, etc. These plans
and requirements become complex with the size of the business. Some of the basic
factors which must be kept in mind while starting a business are as follows:
1. Selection of line of Business: The first thing to be decided by any entrepreneur or
new business is the nature and type of business to be undertaken. The entrepreneur
would prefer the line or branch of industry and commerce which has more profit and
less risks. This decision is influenced by the customer requirements, and by the kind
of technical knowledge and interests of the entrepreneur. 
2. Size of the firm: The size or scale of the firm is another very important decision to be
kept in mind at the time of starting a business. This includes the decision to whether
set up a large scale or a small scale business. These factors depend upon a number of
factors like availability of finance, market condition, etc. If the entrepreneur is
confident enough that the demand for the proposed product or service would be high,
and he can arrange the funds required for it, then he can go for a large scale business.
But if the market conditions are uncertain, risks are high and funds are not easily
available, then small scale business should be opted for. 
3. Choice of form of ownership: After deciding the line and scale of operation, the
entrepreneur has to decide about the ownership or form of business. The business may
take the form of Sole proprietorship, Partnership, or a Joint-stock Company, Each
 form has its own merits and demerits and decisions depends upon various other
factors like requirement of funds, liability of owners, legal formalities, continuity of
business, division of profit, etc.
4. Location of the business enterprise: Where the enterprise is to be located is another
very important decision, which is to be taken by the entrepreneur. If any wrong
decision is taken, then it would influence the costs, profitability, and growth of the
business. Facilities like availability of raw material and labour, power supply, and
services such as banking, communication, warehousing, etc., must be in close
proximity to the business.
5. Financing the proposition: This decision is concerned with providing the necessary
capital to the business. Capital is required for investing in fixed assets like land,
building, machinery and other equipment. It is also required to buy raw materials and
meeting day-to-day expenses. Proper financial planning must be done to determine
the requirement of capital, sources of raising capital and the best way of utilising the
capital.
6. Physical facilities: Availability of physical faculties, like machinery, land, raw
material and other services is very important. The decision relating to this factor will
depend on the nature, size of business, availability of funds, etc.
7. Plant layout: The next process after deciding on the physical facilities is deciding
about the plant layout. The layout means the physical arrangement of machines and
equipment needed for manufacturing products. The entrepreneur should draw a layout
plan showing the arrangement of these.
8. Competent and committed workforce: An individual person cannot do everything
alone, he needs a competent and committed workforce to convert raw materials and
other resources into desired outputs. So, the decisions regarding the requirement of a
number of skilled, unskilled and managerial staff is necessary. Means of training and
motivating the employees are also decided while deciding on the workforce.
9. Tax planning: There are a number of tax laws which affect the functioning of the
business. The entrepreneur has to consider these tax laws in advance and needs to
consider tax liability under different tax laws and must plan accordingly. 
10. Launching the enterprise: After taking all the decisions successfully, the
entrepreneurs can go ahead with launching the enterprise. By ‘launching the
enterprise’, we mean mobilising the various resources, fulfilling necessary legal
formalities, starting the production and starting the sales promotion campaign.  
Types of Industries- Primary, Secondary,
and Tertiary
The industry is concerned with the processing and production of goods and services with
the motive of earning profit. In simple words, it involves changing the raw materials into
finished products for the purpose of selling them to the customers. The goods sold by
industry can be either used by other companies for further production or can be used by
the end consumers for final consumption. The goods produced in the former case are
known as producer goods. For example, machinery, tools, etc. However, the goods
produced in the latter case are known as consumer goods. For example, bread, milk,
butter, cloth, groceries, medicines, etc. An organization can also produce materials that
can be used by other companies to further process and convert them into finished goods.
These goods are known as intermediate goods. For example, rubber, copper, plastic, etc.
Industry can be further classified into three parts: primary, secondary, and tertiary
industry. 

Primary Industry
The primary industry involves the extraction of raw materials or natural resources from
the earth and the reproduction of living organisms. The economic operations of a
business under the primary sector usually depend on the nature of a specific place where
the extraction or reproduction is being done. Therefore, we can say that the economic
operations of a primary industry revolve around the natural resources available on earth.
The primary industries produce or create products that are sold to the public. For
example, farming, mining, fishing, forestry, agriculture, crop production, animal
husbandry, etc. The primary sector of less advanced economies and includes activities or
businesses from these areas. As a country develops, it becomes less dependent on
primary industry and more on secondary and tertiary. Some of the workers in the primary
industry are hunters, farmers, coal miners, etc. 
Primary industry is further divided into two categories:
1. Extractive Industry: As the name suggests, the extractive industry involves the
extraction of products from natural resources and manufacturing of finite raw
materials that industry cannot replenish through cultivation. In emerging countries
like India, the primary industry is usually the most important sector. For example,
agriculture is the most crucial part of India’s primary industry, and animal farming is
important in Africa. Other essential extractive industries are mining, fishing, hunting,
lumbering, and farming. 
2. Genetic Industry: The genetic industry involves rearing and breeding of living
species like birds, plants, etc., developing raw materials, and then improving them
through human involvement in the production process. Genetic industry examples
involve seeds and nursery companies, poultry farms, fish hatcheries, breeding farms,
livestock management and forestry. 
Secondary Industry
The secondary industry uses the raw materials extracted in the primary sector and then
converts them into the finished product. Therefore, the secondary industry consists of
construction and manufacturing industries. The products manufactured under secondary
industries are either consumed by the end customer or used as raw material by other
industries for further processing or production. For example, getting wood from forests is
a primary industry; however, making furniture from wood is a secondary industry. The
businesses under secondary industry usually use massive machinery in their production
plants for manufacturing goods and even use human resources for packaging and
distribution of goods to retailers, wholesalers, etc., at different locations. 
Secondary industry is further divided into two categories: Manufacturing and
Construction Industry.
Manufacturing Industry
These are the industries that are involved in the process of converting raw materials or
semi-finished products into finished products. Manufacturing industries create form
utility as it changes the form of raw materials into finished goods. For example, cotton is
a raw material that is converted in clothes under the manufacturing industry, iron is
converted into benches, sugarcane into sugar, wheat into bread, etc. 
The two types of goods produced in the manufacturing industry are:
 Consumer Goods: Consumer goods are goods that are consumed directly by the end
consumer and are used for day-to-day consumption. Examples of consumer goods are
clothes, hand wash, soap, oil, ghee, bread, butter, etc. 
 Industrial Goods: Industrial goods are the goods that are built or produced for
manufacturing consumer goods. For example, machines, equipment, etc., are used by
industries to manufacture consumer goods such as bread, butter, soap, oil, etc.
The manufacturing industry is further divided into four categories:
1. Analytical Industry: The industry in which a basic raw material is broken down into
several parts for manufacturing multiple products is known as analytical industry. For
example, different products like gasoline, kerosene oil, diesel, petroleum, etc., are
formed by breaking crude oil into different parts and processing them separately. 
2. Synthetic Industry: The industry in which manufacturers mix two or more materials
for manufacturing a new product is known as the synthetic industry. For example,
products like paint, paper, soap, cement, sanitizers, etc., are manufactured by mixing
two or more than two materials.  
3. Processing Industry: The industry in which manufacturers process a raw material
through different production stages and then manufacture the finished good is known
as the processing industry. For example, the Sugar industry processes sugarcane
through different stages to manufacture sugar for consumers and other industries. 
4. Assembling Industry: The industry in which the organizations take different finished
products and combine them to form a new finished product is known as the
assembling industry. For example, computer companies buy different finished
products like CPU, motherboard, software, etc., from different companies and
produce a new product. 
Construction Industry
These are the industries that are involved with the construction of roads, dams, buildings,
etc., for the development of an economy. The construction industry use products of the
manufacturing industry, such as steel, iron, cement, etc. The products of construction
industries are unique in a way that their products cannot be moved or transferred from
one place to another. For example, a dam can be built at a fixed place and cannot be
moved as per the choice of anyone. 

Tertiary Industry
The tertiary industry involves providing services and facilitating a smooth flow of goods
and services in the market. The tertiary industry is also known as the service industry,
and it helps the primary and secondary industries with their activities. It means that the
tertiary industry provides services to different primary and secondary industries to
support their activities. 
Different types of services provided by the service industry are:
1. Transport: Transportation services help the primary and secondary industries by
facilitating the movement of goods from one place to other. Different modes of
transport used by tertiary industry are air, water, land, rail, etc. 
2. Banking: Through banking, the tertiary industry provides credit facilities and finance
to different trading firms and industries for business expansion, survival and growth. 
3. Warehousing: Warehousing services of the tertiary industry provides the primary and
secondary industry with storage facilities. It means that the primary and secondary
industries can store their produced goods until they are distributed. 
4. Insurance: Insurance services of the tertiary industry involve providing coverage to
the primary and secondary industries with different types of risks while running the
business. 
5. Advertising: Advertising services help the primary and secondary industries by
providing information to the customers about the company or business and its goods
and services.