Nature and Purpose of Business PDF

# CHAPTER-1 # NATURE AND PURPOSE OF BUSINESS ## STRUCTURE - Introduction - Kinds of Human Activities - Business, Profession and Employment - Meaning and Definition of Business - Profit: Its Relevance to Business - Scope of Business - Importance of Business - Functions of Business - Requisites of Su...

# CHAPTER-1 # NATURE AND PURPOSE OF BUSINESS ## STRUCTURE - Introduction - Kinds of Human Activities - Business, Profession and Employment - Meaning and Definition of Business - Profit: Its Relevance to Business - Scope of Business - Importance of Business - Functions of Business - Requisites of Successful Business - Questions - Answers to Objective Questions ## 1.1 INTRODUCTION Business is a human activity. Human beings keep themselves engaged in some occupations or activities to satisfy their various needs. The needs may be economic or material, social or psychological. Such occupations or activities are called human occupations or human activities. The following are the important characteristics of human activities: - These are undertaken only by human beings - The activities are undertaken to satisfy human needs or wants. - Human needs may be economic, social and psychological. - The activities continue throughout the lifespan of a human being. - Human activities are undertaken either for earning money or for getting mental satisfaction. ## 1.2 KINDS OF HUMAN ACTIVITIES On the basis of their characteristics, the human activities are broadly grouped into two kinds: - Non-economic activities - Economic activities ### 1.2.1 Non-economic activities Non-economic activities refer to those human activities which are undertaken for not any economic reward i.e. not for earning money but for mental satisfaction. All these activities are performed due to social, religious, cultural, emotional or psychological reasons. Different types of non-economic activities may be undertaken due to love and affection, personal satisfaction, social obligation, religious obligations, patriotism, physical needs etc. ### 1.2.2 Economic Activities Human activities which are performed in exchange for money or money’s worth are called economic activities. Economic activities are related to production, distribution, exchange and consumption of goods and services. ### 1.2.3 Classification of Economic Activities Economic activities or occupations of human beings can be classified into three broad categories. These are: - Business - Profession - Employment #### Business Business refers to those economic activities, which are connected with the production and exchange of goods and services with the main object of earning profit. People engaged in business earn income in the form of profit. The person who carries on the business is called the ‘Businessman’ or ‘entrepreneur’ and the business unit is called the enterprise of the firm. #### Profession Profession is an economic activity or occupation which is concerned with the rendering of specialized personal services to clients in return of a payment called fees. The specialized service is based on professional knowledge, education and training. The persons who are engaged in a profession are called professionals. Chartered Accountancy, Cost Accountancy, medicine, Law, tax consultancy are examples of professions. The main features of a profession are as follows: - A professional should have specialized knowledge and training prescribed for entering into the profession. - The membership of a particular professional body is compulsory. - Every professional body has a code of conduct which every member must follow. - Professionals charge fees from clients for providing their services. - A professional cannot advertise himself if it is banned by the professional body. Some of the professional bodies are: - Institute of Chartered Accountants of India- For Accounting Profession - Institute of cost and works Accountants of India- For Cost Accounting profession - Institute of company secretaries of India- For Company Secretary profession #### Employment or Services When a person undertakes to render personal service under an agreement, he is said to be in service or employment. The person who renders personal service to others is called ‘an employee’. The person or organization which engages others to work is called ‘an employer’. The employee is paid remuneration in the form of wages or salary, allowances and other benefits according to the service agreement. The employee acts under the guidance and control of his employer. The employment or service may be in a Government or private organization. Some important features of employment are as under: - An employment begins when a person joins an organization to render personal services - The employer assigns duties to the employee. - An employee is not required to make any capital investment. However, in certain cases employees may be allowed to participate in the capital investment later on. - The employee will have to follow service rules and regulations prescribed by the employer. - There are no standard qualifications for getting employment. - Regular remuneration is guaranteed which is certain. - The employer laid down norms of behavior to be followed by an employee. ## 1.3 COMPARISON BETWEEN BUSINESS, PROFESSION AND EMPLOYMENT | Basis | Business | Profession | Employment | |---------------------------|--------------------|--------------------|--------------------| | Meaning | Production and selling of goods and services. | Rendering of specialized services to the clients. | Rendering personal service under an agreement of employment | | Commencement | Starts after completing some legal formalities if required | Starts after getting certificate from the professional body or institution | Starts after service contract with the employer | | Qualification | No formal qualification is necessary | Formal qualification is absolutely necessary | Formal qualification may or may not be necessary | | Capital requirement | Adequate capital is required | Capital requirement is comparatively less | Capital requirement is not at all necessary | | Reward | Profit is the reward of Business | The reward of a profession is known as fees | The reward is known as salary or wages | | Degree of risk | Degree of risk is absolute because profit in uncertain | It involves little risk when there is no work | There is no risk at all | | Transfer of Interest | Transferable possible from one person to another | Transfer of interest cannot take place | Transfer of interest is not possible | | Code of conduct | May or may not follow code of conduct | Code of conduct is essential | There is a contract instead of code of conduct. | | Test of Efficiency | Profit earning | Quality of service proved | Dedication to job | | Nature | Mostly physical in nature | Mainly mental in nature | Both physical and mental in nature. | ## 1.4 MEANING AND DEFINITIONS OF BUSINESS The word ‘Business’ literally means ‘State of being busy’. Every human being is busy with some kind of work in order to earn a living. These works are called economic activities or occupation. Business is an occupation in which goods and services are exchanged for money or money’s worth on expectation of profit. In the broader sense of the term, Business is the sum total of all the economic activities which start right from the production of goods and services down to the task of taking them to the consumers. It includes all those activities which are related with the production, purchase and sale or exchange of goods and services with the aim of earning profits. A factory, a shop, a transport company, an insurance company, a bank, a warehouse, an advertising agency are examples of business organizations or business enterprises. Different authors have defined business differently from time to time. Some important definitions of business are as follows: - According to L.H. Haney, "Business may be defined as a human activity directed towards producing or acquiring wealth through buying and selling of goods". - According to W.R. Spriegel, "All of the activities included in the production and sale of goods and services may be classified as business activities". - According to L.R. Dicksee, "Business is a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf the activity is conducted". From the above definitions, it is clear that the term ‘Business’ includes all those activities that are related to the production and distribution of goods and services with a view to earning profit. It also includes all those activities, which indirectly help in production and exchange of goods such as transport, insurance, banking, warehousing etc. ### 1.4.1 Characteristic or Nature of Business The important features or characteristics of business are as given below: - **An entrepreneurial activity:** To set up a business there must initially be an entrepreneurial endeavor and for this there must be someone to take the responsibilities. The person who takes the responsibilities to establish a business is an entrepreneur. He is a person who creates a new business in the face of risk and uncertainly. Such a person is also called a ‘Businessman’. - **Economic activities:** Business includes only economic activities. It is concerned with all activities from production to distribution of goods and services with the object of earning profit. Any activity without profit motive cannot form business. - **Dealings in goods and services:** Business deals in goods and services. Goods may be consumers’ goods or producers’ goods. The consumers’ goods are meant for direct consumption like cloth, shoes, foods, tooth brush, tooth paste etc. But the producers’ goods are used for further production of goods like machinery, tools, building, raw materials etc. The term services refers to intangible and invisible items such as transportation, insurance, banking, supply of electricity etc. - **Regularity in dealings:** Business is concerned with dealing in goods and services on regular basis. An isolated transaction cannot constitute business. For example, if a person sells his used motor car and earns a profit, he is not engaged in business. But if he engages himself continuously in buying and selling motor cars, it will become his business. - **Sale or exchange for value:** Business involves sale or exchange of goods and services for value. Production or purchase for personal consumption or presenting to others as gifts or at free of charge cannot come under business. - **Profit motive:** The primary objective of a business is to earn profits. Profits are essential for survival, growth and expansion of business. It is the reward of the entrepreneur for undertaking the risk of business. - **Element of risk and uncertainty:** Business involves an element of risk arising from uncertainty. Generally, the greater the degree of risk, larger the scope of profit in business. The risks and uncertainties arise due to variety of factors like changes in technology, changes in tastes and preference of customers, supply of capital and raw materials, government policies, natural disasters etc. - **Creation of utilities:** Business creates utilities to facilitate the use of goods according to the needs of the customers. It adds time, place and form utilities to production of goods. For example, storing goods and supplying them according to the need of customers creates time utilities, transporting goods from one place to another leads to place utilities and converting raw materials into finished product creates form utilities. - **Organization:** Organization is essential for smooth functioning of the business. The entire business activities are to be formed as a unit. It depends upon the size and degree of business operations. - **Finance:** Business cannot run without finance. The finances are required for providing fixed and working capital. The availability of other factors of production like land, labour and raw materials also depend upon the availability of finance. - **Consumer satisfaction:** The ultimate aim of business is to supply goods and services to the consumers. The business men always try to satisfy the consumers to maintain the demand of the products. The existence and expansion of business depends upon the likings of the consumers for the products of that business. - **Satisfying social needs:** Business tries to satisfy social needs because it is a socio-economic institution. It is only the public who needs business. In the same way business also needs public support. So a business must serve public purpose. - **Art as well as Science:** Business is an art because it requires personal skills and experience. It is also a science because it is based on certain principles and laws. ## 1.4.2 Objectives of Business Every business has a set of objectives to be achieved. These objectives clearly indicate the direction in which the business has to move and what is its target. The objectives of business are many and depend upon the nature of the business enterprise. However, the objectives are broadly classified into the following categories. - Economic objectives - Social objectives - Human objectives - National objectives - Global objectives - Organic Objectives ### 1. Economic Objectives The primary objectives of business are economic because it includes all economic activities. The important points under economic objectives are as under. - **Earning adequate profit:** Profit is the most important objective of a business. Earning adequate profits is a precondition for survival and growth of the business. It is the barometer of efficiency, progress and stability of the business concern. It helps generate sufficient resources to finance further expansion of business. Moreover, profit is the reward of the entrepreneur for undertaking risk of the business. - **Creation of Customers:** The primary objective of earning profit depends largely on the creation of new customers and retaining them. A business can create customers by supplying the goods and services which the customers want. Through market research a business can know what the customers want. A business can remain in the field only if there are enough customers to buy the products or services offered by the enterprise. - **Making innovations:** Innovation means the discovery of new ways and techniques for economy in production and improvement of products and services. A business can earn profit and create customers only when it produces new and better products and services. Through innovation a business enterprise can increase its image in the mind of the customers. Research and development help business concern to find out new products, new markets, new techniques of production and distribution etc. - **Production of goods:** Production of goods is another economic objective of a business. An enterprise produces goods according to taste and requirement of the customers. Profit can be earned only when the goods are produced and sold to customers. - **Growth and expansion:** The growth and expansion of business activities is also one of the important economic objectives of business. It depends upon the relationship between business and its important constituents such as owners or shareholders, employees, customers, creditors, supplier’s and government etc. the business can grow if these interested parties are satisfied. Owner must get adequate return on capital, Employees should get fair wages and salaries. Customers feel satisfied with timely payment and government with due taxes and duties. ### 2. Social objectives/Social Responsibilities of Business Business is an important part of society. It cannot survive and grow without the support of the society. The business should undertake those activities, which are essential for the betterment of the society. Business functions under social environment and so has certain social responsibilities. The important social objectives of any business should be as under; - **Supply of goods which the society needs:** Supply of quality goods and services to the society is an important social objective of every business. If the business fulfills this objective, the goodwill and reputation will increase. On the other hand if it fails to supply quality goods and services, it will incur the wrath of the society. - **Avoid unfair trade practices:** The business should avoid anti-social and unfair trade practices like adulteration, hoarding and black marketing. It should not issue misleading advertisements. Moreover it should not over-charge the customers and indulge in profiteering at their cost. - **Providing employment opportunities:** One of the important social objectives of a business is to create and provide employment opportunities to the people in the society. It is the responsibility of management to help increase direct and indirect employment in the area where it is functioning. Even though this objective is in conflict with the economic objective of reducing cost by the process of mechanization, yet there should not be less of jobs to the people in the society. - **Paying fair wages and salaries to employees:** A business has responsibility towards its employees. The objective implies provision of fair wages and other facilities like housing, medical facilities, education, good working condition and opportunity for promotion etc. to the employees. - **Efficient use of resources:** The resources at the disposal of business belong to the society. Therefore, the business should make the best possible and effective use of raw materials, machines, technical knowhow, capital and other resources for the economic development of the society. - **Social welfare:** An important social objective of business is to participate actively in the various social welfare activities in the locality where it functions. The welfare activities are concerned with running of schools, colleges, hospitals, orphanages, old-age homes, charitable institutions, maintaining parks and gardens and so on. - **Prevent pollution:** One of the social objectives of business is to prevent pollution which may be related to air, water or sound pollution etc. In the present society, pollution has become a serious problem with the growth of modern industries. It not only affects the health of human beings but also other living animals. A business enterprise can better serve the society by taking adequate anti pollution measures. - **Maintain ethical norms:** A business is a member of the society. So it has to maintain the ethical and moral norms of the society in which it functions. A business should not indulge in discriminatory practices on the basis of caste, religion, social and economic status. - **Act as a good citizen:** Like a responsible citizen of the country, a business should co-operate with Government in the matter of payment of tax and follow the rules and regulations imposed from time to time by the Government. - **Minimum wastage:** All the resources are valuable for the society. A business should conserve these resources and adopt measures for minimum wastages of it. This may lead to optimum utilization of the resources in the society. - **Research:** In the changing technological world, it is essential to use latest scientific devices for production and marketing of goods. One can compete with the changing business world only through R & D programmes. ### 3. HUMAN OBJECTIVES Human objectives of a business arise from the expectations of the people working in it. The success of a business depends upon the ability, zeal and co-operation of the persons involved with it. No business can undermine the human factor. So every business has to pay due attention to its human objectives as stated below. - **Humane treatment:** Business is run by human beings. They should not be treated like machines. They are guided by emotions, instincts, peace and happiness in their work. - **Job satisfaction:** The business should take such steps whereby the job would become more interesting and challenging to its employees. To get the best out of them, they should be given a fair deal by the business. - **Workers’ participation in management:** To motivate and to get best from its workers, they business should allow workers to participate in the decision making process. This participation in management by workers leads to increase the productivity and efficiency of the business. - **Development of human resources:** One of the important human objectives of a business is the development of human resources. The success of a business depends more on the quality of human resources than other physical resources like land and building, machines and equipment etc. So, proper training and placement is necessary to increase the skills and abilities of the persons working in the business. - **Recognition and prestige:** A business should provide fair dealing to workers, customers, suppliers, investors and Government. The management must create healthy relations with all these constituents of the society. As a result of this, the business will get recognition in the society and command prestige. ### 4. National Objectives National Objectives of a business refer to those objectives which make a business contribute to the national development. Some of the important national objectives of a business are as under: - **Production according to national priorities:** Every government fixes national priorities. The business should produce and supply goods and services according to national priorities as these goods and services are quite necessary for the development of the country. - **Achieve self-reliance:** A business should come forward to produce and supply all those goods which can increase the export and reduce the import of the country. This will help the nation in earning and saving scarce foreign exchanges. - **Development of small scale enterprises:** Business units, large and small should help one another in various ways. Every large business should help in the development of small scale enterprises. The big unit should encourage small units to sell their products to them and sometimes supply inputs to them at a reasonable rate as ancillaries. - **Development of skilled personnel:** Every nation requires skilled personnel for its development. So, the business has the responsibility of giving training to the young men as apprentices and increase their skills. ### 5. Global Objectives: Earlier India had a 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, restriction on foreign investments have been largely abolished and duties on imported goods have been substantially reduced. This change has brought about increased competition in the market. To-day because of globalization the entire world has become a big market. Goods produced in one country are readily available in other countries. So, to face the competition in the global market every business has certain objectives in mind, which may be called the global objectives. ### 6. Organic Objectives The term ‘Organic’ strictly means ‘pertaining to or relating to organs of living being. In broader sense and with reference to business it refers to anything that is intrinsic and structural. Therefore, by organic objectives of business, we mean the bodily or body-related objectives of the business i.e., the internal growth and survival of the business. A business is established to produce or procure goods, generate services and market them with a view to earning profits. This, in turn requires that the business must survive in the market, and to compete with others, must grow and be strong. It must acquire enough competence to exploit the available opportunities. In this sense, organic objectives are supportive objectives of the economic objectives of the business. Along with the survival and growth, a business should also aim at creating a respectful position i.e., business personality for itself in the minds of people. ## 1.5 PROFIT: ITS RELEVANCE TO BUSINESS In the words of Peter F. Drucker, "the problem of any business is not the maximization of profit, by the achievement of sufficient profit to cover the risks of economic activity and thus to avoid loss." Maximization of profit should not be the sole aim of business. But yet the business should earn adequate profit due to the following reasons. - **Measure of efficiency:** Profit is considered as a measure of efficiency. The efficiency of business is measured by the profit earning capacity. It is the acid test of ability of the business. - **Survival and growth:** Profit is essential for survival and growth of any business concern. Profit provides internal source of finance for growth and expansion. External finance is also possible when a business has ability to earn sufficient profit. - **Risk premium:** Profit is the risk premium that covers the cost of staying in the business. Adequate profit enables the business to face the challenges of replacement, obsolescence, market risk and uncertainty. - **Incentive:** Profit provides sufficient incentive to the businessman to operate business with full enthusiasm. It is a reward for the labour of an entrepreneur. - **Social welfare:** Business can spend on social welfare activities if it earns sufficient profit. Otherwise it is not possible to fulfill the obligations towards the society by taking various welfare schemes. - **Prestige and goodwill:** A profitable business enterprise is capable to create goodwill and prestige in the society. It can obtain recognition from all section of the community such as customers, suppliers, creditors, investors and general public. ## 1.6 SCOPE OF BUSINESS The scope of business includes all those activities related to production of goods and services and their distribution to the consumers who ultimately require them. The range of activities which a business covers are as follows. - **Production:** Production of goods for sale is one of the principal activities of a business. But production of goods by a person for his own consumption is not business. The goods may be produced either for use by the final consumers or to be used by the producers for further production. - **Purchase or procurement:** Purchase of either raw-materials or finished products is one of the activities covered under business. A manufacturer purchases raw materials for production while a trader purchases finished goods for sale to the consumers. - **Sale or exchange:** Sale is one of the principal activities of a business. A producer sells the goods manufactured by him and a trader sells the goods purchased by him. - **Financing:** A business requires finance or money to carry its operations. A businessman may not always be able to provide the fund required for his business. So, he has to raise finance from different sources. However, a business has its inherent capacity to generate finance which it utilizes along with outside sources for its survival and growth. This, therefore, is also another scope of a business, though incidental to the basic scope of production and distribution. ## 1.7 IMPORTANCE OF BUSINESS Business is primarily concerned with production and acquisition of wealth. It is involved with the recurring acts of buying, selling, procuring, collecting, improving manufacturing and distributing goods and services for the satisfaction of human wants and personal gain of the business men. The efficiency of business determines the prosperity of the nation and standard of living of the society. Business is of much importance due to the following reasons. - Business provides goods and services needed by the community. - Business generates employment, income and purchasing power in the society. - The efficiency of business ensures growth, stability, prosperity and reputation of the nation. - Business leads to productive and efficient utilization of resources. - Business utilizes the effective channels of distribution by which the products are available to customers at the right time, at the right place and in good condition. - Business provides entrepreneurial ability and managerial skills to the society. - Business induces innovation by which quality products are supplied at a cheaper cost. - Business leads to mass production and mass marketing so that the advantages of large scale operations are obtained by the consumers. - Business undertakes various social welfare activities to fulfill its social obligations. - Business creates proper climate for human resource development by providing training to increase the skills of personnel. - Business helps to attain the national aspiration of growth with stability and social justice. ## 1.8 FUNCTIONS OF BUSINESS In order to achieve its objectives, a business has to perform a number of functions. The important functions of a business are: - **Production Function:** This function is concerned with transformation of inputs into specified outputs as required by the society. The various inputs such as men, money, materials, machines and other facilities are necessary to carry out this production function. The production department is also responsible to perform other related functions like production planning, production engineering, plant layout, plant building, materials handling. purchasing management, quality control, repairs and maintenance etc. - **Marketing Function:** Marketing is an economic process by which goods and services are transfered from the producers to the ultimate consumers. The marketing function has four components which are popularly known as 4p’s. They are (1) Product (ii) Price (iii) Physical distribution and (iv) Promotion. The basic marketing functions include selling, buying, grading, transporting, storing, financing, risk bearing and marketing information. Market research plays a very important role in the present competitive world. Marketing department is responsible to carry out all these functions of marketing. - **Finance Function:** Finance is the life blood of business. No business can be successfully run without sufficient finance. The business needs finance (a) to bring it into existence (b) for smooth operation (c) for expansion and growth and (d) for liquidation of the business. Finance function is concerned with financial planning, raising of funds, use and allocation of funds, and financial control etc. - **Personnel Function:** This function deals with the human side of the business. The personnel function can be defined as the management of people at work. The objective is to attain maximum individual development, desirable work atmosphere and good interpersonal relations. The personnel function is concerned with recruitment, training and development, health and safety, wages and salaries administration, labour relations and personnel resource planning etc. It ensures that the right number of people possessing required skills at the right time are available to perform the various tasks of the business. - **Office Function:** Office function is mainly concerned with records. The purpose of office function is to collect, generate and communicate information to the executives for decision making and policy formulation. The scope of office function in a modern business is very wide. The responsibility of this function is entrusted to the office manager. The office manager has to perform (a) information function (receiving, collecting, recording, preserving, arranging, analyzing and providing information) (b) operational function (office systems, record management, form design, office stationeries and office control) (c) public relation functions. Among the functions discussed here, production and marketing are regarded as primary functions, while others as assisting functions. These functions are however, interdependent and inter related. For example: marketing function is value less without reduction function and the goal of production function cannot be achieved without marketing function. Similarly finance function is important because it is related to all the functions. The integration of all these functions is necessary to achieve the objectives of a business. ## 1.9 REQUISITES OF SUCCESSFUL BUSINESS Modern business is complex, complicated and very elaborate. There are many uncontrollable factors affecting the prospects of business. The competitions among businesses are keen. The demand for goods and services is ever changing. There is always improvement in techniques. The business has to co-ordinate the important functions such as production, marketing, finance and organization. Thus, the successful establishment and operation of a business is not that easy. There are certain requirements for the success of a business which are discussed below: - **Well-defined objectives:** A clear and definite objective must be laid down for a business. The main and subsidiary objectives must be determined beforehand. The business must be clear as to what type of goods are to be produced or purchased, what to be sold or what services to be rendered. In modern business, effective and efficient management is always “management by objectives”. - **Proper planning:** Planning is deciding what is to be done, how it is to be done, when it is to be done, any by whom it is to be done. It implies thinking about the future, for seeing and fore casting the future events, preparing the programme and guiding the action as per objectives. It is an essential requirement for a successful business. - **Proper location, layout and size:** The business must be located in a suitable place to attract a large number of customers and factors of production available at reasonable cost. A good layout means proper placement of equipment and optimum use of space. Similarly proper size of business leads to better management. - **Sound organization:** Sound organization means a good structure, proper allocation of functions, division of labour, delegation of authority, and harmonious relationship among employees etc. The three essentials of an efficient organization are: (a) competent people will to work together. (b) Common goal to be achieved (c) Physical facilities and equipment available for doing the work. - **Efficient management:** Effective and efficient management aims at guiding, directing, controlling and coordinating the activities of a group towards realization of the desired goal. It provides risk bearing abilities and managerial skills. The management must be competent, honest, responsible and tactful. - **Adequate Finance:** Finance is required for purchase of assets, raw materials, payment of wages and salaries etc. Finance meets both fixed capital and working capital requirements as well as short-term and log-term purposes. Adequate funds should be available for growth and expansion of business. Neither the shortage nor the abundance of capital is needed for the business enterprises. - **High employee morale:** Success of a business depends on whole-hearted cooperation of the employees. If employees are well treated and offered all facilities to ensure job satisfaction, they develop a deep sense of belongingness to the organization. Their morale will be high, which will lead to high productivity and less supervision and control. - **Best marketing system:** Marketing is essential for earning profits. There is no use of production of goods unless those are sold in the market. If the distribution or sale of products is not undertaken efficiently, stock of unsold goods will be piled up and production is to be curtailed or stopped. Therefore, a scientific marketing system is necessary to sell the products at a profit. - **Satisfied Consumers:** Customers are the foundation of a business. They are instrumental for growth and expansion of the business. The motto of the business should be the customers are always right". Satisfied customers are best medium of advertisement. The marketing and distribution system should be so designed that it should attract new customers of the business. - **Innovation:** Innovation means systematic search for new knowledge. It results from research. Research may be related to products, market, material, method, technique and industrial relations etc. In the changing world it is very difficult to stand in the competitive business without innovation. Thus, innovation is indispensable for survival and growth of the modern business. - **Risk bearing capacity:** Business is full of risk and uncertainty. Higher the risk, the more the profit a business can earn. The business must have sufficient risk bearing capacity so that it can be in a position to produce right thing, at a right time and by correct method. This capacity enables the business to minimize cost and maximize profit and keep pace with others in changing circumstances. - **Reputation:** To become successful, a business must not indulge in any act which damages its reputation. It can earn good will through honest dealing and good behaviors.