CHAPTER 1 NATURE AND SCOPE OF BUSINESS

.In the literal sense, the term "Business" means the state of being busy. But it is a very wide
connotation of business because it covers every human activity. Business is really concerned with the
production and exchange of goods and services with the aim of earning money. Business creates
utilities by producing and selling goods and services to satisfy human wants. Business is an activity,
in which different persons exchange something of value, whether goods or services, for mutual gain
or profit. It is an organised or systematic activity involving the satisfaction of human wants.Business
involves regular or recurring purchase and sale of goods and services with the purpose of earning
profits through the satisfaction of human needs. Repeated dealings rather than a single isolated
transaction constitute business. Business may be distinguished from other activities by the fact that
goods and services created or
The salient features of business are given below:
1. Creation of utilities:
Business makes goods more useful to satisfy human wants. It adds time, place, form and possession
utilities to various types of goods. In the words of Roger, "a business exists to create and deliver value
satisfaction to customers at a profit".
Business enables people to satisfy their wants more effectively and economically. It carries goods
from place of surplus to the place of scarcity (place utility). It makes goods available for use in future
through storage (time utility).
2. Dealings in goods and services:
Every business enterprise produces and/or buys goods and services for selling them to others. Goods
may be consumer goods or producer goods.
Consumer goods are meant for direct use by the ultimate consumers, e.g., bread, tea, shoes, etc.
Producer goods are used for the production of consumer or capital goods like raw materials,
machinery, etc. Services like transport, warehousing, banking, insurance, etc. may be considered as
intangible and invisible goods.
Services facilitate buying and selling of goods by overcoming various hindrances in trade.
3. Continuity in dealings:
Dealings in goods and services become business only if undertaken on a regular basis. According to
Peterson and Plowman, "a single isolated transaction of purchase and sale will not constitute
business recurring or repeated transaction of purchase and sale alone mean business."
For instance, if a person sells his old scooter or car it is not business though the seller gets money in
exchange. But if he opens a shop and sells scooters or cars regularly, it will become business.
Therefore, regularity of dealings is an essential feature of business.
4. Sale, transfer or exchange:
All business activities involve transfer or exchange of goods and services for some consideration. The
consideration called price is usually expressed in terms of money. Business delivers goods and
services to those who need them and are able and willing to pay for them.
For example, if a person cooks and serves food to his family, it is not business. But when he cooks
food and sells it to others for a price, it becomes business. According to Peter Drucker "any
organisation that fulfils itself through marketing a product or service is a business".
5. Profit motive:
The primary aim of business is to earn profits. Profits are essential for the survival as well as growth
of business. Profits must, however, be earned through legal and fair means. Business should never
exploit society to make money.
6. Element of risk:
Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss.
Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable
environment.
Changes in customers' tastes and fashions, demand, competition, Government policies, etc. create
risk. Food, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can
reduce risks through correct forecasting and insurance. But all risks cannot be eliminated.
7. Economic activity:
Business is primarily an economic activity as it involves production and distribution of goods and
services for earning money. However, business is also a social institution because it helps to improve
the living standards of people through effective utilisation of scarce resources of the society.
Only economic activities are included in business. Non-economic activities do not form a part of
business.
8. 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.
The above mentioned characteristics are common to all business enterprises irrespective of their
nature, size and form of ownership.

PROFESSION
The term 'Profession' stands for an occupation which requires some specialised study and training,
and the purpose of which is generally to provide skilled services and guidance in lieu of a definite fee
or remuneration. A profession is a calling and implies acquisition of a fond of knowledge, range skills
and their application in service of humanity. They services rendered by a professional may be direct
as will the case of teachers and doctors or indirect as is in the case of teacher educators i.e. teacher of
a teacher.
This service might be rendered for limited segment of the population or for a limited period of time
or phase of life. This service is not rendered to the entire student population which gets graduation
or post-graduation, but, it is rendered to those who have aptitude for the profession. Any
professional provides professional service for a limited period of time when his/her clientele are in
an institution or within the institutional framework. A profession can be practiced independently or
within an institution or both

Distinguish between business, profession and
employment.
The main points of distinction between Business, profession and Employment are given below:
1. Mode of establishment:
A business enterprise is established when an entrepreneur takes a decision to carry on some business
activity. In a profession, on the other hand, the membership or enrollment of a recognised
professional association or institution is essential. In order to take up employment, a person has to
enter into a contact of service.
2. Nature of work:
A business exists to provide goods and services to satisfy human wants. On the other hand, a
professional renders personalised service of a specialised nature to his clients. An employee performs
the work assigned by the employer under the contract of service.
3. Qualifications:
No formal education is compulsory in order to carry on a business. But for a profession, specialised
knowledge and training are essential. Minimum educational qualifications are prescribed for every
profession. In case of employment, the qualifications required depend upon the nature of the job.
4. Main objective:
In business, the basic motive is to earn profits. A professional, on the other hand, is expected to
emphasise the service motive and sense of mission.
That is why; a rigorous code of ethical behaviour is laid down in every profession. In case of service,
the motive of an employee is to earn salary and receive other benefits.
5. Investment:
Every business requires capital depending upon the nature and scale of operations. A professional
also has to invest some capital to establish an office for rendering services. There is no need for
capital in case of employment.
6. Risk:
There is an inherent element of risk in business and profession but practically no risk is involved in
case of employment. There can be loss in business but in profession and employment return is never
negative.
7. Reward:
Profit is the reward of a businessman while professional fee is the reward of a professional. The
reward in case of employment is wage or salary. Wage/salary and fee are more regular and fixed than
profits.
8. Transfer of interest:
It is possible to transfer ownership interest in business. But no such transfer is possible in case of
profession and employment

BUSINESS
Business may be defined as any activity in which a man is very much interested and these activities
bring him profit, money, prestige and power. In economic sense, the term business means works,
efforts and acts of people, which are connected with the production of wealth and activities, which
are directed with the object of making profit. Production and distribution of goods to consumers
for a profit constitute business. The term business also includes services.
We may distinguish business from profession and employment. In the case of profession,
specialised services have to be rendered by professional persons like Lawyers, Engineers, Doctors,
etc., They must possess the qualification prescribed by law or by their association. In case of
employment a person has to work under an agreement and perform the work assigned by the
employer.
Important characteristics of business
1. All business activities are mainly concerned with the transfer or exchange of goods and services
for value to satisfy human needs.
2. Business deals with goods and services.
3. Exchange of goods and services should frequently take place.
4. The profit motive is an important distinguishing feature of business.
5. Business has to meet the various types of risks and this may result in heavy loss and uncertainty
of profit.
Every business has certain objectives which govern its activities. Objectives of business may be
classified into two broad categories as follows.
Economic Objectives:
Business is an economic activity and its main purpose is to achieve economic results. The economic
objectives of business are given below:
1. Earning profits:
A business is established for earning profits. It is the hope of earning profits that inspires people to
start business. Profits are absolutely necessary for the survival and growth of every business
enterprise.
The efficiency of business is also measured in terms of profits. However, profits must be earned by
satisfying the wants to customers and after paying workers their dues.
In the words of Arvind Mafatlal, "no business or industry is run philanthropically. It has to make a
profit for further growth. But this profit cannot be at the expense of labour and the community at
large."
2. Creating customers:
Profits are not created by God or by the force of nature. They arise from the businessman's efforts to
satisfy the needs and wants of customers. A businessman can earn profits only when there are
enough customers to buy and pay for his goods and services.
In the words of Drucker, "there is only one valid definition of business purpose: to create a customer.
The customer is the foundation of business and keeps it in existence.
It is to supply the customer that society entrusts wealth-producing resources to a business
enterprise." No business can succeed without providing customers value for their money.
Business exists to satisfy the wants, tastes and preferences of customers. In order to earn profit,
business must supply better quality goods and services at reasonable prices. Therefore, creation and
satisfaction of customers is an important economic objective of business.
3. Innovations:
Business is an organ of dynamism and change. In these days of competition a business can be
successful only when it creates new designs, better machines, improved techniques, new varieties,
etc. Modern science and technology have created a great scope for innovation in the business world.
Innovation is not confined to the invention of a new machine. It comprises all efforts made in
perfecting the product, minimising the costs and maximizing benefits to customers. It involves
improvements in management, production, selling servicing, methods of personnel and accounting,
etc.
Social Objectives:
Business does not exist in a vacuum. It is a part of society and it can achieve its economic objectives
only by having deep roots in the society. According to Henry Ford, "The primary aim of business
should be service and subsidiary aim should be earning of profit.
The purpose of business is not only earning profits but also discharging responsibility towards
society." Business is not merely an economic activity; it is also a social institution. The social
objectives of business are as follows:
1. Services to employees:
Employees work day and night to ensure smooth functioning of business. Therefore, it is the duty of
employers to provide social justice to their employees in the following ways.
(a) Fair wages:
Employees must be given fair compensation for their work. In addition to the minimum wages
prescribed by law, a reasonable part of profits should be distributed among employees in recognition
of their contribution. Such sharing of profits will help to increase the motivation and efficiency of
employees.
(b) Good working conditions:
It is the obligation of business to provide healthy and safe work environment for employees. Good
working conditions are beneficial to the organisation because these help to improve the productivity
of employees and thereby the profits of business.
(c) Employee welfare:
Business is expected to make adequate and satisfactory provision for medical, educational, housing
and other welfare facilities for workers. This is because the Government is not in a position to take
care of all these activities. Employee welfare facilities will help business to secure the dedication and
loyalty of workers.
(d) Development and promotion:
Business should provide reasonable opportunities for training, growth and promotion of employees.
Business can facilitate self development of employees by encouraging creativity and innovation
among them.
This will create a sense of satisfaction and self-confidence among workers. They can bear higher
responsibilities and assist in the growth of business itself.
(e) Partnership in business:
Employees should be allowed to work with honour and job satisfaction. For this purpose, their
participation in the ownership and management of business is necessary. They should be considered
as partners in business rather than as servants.
2. Services to society:
Business is expected to serve the society in the following ways:
(a) Employment Generation:
Business can provide opportunities for gainful employment to members of the society. In a country
like India employment has become a serious problem and the Government is unable to offer jobs to
all. Therefore, provision of adequate and full employment opportunities is a significant service to
society.
(b) Standard of living:
Business should raise the living standards and material well- being of people by providing high
quality products and services at cheaper prices. This can be done through mass production and
distribution.
(c) Pollution free environment:
Rapid industrialisation has resettled in air, water and noise pollution. Business is responsible for
reducing the adverse effect of business on the quality of life. It must make proper arrangements for
the disposal of smoke, effluents, wastes, etc. to protect the health and life of people, animals and
birds.
(d) Investor satisfaction:
Business should ensure safety and appreciation of the money invested by shareholders and creditors.
A reasonable return in the form of dividends, interest, etc. should be paid to them regularly and in
time. They should be kept informed of the financial health and future prospects of business.


Business activities may be classified into two broad categories namely, a. Industry and b.
Commerce
INDUSTRY
Industry involves the production of goods and materials. The term industry refers to that part of
business activity, which concern itself with the increase in production. When the goods of an
industry is used for final consumption it is called consumer goods e.g. tooth paste, soap, television
etc.,
But if another industrial undertaking for further production uses the goods of an industry, is called
capital goods. E.g. Machine tools, spare parts etc.,
Industries may be classified into four types: 1. Extractive Industries 2. Genetic Industries 3.
Construction Industries 4. Manufacturing Industries 5. Assembling Industries
Extractive Industries
Industries, which are engaged in the supply of commodities extracted from the earth, are called
extractive industries.
Examples: Hunting, fishing, mining etc.,
Genetic Industries
Activities, which are concerned with reproducing and growing certain species of plants and
animals with the object of earning Profit from sale.
Examples: Fishery, poultry and piggery.
Construction Industries
Industries, which are engaged in the construction of buildings, dams and bridges, are called
construction industries. It uses the products of manufacturing industries especially cement, and
iron and steel.
Manufacturing Industries
Industries, which are engaged in the conversion of raw materialsor semi-finished products into
finished products, are known as manufacturing industries. Cotton textile mill is an example, which
converts raw cotton into yarn and yarn into fine cloth. Manufacturing industries may be classified
into continuous and assembling industries.
Continuous industries
In this type of industry, raw materials are fed from one end of the factory and they emerge as
finished products from the other end after passing through various processes.
Examples: Textile, paper, and sugar industries
Assembling Industries
In this type of industry the components are produced by different industries and assembled to turn
out new useful products in the form of car, scooter, bicycle, computer, etc.

1. TRADE
Trade removes hindrance of person through wholesalers, retailers and mercantile agents. Goods
are owned and possessed by those who produce them. Unless these goods go into the hands of the
consumers they will have no meaning for the society. Ownership and possession ofgoods must pass
on from the producers to the ultimate consumers. Then only consumers can enjoy these goods.
This is made possible by the organization of trade. Wholesale traders take goods from the
producers and from the wholesale traders, retail traders take the goods to the consumers. Thus
trade, through traders removes hindrance of person.
Trade may be defined as the means by which the hindrance due to person is removed. It is that
branch of commerce, which is concerned, with the removal of personal hindrance. The hindrance
arises because the producer and the consumer are different persons and there is no direct contact
between them. Trade acts as a connecting link between them. The functions of trade are to act as an
intermediary in exchange of commodities between the producer and the consumer.
Trade may be classified into two.
(i) Internal / Home / Domestic Trade
(ii) Foreign / External Trade/ International Trade
Home Trade
Home trade is one, which is carried on within the boundaries of a particular country. It consists of
buying and selling of goods within the country. In this case, both the buyer and the seller belong to
the same country. Eg: Mangoes grown in Andhra Pradesh are sold in Tamil Nadu. Wheat grown in
Punjab is sold in Tamil Nadu.
Home trade consists of two main subdivisions namely wholesale trade and retail trade.
Wholesale trade is known as purchase of goods in bulk from the manufacturers and sell them in
lesser quantities to others (Retailers).Retail trade on the other hand, deals with the distribution of
goods in small quantities to the consumers.
Foreign Trade Foreign trade is a trade between one country with another country. It involves the
exchange of goods of one country with other countries.It is generally, carried out by large business
houses.Eg: Petroleum products of Gulf countries are sold in India.
Types of foreign trade
Import Trade Import trade means buying goods from a foreign country for domestic use.Eg: India
imports Petroleum from Saudi Arabia.
Export Trade Export trade means sale of domestic goods to foreign countries. Eg: Export of Iron
ore from India to Japan.
Entrepot Trade Entrepot trade means importing of goods from one country and exporting the
same to other foreign countries. The country which carries on this trade is acting as collecting and
distributing centre for certain special facilities like large bonded ware houses, assembling and value
addition facilities. Eg: Singapore.
AUXALARIES TO TRADE
2. Transport
Transport removes place hindrance. Goods may be produced at places where they are in less
demand. These goods are to be taken to the place of consumption with the help of transport
facilities we can create place utility in goods. The goods are taken from a place where there is less
demand, to the places where they are in more demand. The place utility helps the producer to
increase the production and earns a remunerative price. The consumer is also helped by supplying
him with the goods which otherwise might not have reached him. The various modes of transport
i.e., road, rail, sea, air have helped the growth of commerce and industry. A producer can produce
goods on any scale, according to the demand.
3. Warehousing
Warehousing removes hindrance of time. Many goods, such as cotton, jute, food grains, sugar, etc.,
are produced during particular seasons of the year. But they are needed throughout the year. To
make these goods available throughout the year arrangement must be made for their proper
storage. Similarly certain goods are needed in particular seasons, e.g.. woollen cloth is required
during winter. Raincoats and umbrellas are essential during rainy season. These goods must be in
stock in sufficient quantity before the commencement of the season. This is done with the help of
warehousing.
4. Banking
There is also difficulty of finance. There is always a time-gap between the time of production and
consumption. During this period of time-gap, traders need funds to carry on their trade. These
funds are made available by commercial banks and other financial institution
5. Advertisement and salesmanship
The consumers may not be aware of the availability of various goods in the market. The absence of
information about goods is a great hindrance for buying them. The producer will also like to have
more consumers. Advertisement and salesmanship help in informing the consumers about the
availability and usefulness of various products in the market. With the advent of TV, FM Radio,
Internet, etc., Consumer awareness on various goods is increasing.
6.Insurance
There is a risk involved in transporting goods from one place to another. This can be a risk of fire or
theft. The fear of loss of goods due to any cause is an obstacle in the development of trade. The
insurance companies provide the coverage for all types of losses of goods. The insurance coverage
has given a fillip not only to the national trade but also to the international trade.
7.Communication
The buyers and sellers need the services of various agencies for communicating their messages
among themselves. The producers inform their customers about the production of goods. The
intending buyers send orders to producers for the supply of goods. The services of post offices,
private courier services, fax, telephones, cell phones etc., are utilised for communication purpose.

















CHAP 2 SMALL BUSINESS
Meaning and Concept of Small Scale Industry:
In most of the developing countries like India, Small Scale Industries (SSI) constitute an important
and crucial segment of the industrial sector. They play an important role in employment creation,
resource utilisation and income generation and helping to promote changes in a gradual and phased
manner. They have been given an important place in the framework of Indian planning since
beginning both for economic and ideological reasons. The reasons are obvious.
The scarcity of capital in India severely limits the number of non-farm jobs that can be created
because investment costs per job are high in large and medium industries. An effective development
policy has to attempt to increase the use of labour, relative to capital to the extent that it is
economically efficient.
Small scale enterprises are generally more labour intensive than larger organisations. As a matter of
fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in
recent years. It has attracted so much attention not only from industrial planners and economists but
also from sociologists, administrators and politicians.
The Small Scale Industries Board in 1955 defined, "Small-scale industry as a unit employing less than
50 employees if using power and less than 100 employees if not using power and with a capital asset
not exceeding Rs. 5 lakhs".
'The initial capital investment of Rs. 5 lakhs has been changed to Rs. 10 lakhs for sma industries and
Rs. 15 lakhs for ancillaries in 1975. Again this fixed capital investment limit was raised to Rs. 15 lakhs
for small units and Rs. 20 lakhs for ancillary units in 1980. The Government of India in 1985, has
further increased the investment limit to Rs. 35 lakhs for small-scale units and 45 lakhs for ancillary
units.
Again the new Industrial Policy in 1991, raised the investment ceilings in plant an machinery to Rs.
60 lakhs for small-scale units and Rs. 75 lakhs for ancillary units.
As per the Abid Hussain Committee's recommendations on small-scale industry, the Government of
India has, in March 1997 further raised investment ceilings to Rs. 3 crores for small-scale and
ancillary industries and to Rs. 50 lakhs for tiny industry.
Following are the characteristics of some industries which identify them as small-scale industries:
1. Labour intensive:
Small-scale industries are fairly labour-intensive. They provide an economic solution by creating
employment opportunities in urban and rural areas at a relatively low cost of capital investment.
2. Flexibility:
Small-scale industries are flexible in their operation. They adopt quickly to various factors that play a
large part in daily management. Their flexibility makes them best suited to constantly changing
environment.
3. One-man show:
A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some small
units are run by partnership firm or company, the activities are mainly carried out by one of the
partners or directors. Therefore,' they provide an outlet for expression of the entrepreneurial spirit.
As they are their own boss, the decision making process is fast and at times more innovative.
4. Use of indigenous raw materials:
Small-scale industries use indigenous raw materials and promote intermediate and capital goods.
They contribute to faster balanced economic growth in a transitional economy through
decentralisation and dispersal of industries in the local areas.
5. Localised operation:
Small-scale industries generally restrict their operation to local areas in order to meet the local and
regional demands of the people. They cannot enlarge their business activities due to limited
resources.
6. Lesser gestation period:
Gestation period is the period after which the return or investment starts. It is the time period
between setting the units and commencement ol production. Small-scale industries usually have a
lesser gestation period than large industries. This helps the entrepreneur to earn after a short period
of time. Capital will not be blocked for a longer period.
7. Educational level:
The educational level of the employees of small industries is normally low or moderate. Hardly there
is any need of specialised knowledge and skill to operate and manage the SSI.
8. Profit motive:
The owners of small industries are too much profit conscious. They always try to keep high margins
in their pricing. This is one of the reason for which the unit may lead to closure.


PROBLEMS OF SMALL SCALE INDUSTRIES
Small-scale industries in India could not progress satisfactorily due to various problems that they are
confronted with while running enterprises. In spite of having huge potentialities, the major
problems, small industries face are given below.
1. Problem of skilled manpower:
The success of a small enterprise revolves around the entrepreneur and its employees, provided the
employees are skilled and efficient. Because inefficient human factor and unskilled manpower create
innumerable problems for the survival of small industries. Non-availability of adequate skilled
manpower in the rural sector poses problem to small-scale industries.
2. Inadequate credit assistance:
Adequate and timely supply of credit facilities is an important problem faced by small-scale
industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the
small units in the country.
3. Irregular supply of raw material:
Small units face severe problems in procuring the raw materials whether they use locally available
raw materials or imported raw materials. The problems arise due to faulty and irregular supply of
raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor quality of raw
materials, increased cost of raw materials, foreign exchange crisis and above all lack of knowledge of
entrepreneurs regarding government policy are other few hindrances for small-scale sector.
4. Absence of organised marketing:
Another important problem faced by small-scale units is the absence of organised marketing system.
In the absence of organised marketing, their products compare unfavourably with the quality of the
product of large- scale units. They also fail to get adequate information about consumer's choice,
taste and preferences of the type of product. The above problems do not allow them to stay in the
market.
5. Lack of machinery and equipment:
Small-scale units are striving hard to employ modern machineries and equipment in their process of
production in order to compete with large industries. Most of the small units employ outdated and
traditional technology and equipment. Lack of appropriate technology and equipment create a major
stumbling block for the growth of small-scale industries.
6. Absence of adequate infrastructure:
Indian economy is characterized by inadequate infrastructure which is a major problems for small
units to grow. Most of the small units and industrial estates found in towns and cities are having one
or more problems like lack of of power supply, water and drainage problem, poor roads, raw
materials and marketing problem.
Thus absence of adequate infrastructure adversely affect the quality, quantity and production
schedule of the enterprises which ultimately results in under-utilization of capacity.
7. Competition from large-scale units and imported articles:
Small-scale units find it very difficult to compete with the product of large-scale units and imported
articles which are comparatively very cheap and of better quality than small units product.
8. Other problems:
Besides the above problems, small-scale units have been of constrained by a number of other
problems also. They include poor project planning, managerial inadequacies, old and orthodox
designs, high degree of obsolescence and huge number of bogus concerns. Due to all these problems
the development of small-scale industries could not reach a prestigious stage.