Notes: Chapter #1 Principles of Commerce

What are human Activities?

Work done by human beings to satisfy their wants and or needs is known as human activity. Human activities can be classified into following kinds:-

1. Non economic activities:

2. Economic activities:

Non economic activities:

These activities are done for personal satisfaction and not to earn profit or income. These activities occures due to following reasons:

Religious:

Saying prayer, taking fast in Ramadan, payment of zakat are religious duties of Muslims etc.

Parental:

Honor, obey and performance of function for parent and other relatives.

Patriotic:

Struggle for freedom and solidarity of one’s own country like Kashmir movement for independence.

Social:

Social welfare, to help the poor, free education and struggle for charitable purposes etc.

Economic Activities:

Business:

These activities include all commercial and industrial activities. These activities are also known as productive activities, economic activities can be classified into three types:

All economic activates connected with production and exchange of goods and services to earn profit and income are called business.

Profession:

When person provide his services on the basis of specialized knowledge and experience in a particular field it is known as profession (e.g.) doctor, professors, engineers, accountants etc.

Employment:

When a person provides his services to another person and any institution on the basis of fix salary is known as employment or service. Employment may be three types:

1: Government service.

2: Semi Government service.

3: Private service.

Q2. Explain the Nature and Characteristics of Business.

Any legal activity performed for the purpose of earning profit is called business

Nature of business:

Following points can explain the nature if business:

• Human Activity:

Business is a human activity because human being start a business, earn profit.

• Economic Activity:

Business is an economic Activity because it is concerned with the use and consumption of wealth.

• Social activity:

Business is social activity in which owner of the business runs the business with the help of different employees, professionals and customers.

Characteristics of business:

According to the size and nature of business following characteristics are common in all business

• Management:

Management is the backbone of business. Every business     has management to manage and control all the business activities.

• Goods and services:

Every business deals with the sale, purchase, and exchange of goods and services. For this purpose there are many factories, bank, insurance companies, doctors and lawyers etc are in working.

• Profit motive:

Earning of profit is the primary objective of every business. Business is not a charity if and enterprise doesn’t have aim of earning profit it wouldn’t be a business

• Risk and uncertainties:

Business cannot runs without risk and uncertainties because some uncontrollable factors such as change in demand, taste, fashion influence the business.

• Customer satisfaction:

A businessman can earn profit only when there are enough customers to buy and pay for his goods and services. The customer is the foundation of business and their satisfaction is very necessary for every business.

• Capital:

Capital is the basic part of every business. Carrying business without capital is not possible for this purpose owner can also obtain capital in the form of loan form financial institutions, friend and relatives.

• Role of government:

Government plays a very important role in the success of business. It is very necessary for businessman to follow the and check the government policies about business.

Q#3 what are the objective and functions of business?

The main objective or function of business is the activities perform in the company to deliver goods and services to the customer and earn the profit. Following are the major objectives of every business.

• Economic objective:

The main objective of every business is to earn profit. Business survival development and progress depends on the economic growth of business.

• Social objective:

Social objective means how businesses interact and contribute toward the well being of society. Businessman uses the modern techniques to produce the quality goods at lower price.

• Employment:

Business provides the employment opportunities not only for owner but also for workers, experts, doctor’s professors, engineers, accountants ,middlemen ,traders  and financial institution  e.g. bankers insurers transporter.

• Investment:

Another important objective of businessmen is to use the national saving in profitable way. It provides opportunities to the people to invest their money to earn the profit. Following are the method of investment:

• Owner equity.
• Shares and debentures
• Partnerships, Musharika, Modarba.

•  National interest:

Some business is stared to secure the national interest of economy and defense system of country for example:

• Industry of weapons for defense.
• Institution of research like PCSIR

• Increase in sale:

Sale is the very important objective of every business because expansion in business is not possible without increase in sale.

• Benefits for employees:

Another important objective of business is to provide the incentives to the employees in the form of bonus, overtime payment, housing and medical facilities etc.

• Use of recourses:

It is the function and objective of business to use the available resources in better way like oil, gas, and iron etc.

Q#4 Describe the basic elements of successful business.

Basic elements for good business are following.

• Expert Management:

Expert management plays a very important role in the performance of business. Effective and good management solves the many problems of business.

• Planning:

Good planning is very necessary for success of business. Planning means to decide what, how and when the work has performed.

• Large capital:

Large amount of capital is necessary for successful operation of every business. Establishment and expansion of business is possible through sufficient amount of capital. Businessmen can manage the capital through loan and equity.

• Innovation:

Innovation means bring something new for improving quality of goods and services. Due to competition in market it is important for businessman to introduce new goods with new and latest design.

• Quality  of product:

Quality of product not only increases the goodwill of business but also increase the profit .Therefore businessman always tries to improve the quality of product.

• Use of technology:

Use of technology increases the production and profit margin of business. Therefore businessman uses the modern method of production and sale of goods and services.

• Location business:

Location of business plays a very vital role in the success of business. Site or place of business is very important for businessman therefore trader should try to establish the business in that area where factors of production are easily available.

• Increase in sale:

Increase in sale is the goal of every business. Advertisement and agent play a very vital role for this purpose. So the marketing department should be very effective and efficient in successful business.

• Organizational structure:

Organizational structure plays very important role in the success of business. Proper division of work and sound relationship between owner and worker is necessary for success of business.

• Technology:

The use of modern technology plays a very important role in the success in the business. The use of modern machinery improves the product quality and increase the demand.

• Legal structure:

The business formation e.g.  Sole proprietorship, partnership,  corporation.

Q#5 describes the basic steps for starting a new Business.

Following factors should be kept in mind while starting a new business.

Steps for starting a business:

• For doing business:          
• Nature of business.
• Gov.Restrictions.
• Size if business.
• Organization.
• Place.
• Govt.incentives.

• For running business
• Management.
• Capital
• Machinery.
• Raw material
• Recourses
• Labor forces
• Experts
• Means of transportation.
• Distributors.
• Result of business:
• Future of business
• Chances of loss
• Chances of expansion.

For doing business:

1. Nature of business:

Before starting a new business it is important to decide the nature of business. A business may be trading, manufacturing, or rendering service.

• Govt. restriction:

Sometimes government imposes restriction to conduct a particular type of business.kit must be taken into consideration before start a new business. If license is necessary for starting the business then trader must get the license.

• Size of business:

It is important to decide the size of business before its establishment. A business may to small medium and large. It depends on the amount of capital, quantity of production, demand of goods and scope in market.

• Organizational structure:

The suitable structure of business must be decided before starting a new business. The form of business organization may be sole proprietorship, Partnership or Joint Stock Company.

• Selection of place:

Selection of place is also a very important factor for the success and failure of business. For this purpose care must be taken before deciding the site of business availability of raw material, market for goods and services, availability of export and laborer must be taken into consideration.

• Govt. incentives:

Government policies about import and export, raw material and machinery must be taken into consideration before starting a new business. For particular business government declare some areas tax or interest free zone.

To run business:

1. Management:

The policies about hiring of employees and distribution of work must be decides before starting a new business. It is also decided either owner of the business will take part in the management or not.

• Availability of capital:

Sufficient amount of capital is very urgent for every business to purchase and sale of building, land, raw material, and payment of wages etc. No business can be started or run without capital.

• Availability of machinery:

Use of latest machinery is also the important factor for the success of business, especially in tough competition. For this purpose proper planning is required to make the machines available according to nature of the business.
4. Availability of Raw material:

Availability of good quality and cheap raw material is essential to produce goods quality at lower cost. Hence, the planning should be made accordingly.

• Power Resources:

Power resources like water, oil, coal, gas, and electricity must be easily availability according to the needs and nature of business.

• Availability of laborers:

Availability of labor is also a very important factor for the success of business. In present industrial age for the use of modern and automatic machinery skilled and unskilled both type of worker required.

• Availability of Expert:

Availability of technical experts is also essential for the formation and performance of business. For this purpose business require the service of highly qualified professionals.

• Means of transportation:

Fast and cheap means of transportation play a very vital role in the availability of raw and material and completion of products.Means of transportation increase the probability of success of business.

• Selection of distributors:

It is also very important to select he distributor before start the business. Goods can be easily transferred to consumer through middleman.

Results of business:

1. Future of business:

Future of business must be assessing according the   technology, invention and innovation. Today technology reject the past technology consumer taste is also change so it is very important for businessman to analyze the market carefully.

• Chances of loss:

In the start of business it is important for businessman to chance of loss should be kept in mind to ovoid the chances of loss in future.

• Chances of expansion:

Growth and expansion of business must be taken into consideration before the establishment of business. With the expansion of business more capital, more space, and power resources etc may be required.

Q#6 Describe the qualities of successful businessman.

Businessman is a person who is engaged in buying and selling of goods and services to earn profit.

 Qualities of good businessman:

In this modern world it is very necessary for businessman should possess the basic skills and knowledge about his business. The success or failure of a business mostly depends on the person who runs it. So a businessman must have the following qualities.

• Personal qualities:

Foresight:

A good businessman has the ability of foreseeing. A wise businessman should be careful about the future expectation demand and supply of goods.

• Courteous:

A good business must have the quality of courtesy. It means he must be polite with his employees and customers. In this way he can win their trust and earn more profit.

• Hardworking:

A lazy person can be harmful for the business. Good businessman must be hardworking cool minded and have the ability to work for long hours.

• Honest:

Good will of the business depends on the honesty of businessman. A business should be honest and sincere in his dealings.

• Man of principles:

A good businessman must follow the basic principles of morality and ethics in business dealings. This strategy helps to expand the business.

• Confident:

A good businessman must be confident. A businessman with this quality can work with great determination even in unfavorable situations.

• Leadership:

A good businessman must have the quality of leadership. Under the supervision of good leader workers work wholeheartedly.

• Patience:

Patience is the asset of good businessman. He has to meet with many persons for business matters. So there is always the need of patience.

• Professional qualities:
• Planning and organizing:

We know that good planner can make the best decision for his business. So he should consider all different available alternatives before making the decision. It is essential for businessman to have the ability to plan and organize the business affairs effectively.

• Capital:

Capital is necessary for business good businessman gets capital from all available sources according to the need of business.

• Technical skills:

A good businessman has a specialized knowledge and adequate technical skills required for business. So that he can run his business very effectively.

• Experience:

Experience is very essential for managing and dealing the business affairs. An experienced businessman can earn more profit as compare to inexperienced trader.

• Coordination:

Coordination is also a very important quality in good businessman. Business cannot work properly without coordination

• Business knowledge:

A good businessman should not only have a business degree but also have a proper training about different business matters. Moreover he must be familiar with legal provision of hiss business affairs.

• Market knowledge:

A good businessman must have an up to date about markets trends. He have the ability to check the market rend about demand and supply of products.

• Social responsibility:

A good businessman thinks about his social responsibility to earn profit with reasonable profit margin. He always tries providing the quality products with low price.

• Ability of progress:

A good businessman has the ability to earn the huge profit by expanding his business activates.