Chapter 1: Business, Trade and Commerce –

Detailed Teaching Notes

1. Introduction

All people—no matter where they live—need different things like food, clothes, phones, education, medicines,
etc. These are called goods and services.

For example:

 You may need shoes, which is a good.

 You may go for a haircut, which is a service.

Now, how do we get these goods and services? We go to the market. A market can be:

 A physical shop, like a shoe store or grocery shop.

 Or an online shop, like Amazon or Flipkart.

In the market, we can find many sellers offering similar items. We choose the one that suits our need, budget,
and quality.

But have you ever thought:

Who makes these things and brings them to the market?

That work is done by people involved in economic activities. These include:

 Production – making the goods (like a factory making shoes).

 Manufacturing – turning raw materials into finished goods (like turning cotton into a t-shirt).
 Distribution – sending these goods to shops and customers.
 Exchange – selling or buying goods and services.

All these things come under the big word called Business.

What is Business?

Business is an activity where goods and services are produced and sold to meet the needs of people.

Example:

 A person who runs a bakery is doing business—he bakes cakes (production) and sells them to customers
(sale).

Business affects our daily life. We depend on it for almost everything—food, clothes, internet, transport,
education, etc.

Even though other things like schools, hospitals, and religious places also affect our lives, business plays a very
important role.
What are the parts of Business?

Business includes two main areas:

1. Industry – This is where goods are produced.

Example: A car manufacturing company like Tata Motors.
2. Commerce – This is how goods are moved, stored, advertised, and sold.
Example: BigBasket delivers groceries to your home—that’s part of commerce.

So, from making a product to selling it to the customer, everything is a part of business.

2. Role of Business in Economic Development

Business has always played an important role in helping countries grow and become rich.

In ancient India, trade (buying and selling things) was already very advanced.

 People traded goods using land routes, like the Silk Route, and also through the sea.
 Indian traders sent things like spices (masalas), cotton cloth, sugar, and handmade items to other
countries.
 Because of this, travelers from other places called India ‘Swaran Bharat’ and ‘Swaran Dweep’, which
mean Golden India or Golden Island, showing how rich India was.

Some cities became famous because of business and trade.

 For example:
o Taxila and Ujjain were busy centers of trade.
o Pataliputra (now Patna) and Surat were also big trading cities.

There was also an Indian banking system that helped traders and businesses.

 They used special papers like Hundis and Chitties.

o These worked like today’s cheques or bank drafts, helping people send or receive money safely
even if they were far away.

Later, different types of banks were started to help people:

 Commercial banks gave loans to businesses.

 Agricultural banks helped farmers with money.
 Industrial banks supported factories and big industries.
This helped the whole economy grow.

But things changed during the British rule in India.

 India stopped making finished products (like clothes or tools) and was forced to send raw materials
(like cotton or spices) to Britain.
 India became more of a supplier, not a creator of goods.

After India became independent in 1947, the government planned the economy.
  It invested in big industries through public sector companies like BHEL or ONGC.

In 1991, India opened up its economy to the world.

 This is called economic liberalization.

 It allowed private companies and foreign businesses to grow.
 Since then, India has become one of the fastest-growing economies in the world.

KEY POINTS FOR MEMORIZING

 Ancient Indian Trade

 Trade through land (Silk Route) and sea (maritime trade)

 Exported: Spices, cotton, sugar, handicrafts
 Known as ‘Swaran Bharat’ and ‘Swaran Dweep’

 Famous Trade Centers

 Taxila, Ujjain, Pataliputra, Surat

 Early Indian Banking System

 Used Hundi and Chitties for safe transactions

 Enabled trade across long distances

 Types of Banks Developed

 Commercial Banks – for businesses

 Agricultural Banks – for farmers
 Industrial Banks – for industries

 British Rule Impact

 India became an exporter of raw materials

 Stopped producing finished goods

 Post-Independence Planning

 Focus on public sector industries

 Government-led development

 1991 Economic Liberalization

 Start of globalization
 Growth of private and foreign companies
 India becomes a fast-growing economy
3. Concept of Business
Meaning of the Word 'Business'

The word ‘business’ comes from the word ‘busy’. This means that when someone is doing business, they are
busy in some work. But business is not just being busy doing anything. It has a more specific meaning.

2. What Does Business Really Mean?

In a more specific sense, business means a type of work or occupation that people do regularly, where they
are involved in:

 Buying
 Producing
 Selling

of goods (like food, clothes, furniture) and services (like transport, education, medicine) with the goal of
earning a profit.

So, if someone is doing any activity regularly to sell products or provide services to earn money, that is called a
business.

3. Why Do People Do Business?

People do business mainly to:

 Earn money or profit

 Satisfy the needs of other people by giving them what they want or need (goods or services)

For example:

 A shopkeeper selling groceries is doing business.

 A bakery making cakes and selling them is doing business.
 A person who provides mobile repair services is also doing business.

4. Types of Activities People Do

When we look around, we see people doing all kinds of work. These works or activities can be divided into two
broad categories:

(i) Economic Activities

These are activities done to earn money or make a living.

Examples:

 A doctor treating patients in his clinic.

 A tailor stitching clothes in his shop.
 A driver driving a taxi.
 A teacher teaching in a private school.

All these people are doing work to earn income, so these are economic activities.
(ii) Non-Economic Activities

These are activities that people do not for money, but out of love, emotion, kindness, or duty.

Examples:

 A mother cooking food for her children.

 A boy helping an elderly man cross the street.
 A soldier protecting his country out of patriotism.

These people are not expecting money in return. Their actions are done out of feelings, so these are non-
economic activities.

4. Characteristics/ Features/ Nature of Business

(i) Economic Activity: Business is conducted to earn income or profit
The first and most important point is that business is an economic activity. This means it is related to earning
money. When someone starts a shop, factory, or service (like a salon or a consultancy), their main goal is to
earn an income by offering products or services to others.

Example:
Ramesh opens a grocery store in his neighborhood. Every day, people come to his shop to buy rice, wheat,
sugar, oil, and vegetables. Ramesh buys these items in bulk at a lower price and sells them at a slightly higher
price to earn a profit. His shop is a business because it is an economic activity that gives him income.

Activities like praying, playing cricket for fun, or gardening at home are not business activities because they are
not done to earn money.

(ii) Production or Procurement: Businesses either produce goods or procure them for sale
To sell something, you first need to have the goods. This can be done in two ways: either you produce the goods
yourself or you procure (purchase) them from someone else to sell.

 Production means creating the goods, like making furniture from wood or baking cakes in a bakery.
 Procurement means buying goods from a manufacturer or wholesaler and selling them, like a retail
shop buying chocolates from a distributor.

Example:
Sita runs a bakery where she bakes fresh bread, cakes, and cookies. This is production.
Her friend Meena owns a shop where she sells packaged snacks, cold drinks, and chocolates, which she buys
from wholesalers. This is procurement.

In both cases, they have the products to sell to customers, which is a must in business.

(iii) Sale or Exchange: Goods or services must be exchanged for value

Just having products is not enough. To be called a business, there must be an exchange. This means the seller
must give the goods or services to someone in return for money or something of value.

If someone gives away goods for free, it is not a business. Business always involves the idea of give and take.
Example:
Ravi has a car repair garage. When someone’s car breaks down, Ravi repairs it and charges a fee. This is an
exchange – Ravi gives his service, and in return, he gets money.

Similarly, if you go to a clothing store and buy a shirt, you are exchanging money for a shirt. That exchange is a
business transaction.

However, if you donate old clothes to the poor, that’s charity – not business – because there is no exchange of
value.

(iv) Regular Dealings: Business requires continuity; one-time transactions are not business
To call an activity a business, it must happen regularly. A one-time sale is not business.

Someone selling their personal car once because they no longer need it is not doing business. But if someone
opens a car dealership and sells cars every month, that is business.

Business requires continuity. That means the activity must happen over and over again.

Example:
Suppose Reema bakes and sells cakes only once during Diwali to her neighbors. This is a one-time event, so it's
not a business.

But if she opens a bakery and bakes cakes every week to sell, this is regular, and it becomes a business.

(v) Profit Earning: Profit is the main motive of business, essential for survival and growth
Profit is the reward a business gets for taking risks and investing money, time, and effort. Without profit, a
business cannot survive for long.

Profit helps the business grow, pay salaries, buy raw materials, expand operations, and face competition.
Businesses may sometimes do social work, but their main goal is to earn profit.

Example:
Amit runs a mobile phone store. He buys smartphones for ₹10,000 and sells them for ₹11,000. That ₹1,000 is
his profit. He uses this profit to pay shop rent, electricity bills, employee salary, and keep some money for
himself. Without profit, Amit cannot continue his business.

Even if a business temporarily earns less or no profit, the goal is always to earn a profit in the long term.

(vi) Uncertainty of Returns: Profit is uncertain; losses can occur despite best efforts
One of the important things in business is that there is no guarantee of profit. A businessperson may invest time,
money, and energy, but still face losses due to various reasons like poor demand, high competition, changes in
taste, or sudden events like natural disasters or pandemics.

This is called uncertainty of returns – you don’t know in advance whether you will make a profit or loss.

Example:
Sunita opens a new café in town and invests ₹5 lakh. She expects to earn a profit by serving coffee and snacks.
But due to a new café opening nearby with better ambience, she gets fewer customers and suffers a loss. This
uncertainty is a natural part of doing business.
Even big companies like airlines or clothing brands sometimes suffer losses due to market conditions.

(vii) Element of Risk: Business involves risks like theft, fire, competition, or market changes
Business always has risks. A risk is the chance of losing money or not getting the expected results. Risks can
come from many places – theft, fire, accidents, new competitors, rising costs, or change in customer
preferences.

Businesspeople must be brave and smart to handle such risks. They often take insurance and plan carefully to
reduce risks.

Example:
Karan owns a clothing shop. During the monsoon season, his shop floods due to heavy rain, and many clothes
are damaged. This is a natural risk.

In another case, a new shop opens nearby selling the same clothes at lower prices. Karan loses some customers.
This is a market risk.

Despite these risks, businesspeople work hard and take risks in the hope of earning good returns.

Putting It All Together: A Complete Business Example

Let’s combine all the features in a single story to understand clearly.

Story of Maya’s Boutique:

Maya is a talented fashion designer who opens her own boutique. She designs and stitches fashionable clothes
and also buys some ready-made clothes from wholesalers.

 She started the boutique to earn income (Economic Activity).

 She produces some clothes herself and procures others from suppliers (Production/Procurement).
 She sells these clothes to customers and takes money in return (Sale/Exchange).
 She runs the boutique throughout the year, not just during festivals (Regular Dealings).
 Her main goal is to earn profit, so she prices her clothes accordingly (Profit Earning).
 Sometimes, due to changing fashion trends or low customer turnout, her profits are low, and
occasionally she even faces losses (Uncertainty of Returns).
 There’s always a risk – like her cloth stock getting damaged in transport or a new boutique opening
nearby. She takes these risks bravely and keeps improving her work.

Maya’s boutique is a perfect example of a business because it shows all seven characteristics clearly.

Feature What It Means Simple Example

Economic Activity Done to earn income Running a shop to make money
Production/Procurement Make or buy goods to sell Making cakes or buying chocolates to sell
Sale/Exchange Goods/services must be sold Repairing bikes for a fee
Regular Dealings Happens repeatedly Selling fruits daily, not once a year
Profit Earning Main goal is to earn profit Selling clothes at a higher price
Uncertainty of Returns No fixed income, risk of loss Opening a shop but not getting enough customers
Element of Risk Danger of theft, loss, or A fire damaging stock or a competitor entering
failure market
5. Comparison: Business, Profession, Employment

- Business is set up by the entrepreneur and involves risk; profit is the reward.
- Profession requires specialized knowledge and a certificate from a professional body; fee is the return.
- Employment is service under an employer; salary or wage is the return.

Point of Business Profession Employment

Comparison
1. Meaning Activities like buying and Work that requires special Working for someone else
selling to earn profit. knowledge and skills. for salary or wages.
2. Main Purpose To earn profit by To serve society using expert To earn a regular income
providing goods/services. knowledge and earn income. (salary/wage).
3. Qualification Not compulsory, but Compulsory – needs formal Depends on the job; may or
Needed helpful. education, degree, and may not need qualification.
training.
4. Nature of Independent work Provides expert advice/service Follows instructions and
Work involving planning, in specific field. works under a boss or
buying, selling, etc. manager.
5. Risk Involved High – profits and losses Moderate – reputation affects Low – fixed income is
are uncertain. income. mostly assured.
6. Profit (can be high or Fee (depends on clients and Salary or wages (fixed and
Income/Earning low). services). regular).
7. Code of No fixed code, but must Must follow strict code of Must follow company rules
Conduct follow legal rules. conduct set by professional and employment contract.
bodies.
8. Investment Yes, investment in goods, Usually less investment (only No investment needed.
Required office, etc. is needed. education and tools).
9. Registration May require licenses (e.g., Must register with Not required, employer
GST, trade license). professional bodies (e.g., Bar handles all legalities.
Council, Medical Council).
10. Example Shopkeeper, Doctor, Lawyer, Chartered Teacher in school, company
manufacturer, wholesaler, Accountant, Teacher (if employee, bank clerk.
online seller. private practice).
11. Decision- Owner decides Professional works Employer decides,
Making everything. independently, within ethical employee follows orders.
rules.
12. Business can be sold or Profession is personal; cannot Job can be changed, but not
Transferability transferred to others. be transferred. transferred to someone else.
13. Freedom of Full freedom to decide Some freedom, but must Less freedom, must follow
Work what, when, and how to follow ethical guidelines. employer’s instructions.
work.
14. Reward for Profit (after paying Fees/charges for services Salary or wage at fixed
Work expenses). provided. intervals (monthly/weekly).

Business Profession Employment

Buy & sell for profit
Expert work with Job with salary
education
Example: Shopkeeper Example: Doctor Example: Bank employee
1. Business – Example

Example:
Ravi owns a grocery store in his town. He buys products in bulk from wholesalers and sells them to customers
at a higher price to make a profit.

🟢 Why it's a Business?

 He is self-employed.
 His goal is to earn profit.
 He takes the risk of loss if products don’t sell.
 He does not need any formal qualification to run the shop.

📌 2. Profession – Example

Example:
Dr. Neha is a dentist. She studied dentistry, got a license, and now runs her own dental clinic where she treats
patients and charges consultation fees.

🟢 Why it's a Profession?

 She has special knowledge and formal education (BDS, MDS).

 She is registered with the Dental Council.
 She earns fees for her service.
 She follows a code of ethics.

📌 3. Employment – Example

Example:
Aman works as a software engineer in a private IT company. He gets a fixed salary every month for his work.

🟢 Why it's Employment?

 He works under a boss or manager.

 He gets a monthly salary.
 He has to follow company rules.
 He has no business risk – income is fixed.
6. Classification of Business Activities

1. Industry: The Production Sector of Business

Industry refers to all those economic activities that are involved in the production of goods and services. It
converts raw materials into useful products that fulfill human wants. Industries can be broadly divided into three
categories: Primary, Secondary, and Tertiary.

1.1 Primary Industry

Primary industries involve the use of natural resources. These industries collect raw materials directly from
nature. There are two types of primary industries:

a) Extractive Industry

Extractive industries are those that extract natural resources from the earth, water, or air. These industries do
not create new products; instead, they bring raw materials to the surface for further use.

 Examples:
o Mining of coal, iron, and gold
o Fishing from rivers and seas
o Drilling oil wells

These resources are later used by manufacturing industries to make finished goods.

b) Genetic Industry
Genetic industries are involved in the reproduction and multiplication of plants and animals. These industries
focus on using science and genetics to grow more living resources.

 Examples:
o Poultry farms that produce eggs and chickens
o Dairy farms that produce milk
o Plant nurseries that grow saplings for sale

1.2 Secondary Industry

Secondary industries are concerned with converting raw materials into finished goods. These are
manufacturing industries that play a vital role in economic growth. Secondary industries are further divided into
two main types:

a) Manufacturing Industry

Manufacturing is the process of creating finished goods from raw materials. Manufacturing industries can be
classified into four subtypes:

1. Analytical Industry:
o This type breaks down raw materials into different useful products.
o Example: Oil refining – crude oil is separated into petrol, diesel, kerosene, etc.
2. Synthetical Industry:
o It combines various materials to make a new product.
o Example: Cement industry – limestone, clay, and gypsum are combined.
3. Processing Industry:
o Raw materials are processed through various stages.
o Example: Cotton is processed into thread, then into fabric, then into clothes.
4. Assembling Industry:
o Different parts are assembled to form a final product.
o Example: Car manufacturing – parts like engine, wheels, seats are assembled.

b) Construction Industry

Construction industries build physical structures such as roads, buildings, bridges, dams, etc. This type of
industry uses both raw materials and manufactured goods.

 Examples:
o Infrastructure companies building highways
o Engineers constructing metro stations

1.3 Tertiary Industry

Tertiary industries provide supportive services to primary and secondary industries. These industries do not
produce goods but offer services that are essential for the smooth running of other industries.

 Examples:
o Transport services for moving goods
o Financial institutions like banks and insurance
o Educational institutions and healthcare
Tertiary industries are growing fast in the modern economy and are key to overall development.

2. Commerce: The Distribution Side of Business

Commerce refers to all activities that help in the distribution of goods and services from producers to
consumers. It connects manufacturers with buyers and helps in the flow of goods.

Commerce is divided into two main branches: Trade and Auxiliaries to Trade.

2.1 Trade

Trade means the buying and selling of goods and services. It helps in transferring goods from producers to
consumers. Trade can be divided into internal trade and external trade.

a) Internal Trade (Domestic Trade)

This trade takes place within the boundaries of a country. It includes:

1. Wholesale Trade:
o Wholesalers buy goods in bulk from manufacturers and sell them to retailers in smaller
quantities.
o Example: A wholesaler buys 1000 shampoos from a factory and sells 100 each to 10 different
retail shops.
2. Retail Trade:
o Retailers buy goods from wholesalers and sell them to the final consumers.
o Example: Your neighborhood Kirana store or departmental shop.

b) External Trade (Foreign Trade)

This trade takes place between different countries. It has three types:

1. Import:
o Buying goods from other countries.
o Example: India imports electronics and smartphones from China.
2. Export:
o Selling goods to other countries.
o Example: India exports spices and cotton garments to the USA and Europe.
3. Entrepot Trade:
o Goods are imported from one country, stored, processed if needed, and then re-exported to
another country.
o Example: Singapore imports crude oil, refines it, and exports refined oil to other nations.

2.2 Auxiliaries to Trade

These are support services that help in the smooth conduct of trade. Without these services, trade would be
difficult. They are like the “helpers” of commerce.

Let’s understand each one:

a) Transportation
  Transportation helps to move goods from the place of production to the place of consumption.
 It includes roadways, railways, airways, and waterways.
 Example: Trucks carry fruits from farms to city markets.

b) Warehousing

 Warehousing helps in storing goods safely until they are sold.

 This is important for seasonal goods or in case of bulk production.
 Example: Amazon stores goods in warehouses before delivery.

c) Banking and Finance

 Businesses need money for buying raw materials, paying salaries, etc. Banks provide loans and
financial services.
 Example: An entrepreneur takes a loan from SBI to start a bakery.

d) Insurance

 Insurance helps protect businesses from risks and losses, such as fire, theft, or accidents.
 It provides financial support in case of damage.
 Example: A company insures its warehouse against fire.

e) Advertising

 Advertising helps in promoting products and informing customers.

 It increases sales and creates brand awareness.
 Example: TV ads of Maggi noodles or social media ads for clothing brands.

The Interconnection Between Industry and Commerce

Industry and commerce are interdependent. One cannot exist without the other.

 Industries produce goods, but without commerce, those goods will not reach customers.
 Commerce depends on industries to provide products for trade.
 Services like transport, banking, and warehousing connect the two and help the economy run smoothly.

For example, a car manufacturing industry makes vehicles (industry), and then a dealer sells them to customers
(commerce). The process involves transportation, advertising, banking, and sometimes insurance.

KEY POINTS IN SHORT HELP TO MEMORIZING

1. INDUSTRY
Industry is related to the production and processing of goods. It includes activities that convert raw materials
into finished products.

➤ A. Primary Industry
This includes activities that use natural resources directly from the Earth.

a) Extractive Industry

 Extracts resources from nature.

  Examples:
o Mining coal from the earth
o Fishing from the ocean
o Oil drilling

b) Genetic Industry

 Involves breeding and reproduction of plants and animals.

 Examples:
o Poultry farming
o Dairy farming
o Plant nurseries

➤ B. Secondary Industry
These industries convert raw materials into finished or semi-finished goods.

a) Manufacturing Industry

 Produces final goods from raw materials.

 Types include:

1. Analytical: Breaks raw materials into parts.

o Example: Oil refinery (crude oil → petrol, diesel)
2. Synthetical: Combines different materials.
o Example: Cement factory (limestone + clay)
3. Processing: Step-by-step processing.
o Example: Textile mill (cotton → thread → cloth)
4. Assembling: Joins parts into a final product.
o Example: Car manufacturing (engine + tyres + seats)

b) Construction Industry

 Builds infrastructure like roads, buildings, bridges.

 Examples:
o L&T constructing a metro line
o Engineers building houses

➤ C. Tertiary Industry

 Provides services instead of goods.

 Examples:
o IT companies
o Hospitals
o Educational institutions

🛒 2. COMMERCE
Commerce refers to buying, selling, and supporting activities that help in the movement of goods from
producers to consumers.
➤ A. Trade
Trade means buying and selling goods.

a) Internal Trade (Within a country)

1. Wholesale Trade:
o Buying in large quantities and selling to retailers.
o Example: A wholesaler buys 1000 soaps from a factory and sells to shops.
2. Retail Trade:
o Selling goods directly to customers.
o Example: Grocery stores, Kirana shops

b) External Trade (International)

1. Import:
o Buying goods from other countries.
o Example: India imports electronics from China
2. Export:
o Selling goods to other countries.
o Example: India exports spices to the US
3. Entrepot:
o Importing goods to re-export to another country.
o Example: Singapore imports oil, refines it, and exports to other countries

➤ B. Auxiliaries to Trade (Support Services)

These are services that help trade to take place smoothly.

1. Transportation
o Moves goods from producers to consumers.
o Example: Trucks, trains, ships
2. Warehousing
o Stores goods before selling.
o Example: Amazon warehouses
3. Banking & Finance
o Provides money and credit facilities.
o Example: Loans from SBI for business
4. Insurance
o Protects against risks like fire, theft, or accidents.
o Example: LIC insurance for goods in transit
5. Advertising
o Promotes products to attract buyers.
o Example: TV ads for Maggi noodles

7. Objectives of Business
Businesses aim for multiple goals:
1. Market Standing
What it means:
How well-known and respected a business is in the market. It includes customer trust, brand image, and
competition.

Example:
Think of Tata or Apple – people trust them because they offer quality. When customers trust a company, they
keep buying from it. This improves its position in the market.

2. Innovation

What it means:
Coming up with new ideas, new products, or better ways of doing business. It helps the business stay ahead of
competitors.

Example:
When Samsung creates a new foldable phone, that’s innovation. Or when Zomato adds features like tracking
your delivery in real-time, that’s innovation too.

3. Productivity

What it means:
Getting the maximum output with minimum input. In simple words, using less time, money, or effort to
produce more goods or services.

Example:
If a factory produces 100 shirts using 10 workers in 1 day, but later improves and produces 150 shirts with the
same 10 workers, that’s increased productivity.

4. Resource Management

What it means:
Using all available resources wisely – including money, machines, time, and people – so nothing is wasted.

Example:
If a restaurant buys vegetables in bulk at a lower price and reduces food wastage by planning its menu well, it’s
managing its resources effectively.

5. Profit

What it means:
The most important goal for any business is to earn money – that is, to make profit. Without profit, a business
can’t survive or grow.

Example:
If a business spends ₹80 to make a product and sells it for ₹100, it earns ₹20 profit. This money can be
reinvested to grow the business or saved for the future.

6. Social Responsibility
What it means:
Businesses should help society, not just make money. They must be honest, care for the environment, and
support communities.

Example:
A company like Infosys runs education and health programs for poor children. Or Amul, which supports rural
farmers by giving them fair prices. These are examples of social responsibility.

Goal What It Means Example

Market Standing Reputation and customer trust Tata, Apple – trusted brands
Innovation New ideas or better products Samsung’s foldable phone
Productivity More output with fewer resources Factory producing more shirts efficiently
Resource Smart use of time, money, and Restaurant reducing food wastage
Management materials
Profit Earning more money than spending ₹20 profit on ₹100 sale
Social Responsibility Helping society along with doing Infosys’s education program, Amul’s support to
business farmers

8. Business Risk

🌟 What is Business Risk?

Business risk means the chance of losing money or facing problems in business because of uncertainties. In
simple words, it is the possibility that a business might not earn expected profits or might even suffer losses.

Every business faces risks because the future is uncertain. Things might not go as planned.

🧩 Types of Business Risk

There are two main types of business risk:

1. Speculative Risk

This is the type of risk where there is a possibility of either gain or loss.

 You might earn more money or

 You might lose money.

🔸 Example:

Imagine you own a clothing store. You buy winter jackets in October expecting to sell them during November and
December.

 If it gets very cold and many people buy jackets → You earn profit.

 But if the weather stays warm and people don’t buy jackets → You suffer a loss.

👉 This is speculative risk because you took a chance — you could either win or lose.

Other examples:

 Investing in the stock market (prices may go up or down)

  Launching a new product (people may like or dislike it)

2. Pure Risk

This is the type of risk where there is only a possibility of loss, no chance of profit.

🔸 Example:

Your store catches fire due to an electrical fault. You lose all your goods. This is a pure loss, and there's no way to
gain from it.

👉 You can only lose in this situation, not gain.

Other examples:

 Theft of goods from your shop

 Natural disasters like earthquakes or floods damaging your office

 Worker injury while working in a factory

🎯 Characteristics of Business Risk

Now let’s understand the main features or characteristics of business risk:

1. Risk is a Part of Every Business

No business is free from risk. Whether it's a small tea stall or a big company like Tata or Amazon, every business
has to face some kind of risk.

🔸 Example:
Even a vegetable seller takes a risk — what if vegetables rot before being sold?

2. Risk Arises Due to Uncertainties

Business risks come from uncertain situations — things we cannot predict or control completely.

Let’s break it into four major causes of uncertainty:

a. Natural Causes

Such as floods, earthquakes, or heavy rainfall.

🔸 Example: Heavy rain may damage crops, affecting a grocery store’s vegetable supply.

b. Human Causes

Like theft, carelessness of workers, strikes, or fraud.

🔸 Example: If your employee steals money from the cash counter, it’s a business loss.

c. Economic Causes

Such as changes in demand, inflation, interest rates, or recession.

🔸 Example: During COVID-19 lockdowns, many shops couldn’t open — their sales dropped sharply.
d. Other Causes

Such as changes in technology, government rules, or competition.

🔸 Example: A new government rule bans plastic. A company making plastic bags now faces losses unless it shifts to
paper or cloth bags.

3. Higher Risk = Higher Potential Reward

This means that if you take a big risk, you may earn big profits — but only if things go well.

🔸 Example:
Starting a business in a new city is risky — you don’t know how customers will react. But if the business becomes
successful, you can earn a lot more profit than in your regular market.

👉 So, business people often say:

“No risk, no gain.”

Feature Explanation Example

Business Risk Chance of losing money or facing Loss due to lockdown
trouble
Speculative Risk Chance of gain or loss Investing in new stock
Pure Risk Only chance of loss Shop burned in fire
Risk is everywhere All businesses face risks Tea stall to Tata company
Comes from uncertainty Natural, human, economic causes Theft, flood, new tech
More risk = more reward Higher risk may bring more profit New product launch

9. Starting a Business: Basic Factors

Entrepreneurship involves starting a business by mobilizing resources to deliver value. Key factors:
((i) Selecting the Type of Business: Based on Market Demand and Interest

Before starting a business, it’s important to decide what kind of business you want to run. This choice should be
based on:

 What people need or want (market demand)

 What you like to do (your interest or passion)

🔹 Example:

If people in your area are looking for healthy food options, and you love cooking, then starting a healthy food café
can be a good choice.
But if you're not interested in food and prefer electronics, and you see a growing demand for gadgets, then opening
a mobile repair shop might be better.

Choosing a business you are passionate about helps you stay motivated, while fulfilling a demand ensures profit.

(ii) Size of the Business: Depends on Confidence, Capital, and Demand

The size means how big or small the business will be — for example, a small shop or a big company.

It depends on:
  Confidence: How ready and experienced you are.

 Capital: How much money you have to invest.

 Demand: How many customers will buy your product/service.

🔹 Example:

A first-time entrepreneur with less money might start a small clothing boutique.
But a confident and experienced businessperson with more money might open a large fashion showroom in a
shopping mall.

So, always start small if you are unsure, and grow as you gain experience and capital.

(iii) Location: Accessibility to Resources and Services

The place where you start your business is very important. A good location should be:

 Close to customers

 Near to raw materials or suppliers

 Easily reachable by transportation

🔹 Example:

If you're starting a restaurant, choose a location where many people pass by, like near schools, colleges, or offices.

If you're opening a factory, choose a place near sources of raw materials and with good transport for shipping
products.

(iv) Financing: Sourcing Capital for Assets and Operations

To start and run a business, you need money (capital). This money is used for:

 Buying machines, equipment, land, etc. (fixed capital)

 Day-to-day expenses like paying salaries, buying materials, electricity (working capital)

You can arrange money from:

 Your own savings

 Loans from banks

 Investors

 Friends and family

🔹 Example:

If you want to open a bakery and need ₹5 lakh for equipment and ₹2 lakh for monthly expenses, you can use ₹3
lakh from your savings and borrow the rest from a bank.

(v) Physical Facilities: Buildings, Machinery, and Tools

Every business needs certain physical things to operate. These are called physical facilities and may include:
  Building or office

 Furniture and computers

 Machines and tools

 Transport vehicles

The type of facilities you need depends on your business.

🔹 Example:

A photocopy shop needs printers, computers, and a small space.

A car manufacturing unit needs a big factory, heavy machinery, and storage areas.

(vi) Workforce: Skilled and Motivated Employees

Every business needs people to run it. You need to hire employees who are:

 Skilled (know how to do the job)

 Motivated (eager to work well)

The type and number of workers depend on your business size.

🔹 Example:

A beauty salon may need hairdressers and reception staff.

A software company needs programmers, designers, and customer support.

A happy and trained workforce improves business performance.

(vii) Tax Planning: Awareness of Tax Obligations

Every business must pay taxes like GST, income tax, etc. So, it’s important to plan taxes carefully to:

 Avoid legal trouble

 Take benefits of deductions

 Save money legally

You can hire a chartered accountant (CA) or tax expert for help.

🔹 Example:

If your business income is ₹10 lakh per year, you may have to pay income tax and GST. Proper planning helps you
manage these costs wisely.

(viii) Launch: Legal Formalities, Production, Promotion

Before officially starting the business, you need to complete launch preparations:

1. Legal formalities: Like registering your business, getting licenses, GST number, etc.

2. Production: Setting up how products will be made or services delivered.

 3. Promotion: Telling customers about your business through ads, social media, banners, etc.

🔹 Example:

To launch a coffee shop, you will:

 Register your shop name and get a food license

 Set up the kitchen and seating area

 Advertise through Instagram and local flyers to attract customers

A proper launch creates a good first impression and helps attract more people.

Step What It Means Example

1. Type of Choose based on demand and interest Healthy food café if people want it and you
Business love cooking
2. Size Big or small depending on money and Small boutique vs. large showroom
confidence
3. Location Pick a place with easy access Restaurant near college
4. Financing Arrange money to start and run ₹5 lakh from savings + ₹2 lakh loan
5. Physical Get the right tools and space Printers for copy shop, machines for factory
Facilities
6. Workforce Hire skilled and motivated staff Hairdressers for salon, developers for IT firm
7. Tax Planning Plan how to pay taxes smartly Hire CA to manage GST and income tax
8. Launch Complete formalities and promote Register, setup, then market on social media
business