Business is setup to achieve some objectives. Objectives give the desired direction to planning & execution of business activities. Lack of objectives will only result in waste of effort & capital.

Economic Objectives
The Primary objective of business is to earn maximum profit. Profit is the excess of sales revenue over the costs incurred on production of goods or services. Business is not a charitable organization. It needs to earn profit to survive, grow, offer reward for risk taking investors, attract talented persons to work for it & provide consumers with quality goods at affordable price.

Role of Profit
(A) Survival: Profits are basic to continued existence of business. Only a profit making business can pay its creditors on time, assure regular return to its owners, pay remuneration to employees & adjust to changes in technology & consumer demand.
(B) Growth: Growth of business depends on development of new products, efficient production processes, & increasing market share for its goods & services. This can be possible only if business earns enough profits to finance continuous research on production & marketing activities.
(C) Reward for Risk taking: Business & risk go hand in hand. Only hope of profit in the near or distant future will attract people to business.
(D) Proper Distribution of Society’s resources: A profit making business will attract persons with knowledge & experience to work as its employees. This will enable it to improve efficiency, increase productivity & add to profits. A profit making business will also be a preferred destination for investors to invest their surplus funds.
(E) Index of business performance: A profit making business enjoys prestige as market leader. This is because it is effective (doing right things), & efficient (doing things right). It produces socially useful goods & services at costs that are reasonable. It creates wealth for owners by ensuring greater value for shares held by them. It pays its workers decent remunerations. It pays its creditors on time. It also honours its obligation to government by paying taxes on time. It keeps society happy & the society on its part rewards it by increasing preference for its goods & services.

Social Objective
Business is part of society in which it operates. It draws its human, financial & physical resources from society. It must therefore pay back society by meeting its social objectives, summed up as follows:
(A) Society should be focus of business activity: Business can survive & grow only with the approval of society. It cannot operate in vacuum. It must do its best to serve various groups of society, such as, consumers, employees, suppliers, government & the community at large. If it only focuses on making profit, it may hurt various interest groups & then it may not remain in business for long.
(B) Production of quality goods or services at reasonable price: Goods or services produced by business should be of high quality & priced reasonably. There should be no attempt to exploit consumers in any manner, whether by way of substandard goods, high prices, false advertising, etc.
(C) Humane treatment of employee: People seek employment to satisfy their basic & secondary needs. They need salary that takes care of their basic needs. They need security of tenure. They seek satisfactory relationships at work place & recognition of their uniqueness. A good business aims to satisfy these needs of workers to the extent possible.
(D) Legal Compliance: Business in an industrial citizen of society. It should faithfully comply with laws of the land. There are laws prescribing minimum wage, work conditions, worker safety, accident compensation, retirement benefits & prohibiting production processes that cause air, water or land pollution.
(E) Service to society: A business serves society by confirming to the principles of good social behaviour. It should provide good corporate governance, transparency in dealings & accept accountability to society. It should avoid evil practices like manipulation of share prices, misappropriation of public funds, unfair lobbying with politicians & government officers, to promote its interest. As agent of social change, it should offer liberal assistance to promote education, sports, arts & culture.

Business Risks
Business risk means the possibility of loss. It is the possibility of some unfavourable occurrence. A business has to face a number of risks which may be broadly classified as:
A. Business risks, which are insurable; and
B. Business risks, which are not insurable.

Main Features of Risks:

(A) Uncertainty: Uncertainties may be of different types. Some uncertainties are part of human life. Accidents caused by human failure may result in loss of life or property. A strike by workers or lock-out by management may lead to economic loss. Other uncertainties may be fluctuating in demand & price, failure to release payments in time, wrong estimates of demand & supply change in production technology or distribution strategy of competitors, & government policies.
(B) An Essential element of business: An element of risk is part of every business. When an entrepreneur decides what to produce & how to produce, he takes a risk. When he opts for a particular method of production, there is a risk involved in it. Often, production of goods is in anticipation of demand. There is also a time-interval between production & marketing of goods. During this time, there may be unexpected developments. There may be change in demand due to change in consumers’ tastes & fashion. Demand may also change due to entry of competitors.
(C) Risk-bearing is the price of earning profits: An entrepreneur bears uncertainty in the expectation of profit. If profits differ from one business to another, it is mainly because of difference in the degree of uncertainty or risk present in each case.


Types of Business Risks:
(A) Pure risks: Pure Risks may arise from accident, fire, explosion, theft, damage or destruction of goods in transit, or loss of production due to strike, lockout, etc. Such risks may be minimized if the business has resources & a will to avoid risks. For Example, proper safety precautions, security arrangements, & healthy employer-employee relations, may reduce the chance of risk.
(B) Speculative risks: Speculative risks may be by way of change in demand & supply, uncertainty of government policies, fashion, tastes etc. A business is able to earn his profits because he undertakes these risks. If these risks are not there, business will lose its purpose. For example, if demand & supply are steady, prices are fixed & fashion & tastes do not change, then business would miss the risk element. There is a fundamental difference between pure risks & speculative risks. In case of pure risks, a person may or may not suffer any loss. But he cannot make any profit out of such risks. In case of speculative risks, however, a person may either suffer a loss or earn a profit.
(C) Internal & external risks: Internal risks are due to internal factors. Losses arising from breakdown of machinery, loss of property due to accident, are examples of internal risks. Such risks may be minimized. External risks are caused by external factors that are beyond ones control, damage or destruction of goods in transit, losses due to floods, earthquake, change in consumers’ tastes & fashions, or government policies, are example of external risks.
(D) Property & personal risks: Risk to property may be by way of damage or destruction due to natural or man-made causes. Personal risks may be due to accidents, occupational diseases, etc. involving loss of life or limb of people working for business.
(E) Insurable & uninsurable risks: Insurable risks are those which can be insured. They can be insured because it is possible to determine the probability of such risks. Uninsurable risks cannot be insured because their probability cannot be determined. Fluctuations in demand & price level, change in government policies, etc, are example of uninsurable risks.

Causes of Business Risks
(A) Human causes: Human factor is an important element in loss of any kind. Carelessness on the part of an individual may cause a major accident or breakdown. Miscalculation of demand may result in unsold stock of goods; Indifference to workers’ needs may lead to a strike. Losses may also be caused by theft or misappropriation of cash & goods by employees. Debtors may fail to clear book debts in time, suppliers may not honor delivery schedules, or supply defective material or goods.
(B) Physical causes: Mechanical defects or failures may also lead to losses. An explosion in a boiler or machine may cause death or destruction. Perishable goods may suffer damage due to breakdown in the cooling machines. Lack of proper maintenance of machines may affect quality of goods. Assets used in the business may become outdated due to change in technology.
(C) Economic causes: Economic causes such as fluctuations in demand & prices, or competition from others, may also result in losses, losses may also arise due to change in production technology, or trade cycles that create conditions alternating between boom & depression.
(D) Natural causes: Natural causes of business risks are beyond human control. For example, losses arising from rains, floods or earthquakes, may be difficult to prevent.
(E) Miscellaneous causes: A business may suffer losses due to change in governmental policies in regard to licensing, taxation, etc. Inefficiency or incompetence on the part of managerial staff, may also lead to losses all around.