It is commonly known that a business enterprise cannot hope to accomplish anything else and continue to exist, unless it meets the two basic tests of survival- operate profitably and stay solvent.
Businesses are formed to make profit
Usually, organizations may be grouped into two- the profit oriented and non-profit oriented organizations. As its name suggests, the primary objective of organizations that fall under the profit-oriented enterprise is to make profit, and these organizations are usually referred to as business enterprise. The main activities of a business enterprise are focused on meeting its primary objective of making profit. Peripheral or related activities are also undertaken to meet the same main objective.
On the other hand, a non-profit organization, whether governmental or private, is established not for profit but to render services and meet the needs of the members of the community. These said needs may be directly or indirectly related to education, health and physical care, livelihood, cultural and social growth, and spiritual and moral development.
Business Solvency
Aside from making profit, another important objective of business enterprise is to make sure that they have immediate access to a sufficient amount of cash that is needed to settle their business obligations within a reasonable period of time. A business enterprise that has sufficient cash to pay its debts as they mature is said to be solvent.
In contrast, a business enterprise that cannot meet its obligations as they fall due is said to be insolvent.
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