Types Of Business According To Activities PDF

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It is about the types of businesses according to activities based on our lecture in class...

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TYPES OF BUSINESS ACCORDING TO ACTIVITIES Introduction A business is an organization that converts inputs or resources such as material, labor and overhead into outputs which are usually goods or services. There are three(3) major types of business, according to activities, as follows: 1. Service business; 2. Merchandising business; 3. Manufacturing business.

Service Businesses Service businesses generally utilize their employees to provide intangible products or services to customers. They perform services for a fee. These services include professional skills, advice, expertise, and other related products. The primary source of revenue of service businesses is the performance of services, often referred to as Service Revenues. One concept in business is the operating cycle. Operating cycle is the time it takes for a company to create products, sell these products and collect cash payments from customers. For service companies, the major phases of their operating cycle include paying out money for employees and other operating expenses, performing the services, and collecting cash payments from customers. Advantages of Service businesses: -

Absence of inventory or tangible goods held by the business No production facilities required

Disadvantages of Service businesses: -

Constant evaluation and training of human capital/employees Good employment benefits to attract, retain and motivate highly skilled employees

Merchandising businesses Unlike service businesses, merchandising businesses sell tangible products. This type of business buys finished or almost finished goods from their suppliers and resells the same to customers. Merchandising businesses primarily earn revenues from the sale of the goods or merchandise, also known as Sales Revenue or Sales. There are two(2) types of merchandising businesses – retailers and wholesalers. A retailer sells goods directly to the customers, while a wholesaler sells goods to retailers.

The operating cycle of a merchandising business is typically longer than that of a service business. It starts with the purchase of goods to be held for resale, also known as Inventory. It eventually sells the inventory to customers, and the cycle ends with the receipt of cash payments. The purchase of inventory and its subsequent sale lengthen the cycle. Advantages of merchandising businesses: -

Can easily promote sales since there is an existence of a tangible product Generally consume less conversion time, effort and cost.

Disadvantages of merchandising businesses: -

Necessity to hold inventory

Manufacturing businesses Manufacturing businesses, or simply manufacturers, are relatively complicated organizations than service and merchandising businesses. As the name suggests, manufacturers create their own products. They use raw materials, components, or parts which are processed using machines, computers, and labor to produce finished goods. Similar to merchandising businesses, they earn revenues primarily from the sale of their manufactured products. The products of manufacturing businesses can be sold directly to consumers, retailers, and other manufacturers. Since a manufacturing business produces its own products, its operating cycle generally has the longest period compared to service and merchandising. It has an additional phase which is the production of goods. These goods are also held as inventory and later sold to its customers. Advantages of manufacturing businesses: -

Quality control Can easily promote sales since there is an existence of a tangible product.

Disadvantages of manufacturing businesses: -

Need for huge initial capital outlay Need to hold inventory Need to finance quality control procedures Need to monitor overhead costs such as utilities, etc....