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CHAPTER 5:

TYPES OF BUSINESS
ACCORDING TO ACTIVITIES

Prepared by: Ms. JenicaG. Celis


INTRODUCTION

A business is an organization that converts inputs


or resources such as material, labor, and overhead
into outputs which are usually either goods or
services. In this chapter, we will discuss the different
types of business according to activities, their
business requirements, and their advantages and
disadvantages.
Three major types of business:

1. Service companies
2. Merchandising companies
3. Manufacturing companies
SERVICE COMPANIES

• Service companies are firms that


generally use their employees to
provide intangible products or
services to customers. These services
include professional skills, advice,
expertise, and other related products.
(e.g. accounting firms, law firms, and dry
cleaning establishments, etc. )
Operating Cycle of Service Companies

Cash on
hand

Receives Pays
payment employe
from es and
customer other
s expenses

Performs
Services
MERCHANDISING COMPANIES

• Merchandising companies sell tangible


products. This type of business buys
finished or almost finished goods from their
suppliers and resell the same to customers.
• Primarily earn revenues from the sale of the
goods of merchandise, also known as sales
revenue or sales.
THEREARE TWO TYPES OF MERCHANDISING COMPANIES:

• Retailer is a merchandising
company that sells goods
directly to customers.
• Wholesaler is a
merchandising company
that sells goods to retailers.
Operating Cycle of Merchandising Companies

Cash on
hand

Receives
payment
from Buy
customer goods
s

Stores
Sells
goods as
inventory
inventory
MANUFACTURING COMPANIES

• Manufacturing companies or simply


manufacturers, buy materials, convert
them into products, and then sell the
products to other companies or to th e
final consumers.
Operating Cycle of Manufacturing Companies

Cash on
hand
Receives Pays for
payment inputs
from (materials,
customer labor,
s overhead)

Converts
inputs
Sell into
inventory finished
Stores goods
finished
goods as
inventory
Type of Business According Advantages Disadvantages
to Activities

 Absence of inventory  Inability to standardize


Service  No production facilities services
 Maintaining human capital

 Visible products  Managing inventory


Merchandising  Less conversion, time,
and effort

 Quality control  Generally needs


Manufacturing  Visible products production facilities
 High conversion costs
 Cost of quality control
 Managing inventory