TYPES OF BUSINESS

ACCORDING TO
ACTIVITIES
THREE MAJOR TYPES OF
BUSINESS
SERVICE
COMPANIES
MERCHANDISING
COMPANIES
MANUFACTURING
COMPANIES
 SERVICE COMPANIES
• Generally use their employees to provide intangible
products or services
• The primary source of revenues of service companies is
the performance of services often referred to as service
revenues
 OPERATING CYCLE
• The time it takes for a company to create
products, sell these products, and collect cash
payments from customers.
OPERATING CYCLE OF
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.
 Cash on
hand

Receives Pays
payment employees
from and other
customers expenses

Performs
services
SERVICE COMPANIES
Advantages Disadvantages

Inability to
Absence of
standardize
inventory
services

No Maintaining
production human
facilities capital
 MERCHANDISING
COMPANIES
• Sell tangible products
• Buys finished or almost finished goods from their
suppliers and resells the same to customers.
• Primarily earn revenues from the sale of the goods or
merchandise, also known as sales revenue or sales.
 TWO TYPES OF MERCHANDISING
COMPANIES
RETAILERS
• Sells goods directly to customers

WHOLESALER
• Sells goods to retailers
OPERATING CYCLE OF
MERCHANDISING COMPANIES
It starts with the purchase of goods to
be held for resale, also known as
inventory

The company eventually sells the

inventory to customers.

The cycle ends with the receipt of cash

payments.
 Cash on
hand

Receives
payment Buys
from goods
customers

Stores
Sells
goods as
inventory
inventory
MERCHANDISING COMPANIES
Advantages Disadvantages

Managing
Visible products
inventory

Less conversion,
time, and effort
 MANUFACTURING
COMPANIES
• Manufacturers create their own products.
• Manufacturers typically employ large-scale production
which is done in manufacturing plants.
• They earn revenues from the sale of manufactured
products.
• The products of manufacturing companies can be sold
directly to consumers, retailers, and other
manufacturers.
OPERATING CYCLE OF
MANUFACTURING COMPANIES
Cash on hand

Pays for inputs

Receives payment (materials, labor,
from customers overhead)

Converts inputs
Sells inventory into finished
goods

Stores finished
goods as inventory
MANUFACTURING
COMPANIES
Advantages Disadvantages
Generally need
Quality Control
production facilities

Visible products High conversion costs

Cost of quality control

Managing inventory
Thank you for
listening