This document discusses three major types of businesses according to their activities: service companies, merchandising companies, and manufacturing companies. Service companies provide intangible services to customers using employees. Merchandising companies sell tangible goods, either as retailers directly to consumers or as wholesalers to retailers. Manufacturing companies buy materials and convert them into products to sell to other businesses or consumers. Each type has advantages like no inventory for services or quality control for manufacturing, and disadvantages such as inability to standardize services or high conversion costs.

1. CHAPTER 5:
TYPES OF BUSINESS
ACCORDING TO ACTIVITIES
Prepared by: Ms. Jenica G. Celis

2. 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.

3. Three major types of business:
1. Service companies
2. Merchandising companies
3. Manufacturing companies

4. 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. )

5. Operating Cycle of Service Companies
Cash on
hand
Performs
Services
Pays
employe
es and
other
expenses
Receives
payment
from
customer
s

6. 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.

7. THERE ARE 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.

8. Operating Cycle of Merchandising Companies
Cash on
hand
Sells
inventory
Buy
goods
Receives
payment
from
customer
s
Stores
goods as
inventory

9. MANUFACTURING COMPANIES
• Manufacturing companies or simply
manufacturers, buy materials, convert
them into products, and then sell the
products to other companies or to the
final consumers.

10. Operating Cycle of Manufacturing Companies
Cash on
hand
Stores
finished
goods as
inventory
Pays for
inputs
(materials,
labor,
overhead)
Receives
payment
from
customer
s
Converts
inputs
into
finished
goods
Sell
inventory

11. Type of Business According
to Activities
Advantages Disadvantages
Service
 Absence of inventory
 No production facilities
 Inability to standardize
services
 Maintaining human capital
Merchandising
 Visible products
 Less conversion, time,
and effort
 Managing inventory
Manufacturing
 Quality control
 Visible products
 Generally needs
production facilities
 High conversion costs
 Cost of quality control
 Managing inventory