Types of Businesses

Types of Business Business Defined An organization that produces or sells goods or services to satisfy the needs, wants, and demands of consumers for the purpose of making a profit. Most business fall into one of the four categories: 1. The Merchandising Business 2. The Service Business 2. The Service Business 3. The manufacturing or Producing Business 3. The manufacturing or Producing Business 4. The Non-Profit Organization 4. The Non-Profit Organization

Goods or Services Goods Tangible/physical item sold by the business. Tangible/physical item sold by the business. (i.e. Plasma TV from Best Buy) (i.e. Plasma TV from Best Buy)Services Expertise or service provided to the customer. Expertise or service provided to the customer. (i.e. haircut, physician annual check up, legal advice, income tax return service) (i.e. haircut, physician annual check up, legal advice, income tax return service) Goods and Services Restaurant (food and service) Restaurant (food and service)

Needs, Wants, and Demands Needs Things you must have in order to stay alive (i.e. warmth in winter, clean water and air, food, shelter and medical care.) Wants The extras You don’t need them to survive, but they make life more pleasant and comfortable (i.e. that 62 inch plasma TV)

Business Terminology Consumers  A general a term to describe anyone who purchases something from any business.  The people who purchase the computers and those who have their computer repaired at a local repair shop. Customers  The term used by a business to describe those consumers who shop at its business.

Business Terminology Producers businesses that make goods or provide services. businesses that make goods or provide services. For example: A computer manufacturer is a producer of goods; A computer-repair shop is a provider of a service.

Business Terminology Profit Profit  The money (income/revenue) that is left after all costs and expenses of running the business are paid. Revenue/income  The money the business collects from customers when it makes a sale. (Price of shoes to the customer is $100, not including taxes) Expenses  The expenditures that are involved in running the business on a daily basis, such as wages and hydro as well as those things that get used up such as paper and computer toner.

Business Terminology Costs  Amount of money required for each stage of production.  Amount of money required for each stage of production.  For example the need to purchase other items such as: 1. the cost of the goods a company is selling (inventory); 2. the cost of the raw materials to used to manufacture the good being sold (cotton or steel) 2. the cost of the raw materials to used to manufacture the good being sold (cotton or steel)

REVENUE – EXPENSES = Profit or (Loss) REVENUE – EXPENSES = Profit or (Loss) Revenue ( Price of 1 pair of shoes ) $100 Revenue ( Price of 1 pair of shoes ) $100 Less: Cost of Shoes 50 Less: Cost of Shoes 50 Less: Other daily expenses 35 Less: Other daily expenses 35 Profit$15 Profit$15

Business Terminology Solvency Business Terminology Solvency Means having the ability to pay your debts and meet your financial obligations. Means having the ability to pay your debts and meet your financial obligations.  A company may not make a profit but be still have enough money in the bank to pay of its debts and stay in business.  Insolvency – when a company does not have the ability to pay off its debt obligations.

Where do Consumers and Producers Meet? The Market A market exits wherever consumers (buyers) and producers (sellers) come together to do business. Three Major Groups of Markets 1. Consumer Market 2. Business-to-Business or Industrial Market 3. Stock Market (TBD later in the course)

Consumer Market Made up of all individuals or households who want goods and services for personal consumption or use.

Business-to-Business or Industrial Market All the individuals and organizations that produce, sell, rent, or supply goods and services to other businesses. For example, cash registers sold to the grocery store, delivery vans sold to the flower shop, gas to the gas stations, etc.

Types of Business Most business fall into one of the four categories: Most business fall into one of the four categories: 1. The Merchandising Business 1. The Merchandising Business 2. The Service Business 2. The Service Business 3. The manufacturing or Producing Business 3. The manufacturing or Producing Business 4. The Non-Profit Organization 4. The Non-Profit Organization

The Merchandising/Retail Business Buys goods and resells them at a higher price for a profit. Buys goods and resells them at a higher price for a profit.Examples:

The Service Business sells a service to the public sells a service to the public it does not sell a product as its main activity it does not sell a product as its main activity usually offering a skill or expertise and the customer is involved in the delivery of the service usually offering a skill or expertise and the customer is involved in the delivery of the service

Note: Sometimes a service company will sell products (i.e. hairdresser selling shampoo), but it is a sideline and not the main business activity. Sometimes a merchandising business will offer services (i.e. computer repair or hemming clothes), but it is also just a sideline and not the main business activity.

The Manufacturing Business Buys raw materials, converts them into a product and sells these products to earn a profit. Consider a construction company, a paper mill, or steel plant.

The Producing Business Closely related to manufacturing Examples include farms who may produce milk, grain, etc. Other examples include oil extraction, mining, forestry, hunting, and fishing