Types of BusinessesTypes of Businesses

Types of BusinessTypes of Business

Business DefinedBusiness Defined

An organization that produces or sells An organization that produces or sells goods or goods or servicesservices to satisfy the to satisfy the needs, wantsneeds, wants, and , and demandsdemands of of consumersconsumers for the purpose of making a for the purpose of making a profitprofit..

Most business fall into one of the four categories:Most business fall into one of the four categories:1. The Merchandising Business1. The Merchandising Business

2. The Service Business2. The Service Business 3. The manufacturing or Producing Business3. The manufacturing or Producing Business 4. The Non-Profit Organization4. The Non-Profit Organization

Goods or ServicesGoods or Services

Goods 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 Services Expertise or service provided to the Expertise or service provided to the

customer. customer. (i.e. haircut, physician annual check up, (i.e. haircut, physician annual check up,

legal legal advice, income tax return service) advice, income tax return service)

Goods and ServicesGoods and Services Restaurant (food and service)Restaurant (food and service)

Needs, Wants, and DemandsNeeds, Wants, and Demands

NeedsNeedsThings you must have in order to stay aliveThings you must have in order to stay alive(i.e. warmth in winter, clean water and air, (i.e. warmth in winter, clean water and air, food, shelter and medical care.)food, shelter and medical care.)

WantsWantsThe extrasThe extrasYou don’t need them to survive, but they You don’t need them to survive, but they make life more pleasant and comfortablemake life more pleasant and comfortable(i.e. that 62 inch plasma TV)(i.e. that 62 inch plasma TV)

Business TerminologyBusiness TerminologyConsumersConsumers A general a term to describeA general a term to describe

anyone who purchases anyone who purchases something from any business. something from any business.

The people who purchase the The people who purchase the computers and those who have computers and those who have their computer repaired attheir computer repaired at a local repair shop. a local repair shop.

CustomersCustomers The term used by a business to The term used by a business to

describe those consumers who describe those consumers who shop at its business.shop at its business.

Business TerminologyBusiness Terminology

ProducersProducers businesses that make goods or providebusinesses that make goods or provide services. services.

For example:For example:A computer manufacturer is a producer of A computer manufacturer is a producer of

goods;goods;A computer-repair shop is a provider of a A computer-repair shop is a provider of a

service.service.

Business TerminologyBusiness Terminology

ProfitProfit The money (income/revenue) that is left after allThe money (income/revenue) that is left after all

costs and expenses of running the business are costs and expenses of running the business are paid. paid.

Revenue/incomeRevenue/income The money the business collects from customersThe money the business collects from customers

when it makes a sale. (Price of shoes to the when it makes a sale. (Price of shoes to the customer is $100, not including taxes) customer is $100, not including taxes)

ExpensesExpenses The expenditures that are involved in running theThe expenditures that are involved in running the

business on a daily basis, such as wages and business on a daily basis, such as wages and hydro as well as those things that get used up such hydro as well as those things that get used up such as paper and computer toner. as paper and computer toner.

Business TerminologyBusiness Terminology

CostsCosts Amount of money required for each stage ofAmount of money required for each stage of

production. production.

For example the need to purchase other items suchFor example the need to purchase other items such as: as:

1. the cost of the goods a company is selling1. the cost of the goods a company is selling (inventory); (inventory);

2. the cost of the raw materials to used to2. the cost of the raw materials to used to manufacture the good being sold (cotton or manufacture the good being sold (cotton or steel) steel)

REVENUE – EXPENSES = Profit or (Loss)REVENUE – EXPENSES = Profit or (Loss)

Revenue (Revenue (Price of 1 pair of shoesPrice of 1 pair of shoes) $100) $100

Less: Cost of ShoesLess: Cost of Shoes 50 50

Less: Other daily expenses Less: Other daily expenses 3535

ProfitProfit $15$15

Business TerminologyBusiness Terminology

SolvencySolvency Means having the ability to pay your debts Means having the ability to pay your debts

and meet your financial obligations. and meet your financial obligations.

A company may not make a profit but beA company may not make a profit but be still have enough money in the bank to still have enough money in the bank to pay of its debts and stay in business. pay of its debts and stay in business.

Insolvency – when a company does notInsolvency – when a company does not have the ability to pay off its debt have the ability to pay off its debt obligations. obligations.

Where do Consumers and Where do Consumers and Producers Meet?Producers Meet?

The MarketThe MarketA market exits wherever consumers A market exits wherever consumers (buyers) and producers (sellers) come (buyers) and producers (sellers) come together to do business.together to do business.

Three Major Groups of MarketsThree Major Groups of Markets1.1. Consumer MarketConsumer Market2.2. Business-to-Business or Industrial MarketBusiness-to-Business or Industrial Market3.3. Stock Market (TBD later in the course)Stock Market (TBD later in the course)

Consumer MarketConsumer Market

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

Business-to-Business or IndustrialBusiness-to-Business or Industrial MarketMarket

All the individuals and organizations that All the individuals and organizations that produce, sell, rent, or supply goods and produce, sell, rent, or supply goods and services to other businesses.services to other businesses.

For example, cash registers sold to the For example, cash registers sold to the grocery store, delivery vans sold to the grocery store, delivery vans sold to the flower shop, gas to the gas stations, etc.flower shop, gas to the gas stations, etc.

Types of BusinessTypes of Business

Most business fall into one of the fourMost business fall into one of the four categories: categories:

1. The Merchandising Business1. The Merchandising Business

2. The Service Business2. The Service Business

3. The manufacturing or Producing 3. The manufacturing or Producing BusinessBusiness

4. The Non-Profit Organization4. The Non-Profit Organization

The Merchandising/Retail The Merchandising/Retail BusinessBusiness

Buys goods and resells them atBuys goods and resells them at a higher price for a profit. a higher price for a profit.

Examples:Examples:

The Service BusinessThe Service Business

sells a service to the publicsells a service to the public

it does not sell a product as its mainit does not sell a product as its main activity activity

usually offering a skill or expertise andusually offering a skill or expertise and the customer is involved in the delivery of the customer is involved in the delivery of the service the service

Note:Note:

Sometimes a service company will sell Sometimes a service company will sell products (i.e. hairdresser selling products (i.e. hairdresser selling shampoo), but it is a sideline and not the shampoo), but it is a sideline and not the main business activity.main business activity.

Sometimes a merchandising business will Sometimes a merchandising business will offer services (i.e. computer repair or offer services (i.e. computer repair or hemming clothes), but it is also just a hemming clothes), but it is also just a sideline and not the main business activity.sideline and not the main business activity.

The Manufacturing BusinessThe Manufacturing Business

Buys raw materials, Buys raw materials, converts them into a converts them into a product and sells product and sells these products to these products to earn a profit.earn a profit.

Consider a Consider a construction construction company, a paper company, a paper mill, or steel plant.mill, or steel plant.

The Producing BusinessThe Producing Business

Closely related to Closely related to manufacturingmanufacturing

Examples include Examples include farms who may farms who may produce milk, grain, produce milk, grain, etc. Other examples etc. Other examples include oil extraction, include oil extraction, mining, forestry, mining, forestry, hunting, and fishinghunting, and fishing