Classification of Business Activities

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What is Business?

Business is described as an enterprise or organisation or entity involved in industrial, commercial or professional activities. Businesses can be for-profit items/services, or they can be non-profit groups that function to fulfil a humane mission or further a social cause. The term “business” also refers to the organised activities and efforts of individuals to build and sell goods and services for profit. Businesses range in scale from a single proprietorship to multinational corporations. 


What is a Business Activity?

Business activities involve the creation of goods and services for the overall outcome of value creation for the stakeholders. Business activities including investing, operating and financing activities, are ongoing and focused on creating value for shareholders. It involves a multitude of exercises and these activities have some common features and can be categorised under the general term of industries. While the composition of goods falls in the purview of ‘industry’, its delivery is a subject matter of ‘commerce’. 


Types of Business Activities 

There are mainly three types of business activities: Investing, Operating and Financing.

  1. Operating Activities: Operating business activities are the functions of a business directly related to providing its goods or services to the market. Operating activities include the sales, distribution, marketing and manufacturing of products and services.

  2. Investing Activities: Investing activities follow the operating activities in their order of importance in business activities. They are registered on the receipt of cash flows and consist of selling and buying long-term assets and other investments. In other terms, this is the net amount of cash collected and paid during an accounting period for long-term support and investments. 

  3. Financing Activities: Financing activities are activities involving long-term contracts, owner’s assets and changes to short-term financings. These activities include the flow of cash and cash equivalents within the company and its origins of finance.


Nature of Business Activity

Humans have infinite needs and to satisfy these needs, we require a spectrum of business activities. All commercial, economic and trading activities are parts of a business. 


Classification of Business Activities

Business Activities can be classified into two categories-

  1. Industry

  2. Commerce

1. Industry

The sector where raw material gets transformed into beneficial products is called industry. An industry may create capital goods or consumer goods such as cloth, radio, bread, butter, etc. The industry can be classified into three categories.

  1. Primary industry

  2. Secondary industry

  3. Tertiary industry

Primary Industry

Primary industry is known as extractive industries. It involves activity connected with the production of wealth directly from natural resources such as water, air, land etc. The primary sector involves activities like processing and extraction of natural resources etc. These primary industries are further divided as:

  • Extractive industry: Industries that draw out or extract products from natural sources are known as Extractive Industry. Some of the examples of extractive industries involve lumbering, farming, mining, hunting and fishing operation.

  • Genetic industry: The industries that involve in the ventures of breeding and rearing of living organisms, such as plants, birds, animals etc. are known as a genetic industry. For example, rearing of cattle dairy farms or rearing of plants in the nursery is covered in the genetic industry.

Secondary Industry

The industry that uses raw materials as input and produces finished products as output is known as the secondary industry. Secondary industries are divided into two parts:

  • Manufacturing industries: These industries are involved in the process of transformation of semi-finished goods or raw materials into finished goods. These enterprises build from the utility by altering the form of raw materials into finished products.

  • Construction industries: These industries are involved with the construction of dams, roads, buildings, etc. These industries use the commodities of manufacturing industries such as iron and steel, cement or lime.

Tertiary industry

Tertiary industries are regarded as providing services which promote the flow of services and goods. This industry helps in the actions of the primary and secondary sector.

2. Commerce

Commerce generally relates to the exchange of goods, services or something of value, between entities. Commerce is classified into two general sections:

  1. Trade

  2. Aids to trade

Trade

Trade is an essential part of commerce. It involves selling and buying of goods and services. There are two classifications of trade - Internal and External Trade.

  • Internal Trade: It is referred to selling and buying of goods or services within the geographical contours of a country. The internal trade is also known as domestic trade or home trade. The internal trade is divided into two types: Retail trade and Wholesale trade.

  • External Trade: The external trade is referred to selling and buying of goods or services beyond the geographical contours of the country. In external trade, the market is vast. External trade is of 3 types: export trade, import trade and entrepot trade.

Aids to Trade

The enterprises which help in the constant flow of trade are known as aids to trade. The common aids to trade are:

  • Transport and communication

  • Warehousing

  • Advertising

  • Banking and finance

  • Insurance

FAQ (Frequently Asked Questions)

Q1.  How would you classify Business Activities?

Ans. Classification of business activities is administered in two ways, Commerce and Industry. The industry comprises the generation of goods and services, whereas commerce is affected by the distribution of goods and services. Industries are involved in changing the form of goods at any stage from raw material to the finished product, e.g., weaving woollen yarn into cloth. On the other hand, the goal of commerce is to assure proper flow of services and goods for the benefit of both producers and consumers.

Q2. What are the Aids to Trade?

Ans. Trade is an essential part of commerce. The enterprises which help in the constant flow of trade are known as aids to trade. These help in eliminating various barriers of trade which occurs in the distribution of goods and production of goods. Aids to trade include banking, transport, communication, insurance, warehousing, sales teams, advertising, mercantile agents, global corporations for foreign trade and trade development industries in a country. These necessary accessories secure smooth progress of goods from producers to the buyers.