Lesson 007 - Types of Businesses According to Activities (Service, Merchandising, Manufacturing)

The video introduces three types of businesses based on activities: service, merchandising, and manufacturing companies, explaining that these classifications determine how businesses earn income.

Service businesses generate income by providing services for a fee. Examples include barber shops, massage spas, travel agencies, IT solutions firms, legal services, and accounting firms. Accounting itself is defined as a service activity, making accounting firms a prime example.

Merchandising companies earn income by buying goods from suppliers and reselling them to customers without significant alteration. Grocery stores and fashion boutiques are classic examples. The key is buying ready-made goods and selling them.

Manufacturing companies purchase raw materials, process them, and transform them into finished goods to be sold. While similar to merchandising in selling goods, manufacturers create the products they sell. Examples include ice cream manufacturers and car manufacturers.

The video explores how these three business types can operate together or in a system. Two case studies are presented: a music production company combining service (concerts), merchandising (CD sales), and manufacturing (CD album production), and an essential oils manufacturer whose products are sold by groceries (merchandising) and used by massage spas (service).

For service companies, net income is calculated as service revenue minus operating expenses. An example problem demonstrates this calculation for a barbershop, subtracting salaries, utilities, and rent from service revenue.

Merchandising and manufacturing companies measure income by matching sales revenue with the cost of goods sold to determine gross profit, then deducting operating expenses. An example of a grocery store illustrates this, where sales revenue minus the cost of purchased goods gives gross profit, from which operating expenses are subtracted to find net income.

Measuring income for manufacturing companies involves a more detailed cost of goods sold, encompassing materials, labor, and overhead (indirect costs) in the production process. A car manufacturing example shows how to calculate net income by summing these production costs to get the cost of goods sold, then subtracting that and operating expenses from sales revenue.