Classification of Business Activities

Business activities refers to all those economic activities, whether directly or indirectly  involved in the creation of goods and services for satisfying the consumer needs and ensuring profit earning through customer satisfaction. Business activities are often divided into operating activities, investing activities, and financing activities. Among all the business activities, operating activities tend to play a significant role because these activities directly influence the company performance. 

Based on function, business activities are classified into broad categories namely Industry and Commerce. 

Industry is engrossed with the production, processing or manufacturing of goods. These types of business units are known as “ industrial enterprises”. The Industrial enterprises produce consumer goods as well as machinery and equipment. On the other hand, commerce activities include all the activities, which are necessary for storage and distribution of goods and services. Such units are termed as “commerce enterprises”. The commerce enterprise provides trading and service activities like banking, insurance, transport, and warehousing. 

Read the article below to know types and categories of business activities in brief.

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What is Business?

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

What are Business Activities?

Business activities refers to all those activities that are involved in producing goods or providing services. Business activities reflect the efficiency of organizations with respect to the consumption of resources in the production process or the number of advanced resources, give a representation of financial and economic activities, and also reveal the potential and internal capabilities of an organization.

Understanding the Types of Business Activities

The business activities are classified into three different types namely operating activity, investing activity, and financing activity. Let us discuss the three types of business activities briefly:

Operating Activities: Operating activities refer to all those business activities that are directly or indirectly related to the provision of goods and services. As such they have a direct impact on cash flow, and eventually on income.

Investing Activities: Investing activities refers to all those activities that aimed to be capitalized for more than a year. This includes capital expenditure such as purchase of long term assets or real estate.

Financing Activities: Financing activities refer to all those activities that fund the business but are not directly related to the revenues from goods and services. Common financing activities include bonds, loans, and share issues.  

Classification of Business Activities

The business activities are broadly classified into two categories namely:

1. Industry 

2. Commerce. 

Let us have brief information about both the terms.

1. Industry

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

1. Primary Industry

2. Secondary Industry

3. Tertiary Industry

Let Us Understand Briefly About the Three Types of Industries:

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 operations.

• Genetic Industry: The industries that involve the ventures of breeding and rearing of living organisms, such as plants, birds, animals, etc. are known as 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.

• 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 that promote the flow of services and goods. This industry helps in the actions of the primary and secondary sectors.

2. Commerce

Commerce refers to the sum total of all the activities related to the placing of products before the ultimate consumers. It provides a significant link between the producer and consumers of goods. The term “ commerce” is defined as an activity that aims to remove the hindrance in the process of exchange. Commerce includes all those business activities which are related  to the sale and purchase of goods and services and facilitate their availability for consumption and use through trade, banking, insurance,and warehousing. Commerce is classified into two different categories namely:

1. Trade

2. Auxiliary to trade

1. Trade

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

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

• External Trade: External trade is referred to the 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.

2. Auxiliary To Trade

In terms of business, the term “Auxiliary to Trade '' refers to all those activities which provide support to performing activities related to trade and industry. In fact, the auxiliary to trade provides a facilitating base to industry and trade. Such activities include insurance, banking, warehousing, advertising, and communication.

Interrelationship Between Industry, Trade, and Commerce

The three branches namely Industry, Trade, and Commerce are associated with each other. Each branch is dependent upon the other for the achievement of the aims and objectives of the business. For example, industry refers to the production of goods and services, trade refers to the sale and purchase of products, and commerce refers to the arrangement for their distribution. Industry can only succeed if goods are marketed, and without the production of goods, trades and commerce are not possible. Hence, trade provides necessary support to both industry and commerce. Therefore, industry, trade, and commerce are interrelated to each other and cannot be operated individually. Service facilities also provide necessary enhancement to trade.