There are three major types of businesses:
1. Service Business
A service type of business provides intangible products (products with no physical form). Service type firms offer professional skills, expertise, advice, and other similar products. Examples of service businesses are: schools, repair shops, hair salons, banks, accounting firms, and law firms.
2. Merchandising Business
This type of business buys products at wholesale price and sells the same at retail price. They are known as “buy and sell” businesses. They make profit by selling the products at prices higher than their purchase costs. A merchandising business sells a product without changing its form. Examples are: grocery stores, convenience stores, distributors, and other resellers.
3. Manufacturing Business
Unlike a merchandising business, a manufacturing business buys products with the intention of using them as materials in making a new product. Thus, there is a transformation of the products purchased. A manufacturing business combines raw materials, labor, and factory overhead in its production process. The manufactured goods will then be sold to customers.
Hybrid businesses are companies that may be classified in more than one type of business. A restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service).
Nonetheless, these companies may be classified according to their major business interest. In that case, restaurants are more of the service type – they provide dining services.