Meaning
Operating activities is a type of Business Activities and are the core activities that a business performs to earn revenue. These activities affect the cash flow coming in and out and determine the net income of the business.
The main fundamental operating activities for a business includes sales, customer service, administration and marketing. These activities are part of the day-to-day functioning of a business which take effect in company’s monthly, quarterly and annual income and profits. This Operating activities provide the majority of the cash flow in a business and hence determine the profitability.
What Is Included in Operating Activities?
The operating activities of a business are found in the business’ financial statements particularly the cash flow statement and the income statement.
The operating activities section in these statements is considered the most important section since it provides cash flow information related to the daily operations of the business and allows stakeholders to see the viability of the business. It also determines the business’ ability to pay its current expenses such as labour costs and debt repayment.
The operating activities that result in revenue generation are:
- Cash receipts from sales
- Sales of securities
- Profit earned from investment
- Insurance Claims and Settlements of lawsuits
- Accounts receivables
- Supplier refunds
The operating activities that result in cash outflows are:
- Employee payments
- Supplier payments
- Tax payments
- Refunds to customers
- Settlements of fines and lawsuits
- Interest paid to creditors
- Purchase of equipment
- Interest payable on loans and dividends
In cash flow statement, the incoming and outgoing of funds from these activities is listed in the operating activities section. They are focused in changes in the current assets and current liabilities and the net income.
Examples of Operating Activities
(1) Revenue Generating Activities
It is the main profit generating activity for any business. There are two primary revenue-generating activities of businesses –
Selling a Product for example –utensils, stationary, electronic items, kitchen appliances, etc. And
Providing a Service for example – teaching, cleaning, cooking, marketing, etc.
(2) Marketing & Advertising
Operating activities include promoting goods and services. For example, A financial analysts expert might organize a training sessions learning advance stock market to small traders and investors.
(3) Administration
Administrative functions such as accounting, human resources, facility maintenance and information technology come under operational activities.
(4) Maintenance & Customer Service
These are indirect expenses in term of customer service such as rent, utilities, supplies, insurance, guarantee, warrantee and licenses.
Types of Operating Business Activities
The main aim of any business is to earn profit. Keeping this in mind, there are six types of activities that all businesses have to undertake at some point or the other.
(1) Sales
The sales team is the lifeblood of every business. The sales team reaches out to potential leads and converts them into customers to expand the customer base and secure repeat sales.
(2) Marketing
Promotion/advertising of a product its brand develops the brand recognition and ultimately boosting the exposure of the business and its services.
(3) Budgeting a Finance
Budgeting a finance means planning how the revenue is to be utilized for growing the business and achieve optimum target.
(4) Accounting
Accounting is the process of managing the incoming and outgoing of funds in a company. Keeping up to date with the income and expenditure of a business allows the company to have record of where and how the capital is spent.
(5) Customer Service
A good customer service helps in pitching new clients, building customer relationships and promote referrals for a business.
(6) Human Resources
The HR team is an important part of maintaining current operations and planning for expansion. The team is responsible for conducting interviews, hiring applicants, dealing with interpersonal conflicts in office environment and determining the benefit packages for employees.
Reference
- https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/operating-activities-non-operating-activities
- https://www.investopedia.com/terms/o/operating-activities.asp
- https://www.freshbooks.com/hub/accounting/operating-activities
- https://www.wallstreetmojo.com/operating-activities/
- https://www.accountingtools.com/articles/what-are-operating-activities.html
- https://smallbusiness.chron.com/examples-operating-activities-24693.html
- https://marketbusinessnews.com/financial-glossary/operating-activities-definition-meaning/
