An Overview of Different Types of Operating Activities in a Business
Operating activities in a business are the day-to-day tasks that keep it running. They can include everything from hiring and letting go of employees, to ordering supplies for a warehouse and advertising online.
This article will provide an overview of different operating activities in a business so you know how to make them work more efficiently.
What is an operating activity?
An operating activity is any day-to-day tasks a company performs to make money and keep the business running.
They include all the expenses and sales that occur in running a business, including salaries, utilities, taxes, rent and interest payments. Typically it includes everything from manufacturing or production, sales and marketing, to finance and accounting.
Business operating activities are what keep your business operating at peak levels, and they’re also what generates revenue for you!
Examples of business operating activities
There are various types of operating activities that vary from business to business. Here are some examples:
- Investing in capital assets – A company may invest in capital assets by purchasing land or equipment.
- Financing receivables or payables – Financing receivables can be done through issuing bonds or acquiring debt securities from another company.
- Providing services to customers – Providing services is usually done by companies that sell products but don’t produce them themselves (i.e., restaurants).
- Producing goods for sale to customers – Producing goods can be done by partnering up with manufacturers, retailers, and wholesalers.
- Marketing and advertising campaigns – Promotional campaigns include company-sponsored events, TV ads, newspaper advertisements, social media promos, emails, and almost anything that raises awareness of and builds customer interest in your brand.
- Payroll and employee benefits – These activities ensure that the company has satisfied all of its legal obligations related to paying wages, salaries, bonuses, health coverage, or other remuneration.
What are operating expenses?
Operating expenses include all of the costs incurred to run a business on a daily basis — operating activities.
These expenses can be broken down into two types: fixed operating costs that stay the same regardless of how much revenue a company generates (such as rent), and variable operating costs which change depending on the amount of goods or services sold (such as payroll).
If you want to know more about operating expenses, read our article here.
Cash flows from operating activities
Operating activities are not an income stream, but they may be the most important financial measure to a business. Cash flows from operating activities are the money that comes in from its business operations.
A positive cash flow means that there is more money coming in than going out, while negative cash flow indicates the opposite.
Operating cash flow is the best indicator of whether a company will have enough money to stay in business and pay its bills.
If you’re struggling with operating cash flows for your business, it could be time to re-evaluate how you manage working capital and inventory in order to make sure that your company stays afloat.
Net cash provided by operating activities
How much cash does your company generate from its operations?
Net Cash Provided by Operating Activities (NCOA) is a measure of how well the day-to-day expenses and operating activities are generating cash for the business.
The higher the number, the better off the company is.
Companies with low or negative NCOA may not be generating enough cash to survive over time.
In order for this figure to be accurate, all income and expense items must be accounted for in order to determine the true amount of net income or loss from operations as well as interest received or paid during that time period.
What are operating revenues?
Operating revenues account for the sales of goods and services it gets from any operational activities.
If your business is selling consumer products, then your operating revenues are the number of merchandise sales.
Accountants may also classify certain non-operational items like interest expense in operating revenue, even though they are not a direct product of business operations.
