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Secondary activities are any activities a business conducts that are not part of its core business strategy and mission. In a simple example, renting out unused factory space is a secondary activity for a manufacturer, as the company's primary activities involve manufacturing and production, not real estate leasing. These activities support the primary goals of the business and make it more efficient by helping to cut costs, streamline use of business property, and maintain a positive image.
The nature of secondary activities can vary widely, depending on the industry. No primary activities are dependent on these business processes; in the example above, the company's manufacturing does not rely on renting out unused space. The secondary activity in this example increases efficiency by profiting from property that would otherwise be left vacant. This lowers operating expenses and creates another revenue stream for the company, offering a new benefit.
Selling off old assets, handling litigation in court, and administering financing agreements can all be examples of secondary activities. They do not directly pertain to the primary purpose of the business and may be peripheral to its goals. The business does not depend on these for income and they are not part of the normal scope of business practice. Businesses may be reluctant to dedicate personnel to managing these activities, instead choosing to contract them out to other companies. This can keep costs low and prevents the creation of an unnecessary department.
Businesses must account for secondary activities on financial filings like taxes and annual reports. These documents should include a detailed breakdown of income and expenses from these activities. Accountants can help businesses make decisions about the kinds of activities to pursue on the basis of their financial impact; for example, selling off vacant buildings may have a net loss to the business, while renting them could provide a revenue stream and maintain assets on the books for the purpose of depreciation and other tax benefits.
These activities may appear in a separate section on financial statements for shareholders and interested members of the public. They can provide interesting insight into a company's financial position; for example, if multiple lawsuits were settled in a single year, the company's coffers could take a hit, and it may be less capable of mustering capital for operations in the coming year. Conversely, companies bringing in revenue from vacant properties and other secondary activities may be in a stronger financial position.
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