Profitability, performance and productivity are key components of a business’s success. Business plans and models help entrepreneurs organize their ventures before launching them.
Profitability, Productivity and Performance
Profitability is an important indicator of a company’s success. Profits can cover costs, be invested back into the business and paid as dividends. Profits appear on financial statements that are scrutinized by potential investors. Profitability is different from productivity which is the rate at which goods are manufactured. High productivity may lead to greater profitability.
A profitable company is mostly a result of high performance by employees and management. The more motivated the employees, the better they perform; productivity and profitability both increase. KFC is profitable, productive but underperforming. The service quality is diminishing. Companies dealing in expensive, luxury items have high profit margins and performance, but low productivity, since their sales are slow.
Valuation of a Business Model or Idea
Today business models can be evaluated based on the value they offer to customers, how they capitalize on opportunity and how environmentally sustainable they are. Business models should be assessed for their financial feasibility. Low start up costs and lean organizational structures are preferred. People are a company’s greatest asset and must be trained and developed.
Entrepreneurs must look into attracting venture capitalists to fund their business ideas. Any business idea that adds value should be developed (Carsrud, & Brannback, 2007). If the company is socially and financially sound, it is likely that it will get support and possible government grant.
Business Plan versus Planning for a Business Model
A business plan is a detailed description of an idea, target market, sources of finance, marketing, operations and financial plans, and future expansion. This document is used to organize the venture before it starts, and to obtain funds from venture capitalists. Creating pro forma financial statements for the first three years of operations is the most difficult part. Planning for a business model requires calculating working out location, product mix, sources of capital, pricing and distribution (Carsrud, & Brannback, 2007).
Good performance at work leads to high productivity and profitability. In turbulent times, businesses that provide value while being technologically efficient are most profitable. It is recommended to develop a business plan and approach venture capitalists before launching a business idea.
Style for Books
Carsrud, A. & Brannback, M. (2007) Entrepreneurship.
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