In the previous article

We have shown in the previous article that there are six factors that may give you an idea about the profitability likelihood of investing in an already existing business, whether by partial purchase, fundraising or even by total purchase in some cases. These factors are: Executive and financial managers, business model, financial statements, the certified public accountant, the business legal papers, and partnership guarantees. In the previous article, we have talked about the importance of knowing the background, competence and transparency of business managers. In this article, we talk about the importance of the business model.

Business model

The business model can be understood in a variety of different ways, but the most important and famous among them is that it is a strategic tool consisting of 9 elements to analyze the business, how it can achieve profit, and how it can maintain its operations. These nine factors are:

1. Key Activities

Key activities are the necessary activities a company must perform to make its model work, such as manufacturing, marketing campaigns, software development, or supply chain management. For example, the activities of a real estate developer can be, for example, purchasing vacant land, purchasing building materials, contracting with some construction service providers, managing the construction process, and marketing residential apartments.

 2. Key Resources

Key resources are a very important factor that many business owners and managers overlook. It is an overview of the basic assets required to run the business model effectively, such as trademarks, secret recipes, like in restaurants, for example. Key resources can also include skilled human resources, specialized machines, customer data or market data, administrative electronic programs, or high-visibility sales outlets. In short, everything that makes the business run and develop well is included in your main resource. Always, make sure before investing in any business that you take note of the main resources that this business possesses. Try to take some time to enumerate all the main resources that the business you want to invest in.

3. Cost Structure

The cost structure tells you where your spending is going into. It identifies the main costs associated with running your business model, such as rent, employee salaries, infrastructure costs, manufacturing, distribution, marketing, service subscriptions, etc. Before investing in any business, try to know the cost structure, the main costs, and the percentage of each item in the total costs.

 4. Customer Segments

Through customer segments, different groups of people or organizations that the company targets within various markets are identified. Will you target the rich, middle classes, or both? Will you target male shoppers, female shoppers, or both? Will you provide your products and services to government agencies or private sector companies? To the medical community or to software developers? Business must have a clear perception of the nature of its customers.

5. Revenue Streams

Revenue sources or revenue streams explain how a company generates revenue from each customer segment, such as direct sales of products, subscription fees, licensing, rental, advertising revenue, and more. A business should have a vision and a list of all its sources of revenue, the size and importance of each of them, and the target segment of customers through which this flow of revenue will occur.

6. Channels

What are the channels through which business provides its services? Are they the usual sales outlets, online stores, or both? Will the business resort to social media to fulfill orders and provide services? Are there delivery services? 

7. Value Propositions

What makes customers accept the business products or services it provides? Its high quality? Its low price? A good trade-off between quality and price? Comfortable handling? Speed ​​of delivery? Customer rewards? Loyalty points? This is the so-called value proposition. 

8. Customer Relationships

Customer relationships describe the nature of the relationships a company maintains with its customer base, such as personal assistance, specialized support, after-sales services and grouping customers into electronic communities. In short, you should have encouraging relationships with your customers to ensure their loyalty, frequent visits, and preference over other similar service providers.

9. Key Partnerships

Key partnerships are other categories of organizations that help you complete your business operations, such as a network of suppliers, strategic alliances, joint ventures, or distribution companies that distribute your products. In short, business communities are interconnected where groups of them are necessarily considered key partnerships to each other.

 These nine factors are the components of the Business Model. Before purchasing any business or investing in it, you should understand them, create what needs to be created, and develop what needs to be developed.

In the next article, we will talk about the third very important factor before purchasing any business and investing in it, which is financial statements.