Entity - Making Money
The business Entity refers to how you generate sales and profits. So the business entity model includes key decisions on the legal and tax structures, as well as:
- strategic relationships
- core activities
- value proposition
- customer relationships
- customer segment, market niche, target customer
- cost structure
- revenue sources.
Building a Business Model
As you plan your business, you will be making decisions on the legal and tax structure, which will influence your business entity model – how you make money.
Build your business model based on your solution Concept, the market Opportunity you have identified, the Resources you have and need, and the “how” you plan to do business. How includes answers to operational questions like:
- Virtual or brick and mortar or both
- Lease/rent office space or work from home
- Use office suites or a fully private space
- One location or two
- E-commerce or storefront or both
- What you sell — Sales assumptions – price, quantity
- Cost of sales/goods — Operational costs
- Salaries and wages
- Advertising, marketing, and
The Business Plan — The Business Entity Model Defined
The business model is the process of doing business. Because you include in the business plan the details of your assumptions on how the business will operate (how you get and use resources) and generate sales, cash, and profits, you will have answers to critical questions that stakeholders will ask. Therefore, think of the business plan as a virtual start-up of your business. It is the who does what, what do they do, how do they do it, when do they do it, where, and how much does it cost.
Also, if you plan to use OPM (other people’s money (investors and lenders), you will need a well-defined, a description of how you do business. Your plan includes documented assumptions and how you developed those from sources of your information (market research, prices, etc.), and operational practices. These are the key areas:
- Business concept/executive summary
- Market Analysis and Target Market
- Customer Avatar – identifying the ideal customer ·Operations
- Sales Model
- Competitive Advantages
- Financial Pro
formas(forecasted financial statements)
- Go-to-market strategy
- Risk and Opportunity assessment.
Viable, Capable, Credible and Visible — Four Factors that Impact Success
So, the more you think through and quantify your ideas, the more opportunity you have to refine your ideas. The stronger your business concept, the easier it is to develop your business Entity model. The business planning process enables you to work out some of the bugs before you begin spending and investing in the actual business. While your business will not be as planned, you cannot underestimate the importance of going through the process of planning. Because you work out key elements and think through your assumptions before your doors open, you can avoid some costly mistakes.
In the long run, the business plan saves time and money. Therefore, you have greater credibility when talking with potential investors and lenders. Your confidence grows as a result of thinking through your assumptions, resource needs, identification of the customer, etc. You have answers to key questions. Those answers increase your capability and credibility with those you seek as customers, lenders, employees, vendors, and investors. The business model, how you make money, is important to gaining access to the capital you need through operational results (sales and profits) or from other sources (equity and debt).