Why Are Business Models So Important?

A group of people reviewing a business model: Business Models: Strategies & Innovation

The business model is the foundation of a company and its value proposition to customers, employees, and investors. It is the engine that drives revenue and profitability. The business model has never been more important than today, as companies are pressured to be lean and agile to compete in the global marketplace.

There are several different business models, and the one that is right for your company depends on your industry, product or service, and unique value proposition.

A well-designed business model will help you clarify your business goals and strategies and serve as a roadmap for your company’s growth and get the most return when you’re selling your business. Here’s why a business model matters and how it might shape your company’s value.

What Is a Business Model?

The Harvard Business Review describes a business model as the “story” of your company. It can explain how the various pieces of your business come together to make a profit. Your business model, therefore, represents a comprehensive plan for running your business, as well as forming the rationale behind your company.

Common examples of business models include:

  • Direct sales
  • Franchising
  • Advertising-Based
  • Brick-and-Mortar Stores
  • E-commerce

These examples are not mutually exclusive. Some businesses may adopt a hybrid approach, which is increasingly common in an age where physical retailers may also offer online shopping options. Non-traditional and virtual business models are also becoming more common.

Why a Business Model Matters When Selling Your Business

Brokers can determine the value of your business based on factors that include your existing assets as well as your future earnings potential. A clear business model can add value to your business. When selling your business, it can add value in the following ways:

  • Providing investors with knowledge of your company’s competitive edge
  • Offering insight into your company’s core business processes
  • Describing the cost of producing/performing your products or services
  • Articulating a strategy for distribution and delivery
  • Summarizing current marketing strategies
  • Establishing pricing structure and payment methods
  • Ensuring a smooth transition for investors taking control of the business

A strong business model leads to cash generation and future expansion. Ultimately, the net profit drives the selling price.

Example of Business Model

Sunbelt Business Brokers recently closed a deal with a unique business services company. This virtual company had commissioned salespeople working from their homes. Despite not having an office and only a few full-time W2 employees, the Company sold for over $12MM

How Much Is My Business Worth?

How much is your business worth? Start by getting your free valuation using Sunbelt’s online valuation calculator. But for the most reliable estimate, partner with an experienced broker who can help you bridge the gap between book value and the value on today’s market. To learn more about the valuation process, contact Sunbelt Business Brokers of Florida.