Question

In: Economics

How a business will generate profits, or its business model, is generally developed before the completion...

How a business will generate profits, or its business model, is generally developed before the completion of a business plan. Review criteria for the business model and for the feasibility analysis. Which would you recommend be done first? Why? (Atleast 300 words)

Solutions

Expert Solution

A business will generate profit, when the innovative ideas will be converted into products and services for the target audience and create value for them by satisfying their needs and want. In the process, the business generate revenue and covers fixed cost, variable cost, and pay other necessary expenses. Finally, the business generates profit. Hence, to generate profit, a business requires accumulation of required resources and capabilities that come at a cost. Afterwards, planning is required to convert ideas into the products & services and satisfy the demand of the consumers. It generates revenue, break even and then profit over a period of time.
A business model is developed before a business plan, because business model is one part of the business plan. Business model shows the channelization of ideas and resources to meet the demand and generate revenue for the business, but a business plan also tells the sources of funding, feasibility study, forecasting of the financials as well as setting up the performance metrics and review criteria of the business plan. A business plan is intended to convince the potential investors also. So, a business plan is broad in nature and takes more time to prepare than that of the business model.
Feasibility analysis involves the identification of demand as well as marketability of the idea so that demand can be met and production can be scaled. Review criteria involves reviewing of the business on selected parameters. Here, the feasibility analysis should be done first, because it tells that whether the business is to be conducted or the idea should be dropped due to non-marketability of the idea. Hence, it is required to ascertain the scope of business first, then the business should establish the review criteria to make it more meaningful and successful. Besides, it is the business and specific parameters related to the business, that sets the review criteria. So, the feasibility analysis should be created first.


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