How many times have you been in a business and noticed that the place is booming even though service is poor, then imagined what the business could be like if it were run properly? How often have you encountered incompetent ownership or management and though, "Boy, if I owned this place, I could turn it into a booming success."? Or perhaps you want your own business, but the thought of spending ...
A really good place to start is with your pricing, pricing is probably one of the biggest areas that people get wrong. When you set your prices too low, and your effort and resources to get those products and services to market are too high, you have got it wrong. Setting the wrong price means your business is not going to be scalable, i.e. you cannot grow and make any real money as you have no cash left over in the business. So pricing is a good area to start putting together your business model.
Pricing can be a complex area, but the two things that affect it most are, firstly, what your customers are willing to pay? And secondly, how much you need to charge to make your business profitable.
So now we have an idea of what we want to charge, we now need to look at how we will add value through our products and services, in the most efficient manner so we take as much of that money we charge for ourselves, obviously allowing putting some money back into the business to create a cash reserve.
Time is the next consideration, very importantly, how much does your time and that of your staff cost? Actually work out how much that time is worth in terms of a cash value. Work out how much travel you are doing, (or if just starting out, how much you think you will be doing), to service your business?
A good business model will be one where your business has scalability built in, this simply means that the business CAN grow, beyond simply yours and your staff’s available time, so you are not at a ceiling point and you can grow, (if that is what you want).
Even if you run a business and decide you are happy with it being small and keeping it that way, you will almost certainly want to have comfort in the use of your time, so that you are not running around with no time left and not enough reward.
The next area is buying. What are you spending money on and how much are you paying relative to how much you are making? A good business model will be one where you have aggressively (in the nicest way) sought the best prices so you can make a good profit, allowing for delivery charges etc. Look at this area and make sure it works, that is modelling, simulating the scenarios so you can see it all working.
The last area I will ask you to consider, is what you are personally taking out of the business? Many business owners are taking a little too much from their businesses and that can extend to the salaries and benefits extended to their staff. I am all in favour of having a highly dedicated workforce, and this should rightly be rewarded, but control is so important here as getting it wrong can be difficult to reverse once it is allowed to get out of control.
Your business model MUST be able to sustain the money you are taking out of the business, as mentioned, the idea should be that the business grows a surplus of cash, so that you are well placed for any opportunities that may require funding, or for overcoming any short term adversity.