January 27, 2006

Business Model Concept

The Business Model is a way of doing business that more and more businesses will have to work towards in an era that calls for entrepreneurs and business managers to operate differently.

The Business Model concept involves the creation of a financial model which allows the managers of businesses or the entrepreneurs themselves to focus on the core functions of their businesses. {{more}}This ensures that the income stream from the core product or service is sufficient to cover all of the business expenses and provide a return to the investor. Any additional income stream would be considered as enhancements or enrichments. In other words, a business model is a method of doing business by which an enterprise ensures that it can sustain itself by generating revenue.

Business modeling is a strategic concept, where all of the functional areas of the business and the associated costs are aimed at the accomplishment of the business mission. Having a business model helps the business to realise the following benefits:-

1. greatly improved business focus;

2. reduces misunderstanding as everyone has the same road map or plan;

3. enhances the professional perception of your business;

4. fosters a team oriented environment;

5. enhances employee morale;

6. helps attract and retain the best people.

Your business model will address the following areas:

a) Definition of the business mission and the immediate ,short and long -term goals and objectives of the business;

b) Strategy for rationalizing the range of products offered, the inclusion of more lucrative products and services where feasible, and the resulting revenue;

c) Marketing strategy;

d) Management strategy;

e) Operational strategy and

f) Financial strategy which summarises the related revenues and cost of the functional areas.

This model when applied to an existing business will provide Managers with the opportunity to take an in-depth look at business activities. There are several factors that must be taken into consideration when setting up a business model. If these factors are thoroughly investigated then the more likely it is for the resulting business model to succeed. They include:

* The core goods or service(s) and the sales mix

* The current price for the goods and services

* The direct costs associated with these product(s)

* The indirect costs of the operation which must include details of the production overheads (if any) and Administrative Overheads

* The level of operation at which the total cost could be covered to yield a return

* The manner in which the different variables of the business would respond to any unfavorable change(s)

For more information on how to develop a business model please contact us at the Centre for Enterprise Development Inc.

– Submitted by the Centre for Enterprise Development Inc., First Floor Methodist Building, Granby Street, P.O. Box 2343, Kingstown, St. Vincent. CED is a non-profit company that provides business development services to the local private sectorn