Why you should understand and review your business model

One of the most important things small business owners can do is get their business model right.

Often, very little or no attention is paid to this and this could be for two reasons. Firstly, people don't understand the importance of a business model, and secondly, if they do they don't often discuss it with their accountant.

In fact, this is the secret of success and some hints are given in the world-famous book the E-Myth by Michael Gerber.

This is something that is not done in schools or universities, but there are, however, books written on this subject and some very good ones.

A business model must incorporate three areas being marketing, operations and financials.

The model must be robust – it must work well into the future and therefore the model needs to be adapted or the concept be so good that it doesn't matter what change comes along.

Let's start with the area of marketing a lot of small business don't know how to get new clients and are a bit lost when it comes to marketing. Of course, there are options shown about everywhere people wanting to do your marketing, but often the cost of marketing far outweighs the new business brought in. It's important that your marketing is low-cost and effective. Marketing has changed so much over the last 10 years with the rise of social media and websites making the old marketing rules such as advertising in telephone books and some extent newspapers redundant.

It's important you decide how you intend to market and how you intend to measure to keep the costs down. If you get this right your business will most probably be successful. An important part of marketing is location and signage, as well is networking these maybe old-fashioned, but they work just as well today.

You really need someone who understands marketing to assist you with social media and websites. Getting the right people who do understand this is not easy, but they do exist, and this is an area that we have done very well at.

Operations is another key area. How efficient you are affects the quality and price of your goods and services and this will have a big bearing on the end result.

Having the right people policies and procedures, following them up and measuring are all critical in this stage. As well, having to comply with government legislation often means in time spent in those areas.

Financials is a means that you can measure how you're going and how the business is performing, whether your sales price is too low or your costs to high, or whether the volume is sufficient to cover your break-even costs.

It's important from a government point of view that you do BAS and tax returns on time. This should also be a springboard for you looking at your operation and deciding what is best to do. This should be a time when you sit down with an accountant and plan for the next 12 months and review your business. Your accountant can give you valuable business advice and remember accountants’ advice is worth 15% of your net profit.

Your competitors may have a business model, so it is important you do too by. By understanding the model and regularly reviewing its components you can make your business much stronger, and employees will have a clear vision about where you are going and have a clear vision themselves of your business model.

Remember to review your business model regularly.

Call into your local TaxAssist Accountants shop today for more information on how we can help.

Date published 13 Mar 2018

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.