Testing your business model to make sure it will work is the next step after you have researched the market, gathered information and identified the niche opportunity for your products.
How do you go about this?
You will need to get your concept down on paper or into a model and test it. This is a process that can mean hours and hours of spreadsheets, pain and pressure, and involve assistance from your accountants and many other things to get it right.
There is an easier way.
You can use a business tool that takes you through the process.
We use CashMAX Forecaster™ (www.cashmaxforecaster.com) when we want to evaluate a business model to look at Cash, Profit (& Loss) and your Balance Sheet timing (a three way forecast) to see how everything fits together. It takes into consideration GST and other related tax and legal requirements.
Testing your business model is testing the process of what you are selling and how you are going to sell it.
Forget about the ACTUAL numbers just for the moment. The numbers are simply the end result of the plan.
Just for now, we won’t consider the actual dollar value of the product / services that you need to sell (eg $10,000), instead we will start thinking about the dynamics that make up the dollar figure.
In your business model, the dynamics of the numbers are what tells you that you need to sell x amount at y dollars with a margin of z%.
For instance this allows you to say if I want to sell x amount in Month 4, what actions will I need to take in Months 1, 2, and 3 to make that happen?
And what are each of those sales/ marketing / and other activities going to cost me?
What we are starting to build is not just a financial model to see if the numbers work, but also a picture of all the steps that will be required to make it work, and what each of those steps will require both in cost and activity.
Activities are what drives business. Your task is to assess the balance between the cost of the upfront activities and the returns on the results these activities generate.
This allows you to decide what you need to do, and what can you afford to do upfront, to drive results and build business. Once you have worked this out, you will be able to determine if your business model is viable.
Remember that at this stage everything is based on assumptions. The assumptions you make will drive the model so be realistic on all assumptions that you put in place.