Sunday, April 19, 2009

SMEs - step 2 in the business planning process

The second step in preparing a business plan for an SME is the business model.

The business plan requires you to define what you intend to sell to whom, and how you intend to do so, with the intention of making a profit. This sounds simple but can be complex in a business with many divisions or products.

Take the example of a computer store. Is the core profit of the business achieved through selling the product or through servicing the product and the client once the warranty has ended? It is important to know this, so that appropriate pricing and marketing strategies are defined and applied in advance.

The business will fail if both sales and service both discount their prices in the mistaken belief that the other is making the business' profit. So the model is an important component in assessing the future viability of the business.

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