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Establishing your business modelWhen dealing in property it can be very difficult to compare an opportunity in one type and place with another in a completely different one. In many ways its like trying to compare how ripe a pear is along side an orange and deciding which you should use up first. The solution to this is to establish a model, where everything is brought back to comparable values. You will within this web site and particularly within the section on the Holiday Property Club see this being widely used. (HPC section temporarily taken out for updating). A model allows you to determine the formulas that you will use, how funding will be achieved and how the payments on mortgages and in other ways will be covered. The primary model can be in standard housing units of a set size, and value, there is no need to personalize the formula at this point. We use a 100,000 as a housing unit, partly because its about the value we are looking at in many cases and partly because its a nice easy figure to do calculations on and you get to see what is happening in your model very quickly. Once you have a model that works you can scale every opportunity according to it, and by this means see how the costs and returns work in each case compared to the model. You are also now able to compare one opportunity with another, as you are comparing like with like, even if the values and figures are different. Over time your models can become more complex, you can develop worst case and expected situation models, and explore how different actions can improve the profitability under many situations. Models can reflect both an individual case and the overall business you have developed. In some cases you will discover that as an individual model an individual opportunity may be better, but when put into your business model another may have a more drastic impact, often this is due to time scale and the effect on gearing by adding in time delays. Another set of essential models is the budget and cash flow, projected over time. You need to know what capital you are likely to have at any point and understand how every eventuality can impact upon this. In addition it is worth always maintaining a risk model, in this version of your business you explore what could happen and how any eventuality would impact on you. Understanding and minimizing risk is as valid a part of management as creating profit or growth. Modelling is not an art form that everyone takes to immediately, and many who avoid it would tend to use the argument that you cannot see the future and any model makes assumptions. However within a model you can see many of the problems and possible outcomes and therefore gain insight similar to hindsight, so that whatever happens it does not derail your project. By a better understanding, you may be able to see which opportunities it is wise to take and which, however good they first appear, might be better allowed to pass you by. A model however cannot make a poor project a good one, but it may allow you to still be in business after it. Most businesses that fail do not do so because of a single mistake or eventuality, but a number that come together, many of these can be caused by situations or people and be completely outside their own control.. Often every one of these could have been dealt with individually. Knowing what can happen and having explored the options before starting, allows you to be prepared, spot approaching problems faster and know how to react, without creating another. The chance of survival is therefore far greater, if a series of problems happen. If you are not confident in handling this aspect, then you should look at bringing in a partner who can, or using the clubs franchise service. Franchises in all forms of business have a far higher success rate as experience in one is used in each branch, and the operation is run to a tight business model. On the quick tour - select here to see the next great idea. |
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