People's News

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Newsagent - Newsstand Business Plan

Financial Plan

The business is financed primarily through internal resources: personal credit card debt, personal savings, and family loans. Expansion to additional locations will be less costly than the establishment of the business and the first location. This will allow the business to grow based on its own cash flows from operations after the first year.

Start-up Funding

Funding for People's News is primarily expected to come from the Kao family. Hui Kao, the primary owner, will use his savings and credit cards. Zhi Kao, his eldest son will contribute a lesser amount from his savings. An additional amount will be loaned to the business, interest-free for two years, from one to three relatives of Hui Kao (family who immigrated to the country earlier and are nearing retirement age). Some initial bills will be accounts payable paid within 30 days.

Start-up Funding
Start-up Expenses to Fund $3,700
Start-up Assets to Fund $12,900
Total Funding Required $16,600
Assets
Non-cash Assets from Start-up $2,900
Cash Requirements from Start-up $10,000
Additional Cash Raised $0
Cash Balance on Starting Date $10,000
Total Assets $12,900
Liabilities and Capital
Liabilities
Current Borrowing $4,000
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $1,000
Other Current Liabilities (interest-free) $5,000
Total Liabilities $10,000
Capital
Planned Investment
Hui Kao $5,000
Zhi Kao $1,600
Additional Investment Requirement $0
Total Planned Investment $6,600
Loss at Start-up (Start-up Expenses) ($3,700)
Total Capital $2,900
Total Capital and Liabilities $12,900
Total Funding $16,600

Important Assumptions

This table illustrates the basic general assumptions behind the business, including the scheduled growth in locations.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 15.00% 15.00% 15.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 0.00% 30.00% 30.00%
Number of Locations 1 2 3

Break-even Analysis

The estimated break-even point per month in the first year is shown in the following table. This is due to a high variable cost from this relatively low margin business.

Break-even Analysis
Monthly Units Break-even 10,683
Monthly Revenue Break-even $14,099
Assumptions:
Average Per-Unit Revenue $1.32
Average Per-Unit Variable Cost $0.92
Estimated Monthly Fixed Cost $4,273

Projected Profit and Loss

Gross margins will grow in the second year as better prices can be negotiated from suppliers due to the higher volume of sales from two stores.

Some expenses will double with the addition of a new store (payroll as the store must be covered with at least one clerk at all times, depreciation as the depreciable assets purchased for the second store will be the same as the first, rent as the store is expected to be an additional $500 per month, and utilities as each store will require electricity). However, insurance will not double, but is expected to increase by 50%. Renewals of permits and licenses will be made in the second year for the first store and in the third year for the first two stores. New store start-up expenses are one-time expenses applicable to each new store, and are lower than the start-up expenses for the first store and business. These include one month rent at $500, $500 in renovations, and $1,000 in additional permits.

After a small net loss in the first year, the business will become profitable in the second. Net profit will rise in the third, but the addition of salary for the owner's work as Administrative Manager will reduce the percentage of net profit/sales. This reflects an expense that the owner could use to hire a part-time Administrative Manager if desired.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $163,638 $455,182 $705,532
Direct Cost of Sales $114,041 $282,729 $438,230
Other Costs of Sales $0 $0 $0
Total Cost of Sales $114,041 $282,729 $438,230
Gross Margin $49,598 $172,453 $267,302
Gross Margin % 30.31% 37.89% 37.89%
Expenses
Payroll $36,000 $82,800 $137,926
Marketing/Promotion $0 $0 $0
Depreciation $280 $560 $840
Rent $6,000 $12,000 $18,000
Utilities $1,200 $2,400 $3,600
Renewal Permits and Licenses $0 $1,000 $2,000
Insurance $2,400 $3,600 $4,500
Payroll Taxes $5,400 $12,420 $20,689
New Store Startup Expenses $0 $2,000 $2,000
Total Operating Expenses $51,280 $116,780 $189,555
Profit Before Interest and Taxes ($1,682) $55,673 $77,747
EBITDA ($1,402) $56,233 $78,587
Interest Expense $563 $195 $15
Taxes Incurred $0 $16,643 $23,320
Net Profit ($2,245) $38,835 $54,412
Net Profit/Sales -1.37% 8.53% 7.71%

Projected Cash Flow

The business will not achieve consistent positive cash flow until the opening of a second store in year two. The experience of the first kiosk will allow for the second to launch with higher sales and many expenses will be shared between the two locations.

Dividends will be taken out in years two and three to further compensate the owners, leaving a cash balance in the company.

With the expansion to a second and third kiosk location, the business will need to pay for additional security deposits ($500 per lease) and other long-term assets for the new business ($1,400 per location).

The credit card borrowing and interest-free borrowing from relatives will be paid off within the first two years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $163,638 $455,182 $705,532
Subtotal Cash from Operations $163,638 $455,182 $705,532
Additional Cash Received
Sales Tax, VAT, HST/GST Received $14,523 $40,397 $62,616
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $178,161 $495,579 $768,147
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $36,000 $82,800 $137,926
Bill Payments $129,264 $347,912 $505,052
Subtotal Spent on Operations $165,264 $430,712 $642,978
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $14,523 $40,397 $62,616
Principal Repayment of Current Borrowing $1,500 $2,400 $0
Other Liabilities Principal Repayment $2,000 $3,000 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $500 $500
Purchase Long-term Assets $0 $1,400 $1,400
Dividends $0 $7,000 $60,000
Subtotal Cash Spent $183,287 $485,409 $767,494
Net Cash Flow ($5,125) $10,170 $653
Cash Balance $4,875 $15,045 $15,698

Projected Balance Sheet

Inventory and cash are the primary assets of the business, as there are no accounts receivable from customers. The small locations require a low level of long-term assets in the business as well.

People's News is launched with the purpose of providing income for the Kao family. For that reason, the goal is not to build the net worth of the business significantly. Dividends are taken out, lowering the cash balance and retained earnings in the business. If the business shuts down, it will cut down on purchases of new inventory to let its current inventory run down, or sell the kiosks with their inventory to a new business owner leased to by the landlord.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $4,875 $15,045 $15,698
Inventory $6,416 $29,206 $28,302
Other Current Assets $500 $1,000 $1,500
Total Current Assets $11,791 $45,251 $45,500
Long-term Assets
Long-term Assets $1,400 $2,800 $4,200
Accumulated Depreciation $280 $840 $1,680
Total Long-term Assets $1,120 $1,960 $2,520
Total Assets $12,911 $47,211 $48,021
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,756 $14,621 $21,018
Current Borrowing $2,500 $100 $100
Other Current Liabilities $3,000 $0 $0
Subtotal Current Liabilities $12,256 $14,721 $21,118
Long-term Liabilities $0 $0 $0
Total Liabilities $12,256 $14,721 $21,118
Paid-in Capital $6,600 $6,600 $6,600
Retained Earnings ($3,700) ($12,945) ($34,110)
Earnings ($2,245) $38,835 $54,412
Total Capital $655 $32,490 $26,902
Total Liabilities and Capital $12,911 $47,211 $48,021
Net Worth $655 $32,490 $26,902

Business Ratios

The business will compare well to its industry category (News Dealers and Newsstands; SIC code 5994 NAICS code 451212, with revenue of $500,000 to $999,999). Accounts receivable are almost non-existent in the business as this is generally a cash-only business. Inventory is a large portion of current assets. Long-term assets is a smaller portion than the industry average as subway kiosks are less capital-intensive than free-standing locations. Gross margins are slightly higher than the industry average as it includes some larger chains which can command lower prices from suppliers.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 178.16% 55.00% 0.44%
Percent of Total Assets
Inventory 49.70% 61.86% 58.94% 58.22%
Other Current Assets 3.87% 2.12% 3.12% 23.28%
Total Current Assets 91.32% 95.85% 94.75% 84.38%
Long-term Assets 8.68% 4.15% 5.25% 15.62%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 94.93% 31.18% 43.98% 43.34%
Long-term Liabilities 0.00% 0.00% 0.00% 51.42%
Total Liabilities 94.93% 31.18% 43.98% 94.76%
Net Worth 5.07% 68.82% 56.02% 5.24%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 30.31% 37.89% 37.89% 42.07%
Selling, General & Administrative Expenses 31.68% 29.35% 30.17% 16.64%
Advertising Expenses 0.00% 0.00% 0.00% 1.85%
Profit Before Interest and Taxes -1.03% 12.23% 11.02% 2.21%
Main Ratios
Current 0.96 3.07 2.15 1.80
Quick 0.44 1.09 0.81 0.45
Total Debt to Total Assets 94.93% 31.18% 43.98% 94.76%
Pre-tax Return on Net Worth -342.64% 170.76% 288.94% 113.35%
Pre-tax Return on Assets -17.39% 117.51% 161.87% 5.94%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -1.37% 8.53% 7.71% n.a
Return on Equity -342.64% 119.53% 202.26% n.a
Activity Ratios
Inventory Turnover 24.00 15.87 15.24 n.a
Accounts Payable Turnover 19.99 24.33 24.33 n.a
Payment Days 13 11 13 n.a
Total Asset Turnover 12.67 9.64 14.69 n.a
Debt Ratios
Debt to Net Worth 18.71 0.45 0.79 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital ($465) $30,530 $24,382 n.a
Interest Coverage -2.99 285.50 5,183.14 n.a
Additional Ratios
Assets to Sales 0.08 0.10 0.07 n.a
Current Debt/Total Assets 95% 31% 44% n.a
Acid Test 0.44 1.09 0.81 n.a
Sales/Net Worth 249.77 14.01 26.23 n.a
Dividend Payout 0.00 0.18 1.10 n.a