Newsagent - Newsstand Business 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.

Important Assumptions

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

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.

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.

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.

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.

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.