Page 105 - Business Plans that Work A Guide for Small Business

96 • Business Plans that Work

scale in marketing would increase the ramping up of historical revenue
p atterns.
We can use the buildup method to validate the Lazybones projec-
tions. Historically, they achieve location sales of approximately $200,000
in year one and $370,000 in year two. While there is widely different
scale impact, our experience has been that a franchise will break even
in 18 months and achieve 15–20 percent faster revenue increases than
5
a stand-alone operation. College Hunks Hauling Junk is an interesting
comparable. It is a relatively young, service franchise that has grown to
30 franchise locations and growing within its first five years. The compan y
employs college students and recent grads in its junk hauling/recycling
o perations. It appears that College Hunks does about $40,000 in sales per
employee. We then compared this to Lazybones projections for a typical
store and find that Lazybones is projecting revenue of $56,000 per em-
ployee in year five. Thus the Lazybones projections seem reasonable.

Sales per Store Employees Sales/Employee
Lazybones Yr 1 $200,000 5 $40,000
Lazybones Yr 2 $370,000 7 $52,857
Lazybones Yr 5 $730,000 13 $38,666
College Hunks $2.9 75 $38,666
6
The one thing we know for certain is that these forecasts will never be
100 percent accurate, but the question is the degree of error. Detailed in-
vestigation of comparable companies reduces that error. Triangulating the
comparable results with the buildup results reduces that error further. The
smaller the error, the less likely the company will run out of cash. Also,
rigorous estimates build an intimate understanding of the forces that will
affect revenue and credibility with your investors. We should point out
that, although Lazybones projections seem optimistic, this is pretty com-
mon. Entrepreneurs always believe things will happen more quickly and
with less cost than is typically the case. We would expect that in future
iterations of the plan, Lazybones will develop stronger projections based
upon investor, franchisee, and operating experience feedback. Nonethe-
less, going through the preceding exercises gives you the ammunition to
convince investors and others that your projections are reasonable.

5 www.1800junkusa11.reachlocal.com/.
6 College Hunks sales are overall sales, not per store. Considering that College Hunks is still
young and doesn’t have many units, we expect that most of the employees are providing the
service, rather than corporate overhead. Data pulled from InfoTrac Company Profiles.