Small Business Model Series Entry #3 – Automated Teller Machines
I started out on this identification process by first listing my personal characteristics and then environmental ones associated with where I live. I was able to generate a list of 10 industries that had promise for me to start a business. Next I reduced those 10 down to four distinct possibilities. They are as follows:
- Construction – tile work or cabinet installer
- ATM machines
- Janitorial Service
Now it is time to do some research and figure out what would be best.
My first concern was making enough money given the labor input against the time invested. In my first entry, I stipulated that in the long run I wanted to make at least $70 an hour for the services I rendered. Looking at the four possibilities above, I immediately became concerned with janitorial services. After all, is the market really going to pay out $100 an hour for an independent cleaning service? You would need that much revenue to cover equipment costs, insurance, transportation, business license and general administration costs to net $70 hour.
Janitorial Service
I decided to spend a half hour on the internet and look at a few franchise type organizations. I looked at Coverall in detail and couldn’t really find another with a lot of information. I did some asking around at work and one of my wife’s friends cleans offices. How much do folks charge a square foot? I’m finding out it is 10 cents to 25 cents a square foot per month depending on the nature of the business. If it’s a medical office, the charge is slightly more due to the nature of customized services, large open area stores or facilities, you charge a little less. Also, it depends on the nature of the services such as cleaning the kitchen and the dishes, level of trash services and the overall frequency of service. At 25 cents a square foot, for service twice a week, a typical 3000 square foot office will earn me around $750 per month. I’ll have to spend at least 4 hours per week if not 5 hours, so for the sake of using the best option, I’ll go with 4 hours a week to include travel time etc. This means I’ll have to spend right around 17 hours per month to earn $750. From this $750 I’ll have to deduct cleaning supplies and equipment costs. In my mind I’ll net around $675 per month for 17 hours of work. That equates to $40 an hour. I’m using the maximum revenue and the least number of hours just to determine if it is worth more research and the answer is no. Earning $40 an hour is nowhere near the desired return of $70 an hour. It isn’t even close. My thoughts on the competitive nature and the overall requirements, tells me that this is not a good choice. No need to spend any more time on this one.
Cabinet Installer or Tile Work
Next, I decided to look at the construction items together. One of the guys at work has a brother that is a new home contractor. He agreed to meet me at a job site to discuss these two particular types of businesses.
I met him out there yesterday evening and we talked for a while. The first thing he told me was that I should drop the idea of being a cabinet installer. Although they are paid well, it takes about five years of full time on the job experience to really get involved in the higher paying cabinet type work. He said he just can’t let anyone install an $18,000 set of custom made cabinets. Most cabinets are installed by the cabinet maker because of the risk of damage involved. The cabinet maker took the measurements and did the layout, discussions with the homeowner etc. just to get them there. He wants his own guy to install them. They can’t leave the cabinets around for a couple of days waiting on you to install them at night. They get damaged by the painters, sheet rock guys, the flooring guys etc. Well, that knocks me out for that job. He told me I could do the lower end high volume apartments and small homes, but the contractors there do not pay very well. You’ll be lucky to make $30 an hour.
What about tile work? He said that is a good possibility. It is a multi step process requiring attendance over several days or in my case nights. Tooling is around $15,000. The drawback is the skill time required to do the higher end stuff. Typically, most tile guys work for somebody for about 2 years like an apprentice program before breaking out on their own. Often it is hard to find a general contractor that will take you on unless we are in a huge residential construction surge. Right now, the industry just took a plunge and there are a lot of guys out of work. Residential construction has slowed to about 1/3 of when it peaked back in the early 2000’s.
This looks like a good option, but the supply of houses is low. Therefore, too much competition reduces the ability to make good money. I need something that has little to no competition and has a limited interest for new start-ups.
Automated Teller Machines
Well the first two distinct possibilities didn’t pan out as I had hoped. I wonder how this will work.
I always thought the Automated Teller Machines (ATM’s) were owned by banks. Well, banks do own their own ATM’s but they don’t own the ones at the local supermarket or gas station. These are privately owned. The machine owner negotiates with the owner of the business to place a machine onsite. It turns out the machine owner puts his cash inside and charges a fee to the customer to withdraw funds. A typical customer is charged about $3.00 for a transaction. Interesting, I don’t have to be there when the customer withdraws money. A machine can hold up to $20,000 in twenty dollar bills (1,000 units). The customer is allowed to withdraw up to $300 for the $3.00 fee. Assuming every customer withdrew exactly $300 per transaction there would be 66 transactions at $3.00 each. I would earn around $200 for the machine use. Interesting, how much does this cost me?
After much reading I learned that the ATM owner negotiates with the site management to place a machine at his site. A typical agreement is 1/3 to the site and 2/3 to the ATM owner. This means that I will net around $133 for a full turnover of money. The site pays for the electricity and I pay for the machine to communicate with outside world via a telephone connection.
You need communication with the outside banking industry to confirm that the customer has the $300 in his bank account to withdraw funds. At the moment the customer withdraws the money from your machine, the bank withdraws money from his account and sets it aside to pay you. You get reimbursed in about 48 hours from his bank to your account. This meets my requirement for liquidity, other than the cost of a machine; inventory is in the form of cash or at worse, cash that will be collected in a couple of days. I like this.
I earn $133 for a full turnover of cash, how long does it take to refill the machine? With more reading, I found out that it typically takes about 4 minutes to do the physical refill of the machine. It turns out to be a 5 step process:
- Open the machine (double entry door system)
- Pull out the box holding the cash and open
- Reload with cash
- Reinsert the box back into the ATM and close the doors
- Set the brain of computer with the new information
The online tutorial took the guy 3 minutes.
A typical vending route might have 8 machines and you can refill all of them in two hours. The physical labor part is installing the machines; which takes about 4 hours, and then reloading from one to upwards of a few times a week depending on location. Simple math tells me that if I could net around $90 per week from a machine and load the machine once a week, I would easily surpass the $70 an hour for my labor. The laborious part will be the driving.
This looks like it is definitely worth more research. In my next entry, I’ll evaluate ATM’s.
Entry #3 – Automated Teller Machines Invested Time: 7.5 Hrs. Cumulative Time: 13.5 Hrs.
This entry is part of a series of entries exemplifying the steps an entrepreneur takes from starting a business to selling the operation. It is a step by step process addressing the multitude of business concepts every small business owner must face. This is a 6 year example from Day 1 to the day the owner receives a check for selling his business. Read this series as if it you were experiencing all of the trials, tribulations and joy of owning and operating a business.
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