**Small Business Model Series Entry #6 – Number Crunching Time**

While I wait on family and friends to send me information on the location of ATM’s, I decided it is time to do some preliminary number crunching. My initial introduction to this illustrated a very good return. I’m really interested in determining if I can make some real money or will this be nothing more than an exercise in frustration.

To do this I have to make some reasonable assumptions. First off the national average of transaction activity is 6 per day per machine. The average withdrawal is $60 but I’m going to use $80. For the sake of the fee issue, I decided that I would use a number slightly less than some transaction fees I have read on the internet. Most that I read about are $3 to $4 for a transaction; therefore I have decided to use $2.50.

The first step is to calculate the initial cash out for a machine to have it ready to go. Next, let’s run some daily activity calculations and then monthly calculations. From this, we’ll deduct normal expenses and then determine the final margin. From this margin I’ll subtract some costs associated with my capital investment, that is, the amount of money I’m currently earning for the cash in the bank.

**Step One – Initial Capital Costs to Get a Machine Ready**

Based on research, it will cost around $2,310 for a new basic model ATM. It will also cost around $327 to ship it to my house. I have to buy some software to use with the machine which is a further $492 (additional licenses for the same software runs around $208 per machine).

Some soft costs with installing the machine include installation costs, the bolts and accessories will run around $67. Add in printer ink and paper for the receipt side of the equation of $37 and you end up with total machine costs on the first day of $3,233.

Now I have to set up a phone line, the monthly cost is $29.14 total all inclusive. The initial connection fee is $45 plus phone wires of $18.91. To connect my machine to the outside world will run another $63.91 (not including the monthly phone line cost).

Since this is a new site, I figure I’ll load the machine with $5,000 of cash. I can monitor the activity from night to night and if I need to, I’ll load more later. My total investment to have the machine ready on Day One is:

Cost of Machine $3,233

Phone Connection 64

Initial Cash 5,000

Initial Start Costs $8,297

I have forty thousand in my bank account. This means I could realistically start out with four sites and still have over $6,000 to reload machines. Since I believe that these machines will start out poorly and take time, I will start to get back my cash fast enough to have plenty of cash to reload on demand.

**Step Two – Daily/Monthly Transaction Activity**

For this exercise I am going to use a transaction fee of $2.50 and an $80 withdrawal from my machine. Each site will have 5 transactions per day on average. My understanding is that Fridays are the best day of the week because most folks are paid on Friday.

Thus, the formula looks like this:

4 Machines times 5 transactions times $2.50 equals $50.00 per day

4 sites * 5 transfers * 2.50 = $50.00

Weekly: 7 Days * $50/Day = $350.00 per week

Monthly: 30 Days * $50/Day = $1,500 per month

If a machine dispenses $80 per transaction and has 5 transactions per day, it will dispense $400 per day. Since there is $5,000 in the machine, it will take 12.5 days to dispense all the money. A weekly refill is adequate to meet the goal of not allowing the machine to run out of money.

Each machine will make me ($1,500 divided by four) = $375.00 on 150 transactions per machine per month.

I have no clue if this is good or bad. Let’s do some more math.

**Step Three – Monthly Costs**

From above, each machine will generate $375. From this I will have to deduct commission fees to the site owner, which is $1.00 each. I will also have to deduct the communication fee of $29.14 (see above phone itemization). I’m assuming paper and ink is insignificant. How much does the machine make for me:

Earnings: $375.00

Commission (150.00) $1 per transaction * 5 per Day * 30 Days

Communications (29.14)

Gross Margin/ATM $195.86

Since I’ll be filling the machine each week, I figure about 20 minutes of driving and loading time per machine per week. Each machine will take about 1.5 hours (I’m being conservative here) per month. Mileage costs at around 15 miles per week per machine at the current rate of 56.5 cents per mile equals $36 per machine per month.

I have $159.86 per machine per month to cover my costs of capital and my labor time of 1.5 hours.

**Step Four – Return of Capital & Time Compensation**

The machine will easily get by on $5,000 because I’m changing out the cash each week. The cash should easily go for a week without any issue based on the above. If it goes faster, I’m making more money! What is the cost of my capital for $5,000 per month? I am currently receiving about 2.7% return on my money per year base on various investment options. Thus, 2.7% equals $11.25 per month per machine. Since I value my time at $70 per hour, and I’m taking 1.5 hours per machine per month, I should pay myself $105.00 per month per machine. I net:

Gross Margin from the ATM $159.86

My labor fee (105.00)

Cost of Capital (11.25)

Actual Net Profit per Machine $43.61

Hey not bad! This looks good. I calculated based on 4 transactions per day and I end up losing $1.39. Try to figure this on your own using the above formula, don’t forget the commission is now calculated on 120 transactions (4/day * 30). My breakeven point is somewhere between 4 and 5 transactions per day.

I decided to have a little fun and see what would happen if I averaged eight transactions per day (I’m dreaming). I end up netting $178.61 per machine. This is after all the commission, communication, transportation, and my labor costs. So there is obviously a value to have a high transaction spot for an ATM. I charted this out as follows:

** # of Transactions/Day** **Net Per Month**

4 ($1.39)

5 43.61

6 88.61

7 133.61

8 178.61

One transaction per day equates to an additional $45.00 per month on an ATM. This makes sense because each transaction generates $2.50 less the $1.00 for the commission or $1.50 per transaction. One a day equals 30 per month or $45.00 value increase.

This looks like a good business to get into after all. This reinvigorates me to get going on this because this is the value per machine. I have paid myself for my time and I make some money per month per machine. I want to set an ATM tomorrow to get going. But I need to get my information gathered on the locations. I need to chart this. No sense in having a machine sit somewhere and have a low transaction activity.

**Entry #6 – Number Crunching Time Invested Time: 3.50 Hrs. Cumulative Time: 28.25 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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