Updated: January 25, 2019
Today, we answer a question from our Reader Mail. In this edition, we’ll talk about how to do a simple computation of the business ROI. Then how to manage and grow a retail business.
Specifically featured are two emails I received from a couple of enterprising individuals. The first one is set to start a gasoline station business while the second one wants to grow their sari-sari store business.
Let’s now read their letters and I hope you can learn some business tips from my replies. Some details have been edited for privacy, clarity, and brevity.
Gasoline Station Business ROI
From Mr. A:
Hi. I am putting up a gas station and this is the first time that I will be dealing with a more “structured” business venture. more structured in the sense that I have other investors which are family members as well.
I have been running a transportation business but in an informal kind of way. This time around I have to make the forecasting, ROI and the like.
Hence, I would like to seek your expertise on how to do about this. I am making a business plan and I hope you can provide me with a template and a sample ROI computation. Many thanks and more power!
Hi. Are you franchising the gas station? If so, I’m sure your gasoline supplier or franchiser can help you with details on how to manage the business, especially the data that you need to monitor and analyze.
However, when it comes to ROI computation, it’s always good to start with a simple and general approach.
First, list the start-up costs and the expected monthly (overhead) expenses. Be as detailed as you can. Consider the licensing and business permit registration fees. Also, include the leasehold improvements and others for the start-up costs. And factor in the depreciation cost and a modest miscellaneous costs for the monthly expenses.
Second, do a survey of your planned location. Determine how many customers you can conservatively get in a day. This will give you an idea of your gross daily sales and the net daily income (profit)
So as an example, let’s say that your start-up will be 2 Million and the projected monthly expenses will total P500,000. Then we have these rough estimates with regards to your sales and income:
- Estimated gross daily sales: P100,000
- Estimated net daily income (assuming you earn P20 for every P100 of gas): P20,000
- Estimated net monthly income: P100,000 (20,000 x 30 days less monthly expenses of 500,000)
What you do now is simply to divide your start-up capital with your estimated monthly net income to get your projected ROI. So in our example, that will be 2 Million divided by P100,000 which equals to 20 months.
In my opinion, less than 2 years ROI is good for a long-term business.
As for the template, I suggest that you search the internet for that as there are a lot of them online which you can use. However, there is really no required template you must follow when doing these. As long as it’s detailed and easy to understand, then you’ll do just fine.
Lastly, it may also help to read this: How To Write a Business Plan.
Sari-Sari Store Business
From Mrs. B:
Hi. By luck, I happen to chance by your site and it made me truly inspired to take stock of the sari sari store business that my mom has asked me to manage.
It’s been with our family since 1982 and has managed to survive and support our needs since then but in my opinion, there hasn’t been any growth in the business. It’s basically the same store since 1982.
I have no background in management but am very eager to learn. This would be a great challenge since I am also employed at the moment.
Please share your tips on financial management of a sari sari store. I need to know what to do like inventory, how to plot expenses versus profit and those kind of stuffs. Thank you.
Hi. In my opinion, if the sari-sari store survived that long, then it must be doing something right. So the very first thing I’d advise is to ask your parents how they managed the business.
From experience (we also had a sari-sari store several years ago), I learned that the most important thing that a sari-sari store owner should remember is to never get anything from the inventory for personal use.
I know it’s so easy to just grab a bottle of soft-drink once in awhile when you’re feeling thirsty. If ever you need to, be sure to pay for it.
And with that said, let’s move on to how you can grow the business.
I don’t really know how big your sari-sari store is and the space you have, but I believe that the next step for growth would be to make it into a mini-grocery.
A grocery store is strict with its inventory. This means everything should be accounted for. All brands and sizes of all the products you carry.
So as not to disrupt your current operations, you can just start your inventory count in your next purchases. Using an inventory program or just a simple computer spreadsheet like Excel.
List down everything you buy. This means noting the stockgroup, the item, the size, the brand, the buying price, the supplier, the quantity bought, date of purchase, and selling price
Canned goods | Corned beef | 200gms | Purefoods | P50 | SM Supermarket | 5 cans | Dec 1 | P60
Furthermore, you should also have an itemized list of everything that is being bought in your sari-sari store on a daily basis. A point-of-sales program can help in this case but again, doing it in Excel is also good.
Do this for a couple of months and you’ll eventually have an idea how much the sari-sari store is really earning (net income).
But more importantly, you’ll discover which items are fast moving and which ones take time to sell. With these information, you can really do a lot to analyze which products you should invest in. Stock on the sellable items and hold off with the non-moving products.
Meanwhile, as for the profit analysis, all you really have to do is to sum up the net income of your daily sales. Since you’re listing down all the items being bought and you know how much you bought them, then you’ll know the net profit for the item.
In our example above let’s say:
Corned beef | 200gms | Purefoods | December | 4 cans sold | P40 net income
Let’s say in a month, your total net income is P20,000. Then just subtract from it the store’s monthly expenses, which are the salary of staff, electric bill, rent, etc. And you’ll get how much your profit in a month really is.
Knowing this figure can help you determine if the sari-sari store has potential to become a mini-grocery. And further plan the direction of the business.
Lastly, while you’re doing this, it would also help if you can do a survey of nearby sari-sari stores so you can monitor the prices of the competition and you can adjust yours accordingly.
I hope these advise can help you get started on the right direction towards growing your family sari-sari store.
That ends our Reader Mail for today. I hope you were able to pick up a few pointers from it.
Please remember that my answers are solely based on my business knowledge and personal experiences. And that’s why I welcome any correction, suggestion and additional information from my readers.
So if you have one, please don’t hesitate to share them below as a comment. Thanks!