Discuss about the Gas Station Financial Model.
Pattack Gas Station will be retailing gasoline; petrol, diesel and motor vehicle lubricants to ensure we offer the best to our esteemed customers. It will run a convenience store, vulcanizing services, car wash and garage for automated wheel balancing, alignment and other related automobile repair services. Employees at Pattack gas station will offer high quality services to all customers. This will be facilitated by the application of the Customer Relationship management software which will enable us to manage one on one relationship with our customers no matter how large the number may grow. Customers will also be involved while making business decisions which may affect them either directly or indirectly.
Pattack gas station facility area will sit on a space of 3000m2. The facility will be a one storey building with electric rooms. The storey building will have one office room, one hall which will host the convenience store and toilets for both male and females. The gas station will have two islands with canopies. One will have 3 petrol filling stations and another with 2 diesel filling stations. There will be two underground tanks; one will be the storage for the petrol filling tanks while one will be separated into two parts; diesel and unleaded 91 in one and the other part for unleaded 95. Pattack Gas Station will have 9 car parking lots at the filling area, 4 car parks in front of the convenience store building. The will be 2 car entrances and 1 exit which connects directly to the road network infrastructure. Green grass will surround the gas station.
Pattack gas station has designed products and services which will meet demand of our customers. The product and services offered will also maximize profits of the gas station. Pattack will retail gas in form of diesel and petrol. It will also offer automotive services such as repairs, car wash and general car maintenance. The gas station will also provide wheel alignment, wheel balancing and vulcanizing services to our esteemed customers. The convenience store at the gas station facility will sell groceries, soft drinks and snacks.
Gas stations are very prone to losses in terms of fire. Many banks and lenders are not willing to finance such start-ups since the risks involved are too major (Corn, 1996). This brings the finance constraint. The risks involved are too big that workers are not willing to risk their lives to work as pump attendants. This brings in labor constraints in the business which is very detrimental to the performance of any business.
Pattack gas station is expected to create a lot of employment opportunities for the region. The gas station has two departments which all require a subsequent number of employees. The gas station and automobile services department is expected to employ around twenty employees. Eight employees will be in-charge of the fuel pumps while the rest will be working at the garage, car wash and automobile services station. The convenient store on the other hand will employ around twelve employees. There will be four cashiers and eight shop attendants to man the store. This expects to be a total of around 32 employees in Pattack gas station.
The initial capital investment required to finance Pattack gas station startup is $3,855,647.34. This money will be raised from investing $1,400,000 of personal savings, guaranteeing a loan of $1,500,000 with personal assets. In addition, an interest free loan of $1,000,000 from family members will be obtained to be repaid within the first one year of business. The table containing the capital investment requirements is contained in the Appendix.
Sales Forecast
The sales forecast of the gas station is based on data gathered with reference to similar business in Pitt street Sidney, Australia. The position of the gas station is strategic and it will attract many clients together with our exemplary services which will help increase our income.
Below is a projection of sales for Pattack gas station based on a similar business within the location. According to the current market price fuel and the expected services to be offered, below are the estimated sales for Pattack gas station. This is in comparison to the type of products and services we will be offering.
The fuel sales are forecasted to increase as the gas station remains in operation due to increase in the number of customers. However these projections will only be realized on the assumption that there will not be another gas station within 15,000km offering similar services to our facility.
The convenience store will serve as the supermarket or the main shopping centre for the region. Its sales will increase steadily as the neighborhood gets used to the new supermarket. It will offer both consumer goods for the population around the store and snacks to sell to fueling customers. The sales projections for the next three years:
The sales forecast for the convenience store are seen to double in the third year since the store is expected to be the main shopping centre for the area.
As the gas station remains in operation, its services such as the cash wash, automobile centre and the garage will gain additional customers. The quality of services offered in these departments will cater for all the client’s needs. The sales will increase as the centre gains customers. The projected sales for the next four quarters are:
The gas station is prone to depreciation due to adverse weather conditions. Wear and tear will be repaired at an expense borne to the gas station (Costello, 2010). The gas station will be maintained by a property management company to ensure all conditions in terms of cleanliness and physical structures are in good shape.
Pattack gas station has established a financial plan which will aim at maximizing profits in the gas station together with the convenient store. The plan ensures the two sectors generate enough income from the basic fueling and auto-services products and the complimentary services. The gas station will be divided into two sectors; the gas station facility and the convenience store. The gas station financial income will be from retailing vehicle gas products, providing automotive services such as wheel balancing and alignment and the car wash. The convenience store will retail consumer goods and soft drinks and also be in charge of the parking space in the facility. Payment will be based on the customer’s preference. There will be payment in cash, POS machine, mobile money, online payment portal and Visa. This will make payment of services easier for all clients in the facility (Fletcher et al, 1996).
Lack of ample marketing will be the main source of loss of income to the facility. Inflation in the economy will greatly affect the business since it is also dependent on the economy (Frikha et al, 2013). Oil is a very rare commodity. Increase in prices occurs randomly which greatly affects the profitability of the gas station. The physical situation of the gas station will also affect its ability to earn financial income through attracting customers.
Break even is where the gas station will be able to meet its current daily expenditure. The gas station must be able to pay its debt and other miscellaneous expenses without obtaining external financing (Marsh, 1975). Daily expenses that the gas station will face include payment of salaries to the personnel and meeting of miscellaneous expenses such as maintenance and repair costs. The convenience store should also be able to replenish its current stock for it to be deemed as to have broken even. Break even analysis table is contained in the appendix.
During the first year of operation, the gas station will not realize the projected profits since it will be starting its operation. However, as the gas station continues to be in operation, the number of clients will increase thus increase in sales which will directly increase the business overall profitability (Smith, 2015). The table showing profit projections for the next 3 years is contained in the Appendix.
Calculation of NPV and IRR
NPV and IRR Analysis
|
Assume an Interest rate of 10% |
||||
|
Year |
0 |
1 |
2 |
3 |
|
$ “000” |
||||
|
Cash flow |
(300) |
110 |
450 |
850 |
|
PV factor |
100% |
91% |
83% |
75% |
|
PV of cash flow |
(300) |
100.1 |
373 |
500 |
|
Cumulative PV |
(300) |
(190) |
260 |
1110 |
|
Net Present Value |
0 |
(200) |
73 |
200 |
In this case the gas station will start to generate positive Net present value on the third year in business. However, the gas station business will not be ranked using IRR although the higher the rate the more suitable the business is to undertake.
References
Corn, J. (1996). The Gas Station in America . John A. Jakle , Keith A. Sculle. Winterthur Portfolio,31(1), 92-98. https://dx.doi.org/10.1086/wp.31.1.4618539
Costello, K. (2010). How Regulators Should Use Natural Gas Price Forecasts. The Electricity Journal,23(7), 54-64. https://dx.doi.org/10.1016/j.tej.2010.07.001
Fletcher, I., Cox, C., Arden, W., & Doonan, A. (1996). Modelling of a two-stage high-pressure gas reduction station. Applied Mathematical Modelling, 20(10), 741-749. https://dx.doi.org/10.1016/0307-904x(96)00071-6
Frikha, N. & Lemaire, V. (2013). Joint Modelling of Gas Spot Prices. Applied Mathematical Finance, 20(1), 69-93. https://dx.doi.org/10.1080/1350486x.2012.658220
Lamme, A., Jakle, J., & Sculle, K. (1996). The Gas Station in America. Geographical Review, 86(1), 122. https://dx.doi.org/10.2307/215152
Marsh, P. (1975). Financial Modelling. Managerial Finance, 1(2), 146-154. https://dx.doi.org/10.1108/eb013354
Smith, K. (2015). The Financial Economic Risk in Financial Engineering Models. Wilmott, 2015(79), 50-55. https://dx.doi.org/10.1002/wilm.10447
Waterman, M. (1948). Financial Management of Gas and Electric Utilities by the Securities and Exchange Commission. The Journal Of Finance, 3(1), 41. https://dx.doi.org/10.2307/2975443.
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