home page
other management articles

MSO Business Plan

1. Parameters of This Plan
   1. Generally the term Business Plan has the following implied properties:
      1. Its purpose is to demonstrate to a banker or investor that the business has the financial wherewithall to succeed in the hands of a new owner.
      2. It maps out a series of promised commitments to increase the business, usually by adding new lines, buildings, or structures, to further assure the banker or investor that the business will not flounder by remaining still.
   2. The financial feasibility, however, for an MSO [Multiple Station Operator, implying 10 stations or more] is done elsewhere in a different set of documents.
   3. An MSO will find that organization of the new business model is most important, much more important than previously as a single, two, three, or four station owner.
      1. A four-or-less station owner can still do the following:
         1. Visit each station daily.
         2. Make surprise visits apart from the daily routine.
         3. Personally know each employee.
         4. Manage the business using a hands-on model.
      2. An MSO is forced to look at other models where he can maintain control without being physically present.
      3. In short, he needs to design, recruit, and implement a new management structure.

2. The lieutenants model
   1. Simply defined, a lieutenant is a designated and authorized person to act in the MSO's behalf. We generally use terms like "executive assistant" or "regional manager" to describe this position.
   2. In the lieutenants model, the MSO has a manager for each store with several of his store managers reporting to one of his lieutenants. The MSO may have 15 stores organized into three geographic areas. Each area is the responsibility of one of his lieutenants.
   3. The main distinction between the store manager and the lieutenant is that the store manager simply follows orders. He may be expected to think on his own, but only to the extent of following the intent of his orders. A lieutenant has much more latitude and responsibility. The MSO expresses his philosophy and goals to his lieutenants. The store managers implements the plan as explained to them by the lieutenants.
   4. We can view the lieutenants model as vertical.
   5. It has a natural limitation, probably beginning when the number of stations approaches ten and most certainly when it has reached ten stations.

3. Role of an Executive Supervisor
   1. When the number of stations approaches or exceeds ten, the MSO does not need to abandon the lieutenants model. In fact, he probably cannot manage without it.
   2. But he must consider augmenting the model with an assistant whose job description is horizontal rather than vertical.
   3. While the MSO must recognize that each station has its separate personality dictated mostly by the neighborhood and current local economy and that each manager and each lieutenant must have enough discretion to respond to those differences, there are some aspects of the stations that may not vary and must be identical at all stations. These include:
      1. Image
      2. Accounting standards
      3. Employment standards
      4. Bank deposit procedures
   4. For these areas, the MSO needs a single individual to report directly to him.
   5. The same individual should have the authority to deal directly with the individuals in the various stations and not have to go through the lieutenants.
   6. For this task, the MSO needs a capable and experienced executive supervisor.
   7. "Supervisor" may be an adequate title, but adding the word "executive" indicates that this person reports directly to the MSO and gives him reports and opinions about how each station is performing these listed duties.

4. Three-phases process for maximizing profits
   1. Now having a strong organization in place, the MSO next looks at the purpose of business: making profits.
   2. There are three logical phases to maximizing profits:
      1. Attaining maximum Gross Profit Percentages
      2. ROI [Return on Investment]
      3. Sales per Thousand Gallons
   3. Refer to these as "phases" instead of "steps" because:
      1. It is an unending process
      2. Different stations and managers may be in different stages of training and awareness
      3. The maximum may change with changes in the economy, community, and competition.
   4. Gross Profit Percentages
      1. Generally, a store can be expected to have these Gross Profit Percentages:
         1. Beer 25%
         2. Cigarettes 15% to 20%
         3. Vending 30% to 40%
      2. The location and clientele of each station influences the achievable percentages.
   5. ROI [Return on Investment]
      1. ROI can best be described by this example:
         1. A store consistently has a 30% Gross Profit Percentage. This is surprisingly high.
         2. Gross sales per average month are $8,000.
         3. But average inventory is $40,000 at the end of any month.
         4. In order to make a profit of $2,400 per month, the station has a dispropotionately high inventory of $40,000. In other words, the station is making a 30% profit on 20% of its Beer inventory. Conversely, it is making 0% profit on 80% of its Beer inventory.
         5. Solution: reduce the Beer inventory and apply the dollars previously tied up in excess inventory to get better results elsewhere.
         6. A manager might protest that he achieves the 30% on sales by having an extensive Beer inventory. The response must be that a manager is expected to have the skill to find the most advantageous mix.
      2. Most managers and owners are aware of the importance of Gross Profit Percentages. Far fewer appreciate the importance of ROI.
      3. Another tool for examining the ROI is velocity, the number of times the inventory is sold per year. For example, a Beer inventory that costs $56,000 at retail which sells at an average monthly rate of $8,000 will take seven months to move the entire value of the inventory. That means that the inventory "turns over" about 1-1/2 times a year. Conventional wisdom is that the velocity (or "turn-over") should be five times a year or higher.
   6. Sales per Thousand Gallons.
      1. After the Gross Profit Percentage is at maximum and the store is achieving the highest velocity that any informed person thinks is possible, what is next?
      2. The idea of Sales per Thousand Gallons has been introduced by industry advisors in the past, but has never really caught on at the owner/manager level. Yet it is a potentially very powerful profit tool.
      3. One of the early tasks that an MSO should see to is measuring then Sales per Thousand Gallons for each store over the past 12 month period.
      4. Compare that statistic to Sales per Thousand Gallons periodically after the MSO owns the station.
      5. Is the manager increasing the Sales per Thousand Gallons?
      6. How does the measure compare to other, similar stores?
      7. Example ranges of Sales per Thousand Gallons are:
         1. Beer $30 to $50
         2. Cigarettes $50 to $75
         3. Vending $100 to $250
   7. When the MSO, lieutenants, and store managers have all proceeded through all three phases of improving profit, it is time to go back and revisit Gross Profit Percentages, then ROI, the Sales per Thousand Gallons again.

5. Conclusion
   1. The point of view of an MSO's business plan is different from the traditional owner of one or less than 5 stations in this way:
      1. The traditional owner must ask himself, "I have these few stations. What can I do to increase my business by increasing the number of stations I own?"
      2. The MSO must ask himself, "I already have these 10 or 20 stations and am not likely to have an opportunity to buy another block of stations. What must I do to increase the volume and profitability of this group of stations?"
   2. The first priority is to start with a strong, viable management structure from the outset. The MSO does not have the luxury of trial-and-error discovery.
   3. The simultaneous next priority is immediately to begin analyzing the profitability of each station and all stations together.

Copyright © - 2002 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

January 19, 2003