Someone decided to get into the supplemental education business and discovered how cheaply one can launch a Kumon business. “It is the cheapest way to ‘own your own business’ and be involved in a most rewarding career of changing the world – one child at a time”, would probably be an alluring statement.

Ops! Not so fast, buddy! If you want a successful business, you’d better be armed with not only proficiency in math and reading but also with business acumen.

Far too many venture into this business with merely an intention of “sharing with other parents what has benefited my child immensely”. Soon, they find themselves faced with incredible challenges.

THE BUSINESS PLAN

Don’t kid yourself. When you engage yourself to earn an income by providing a service, you are in business. Most successful businesses start with a Business Plan. In brief, this management tool identifies the following:

·       Projected business operating strategies

·       Sources and Disbursement of funds

·       Capital expenses

·       Economic feasibilities

·       Marketing Strategies

·       Management Resources

·       Projected Earnings Estimates for at least 5 years

Simply signing a franchise contract without taking all these into consideration is like jumping in a pool infested with sharks. You’d better be a great swimmer to avoid the risks.

The Business Plan answers the most obvious questions:

·       How much money do I have to invest?

·       What expenses will I incur?

·       What net income per month will I receive?

·       How much space do I need for my center?

·       Where will I locate my center?

·       Where will I get my students?

·       What do I need to do to promote my business?

·       Where will this business take me in 5 years?

·       Who can I turn to for support and management expertise?

How much to invest?

What do most astute individuals consider when seeking to be in business? They look for a “return on investment” – both money and time – within a certain period of time.

Others merely looking for an alternative career tend to “discount” the value of their time. Usually their decision comes from assessing the “income they may earn” in comparison to their current earnings. The value of one’s time depends greatly not on hours spent but on their dedication to the task. For instance, one engaged in “a job” done just to “earn income” might be earning only $30,000 but engaged in a more intensive career requiring full commitment and dedication, such person’s worth could very easily exceed  $80,000 – $100,000. It is not uncommon to find instructors short-changing themselves in this fashion – instructors who work 14-16 hours daily in their centre activities.

Thus, when considering how much to invest in a Kumon centre, it is important to establish the value of time commitment and to factor this into the business plan. This is how partnership agreements are established. The equity of the “industrial partner” is established by putting a value on “what he contributes to the business” (value of time) based on earnings he may not receive during formative years. The “capital partner” puts in his money.

In addition to the start-up (franchise) fee and the initial capital cost (furniture, fixtures, equipment, tables, chairs, etc), the “unpaid portion” of time investment must be taken into account. When this is capitalized, it would represent the total “equity investment”. The sum total of this investment could now be estimated over time.

For example, say it cost $1000 to buy a Kumon franchise, $5000 to set up the centre, $2000 lease deposit, and $5000 in equipment. If you value your time to be worth $80,000 a year and earn only a net income of $30,000; then your time investment is worth $50,000 per year. Your total investment is therefore worth $13,000 + (5 x $50,000) $250,000 (less incremental increases in your realized net income per year). This then is a reasonable measure of your equity investment in your centre.

This will help determine just “how much to invest” in this or any business and determine the realizable value of the investment within 5 years.

(Note:  Please comment and indicate If you wish to discuss any part of the Business Plan in particular.)

 

Next – Planning for the success of your centre – Buy a franchise or Buy an existing centre?

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