An important part of starting any business is preparing financial projections. Although you will prepare a more detailed financial analysis when you create your business plan, you still want to do rough projections at this stage. Prepare a spreadsheet that can be used to determine the profit potential of starting this business. Include inputs for the initial investment cost, number of customers in the first month, customer growth rate/quarter, average monthly fee per customer, fixed and variable monthly operating costs, and variable costs per customer. Use the most likely, optimistic, and pessimistic inputs as shown in Figure C-2 to generate results for all three scenarios. For each month (Month 1-24), calculate your revenues (number of customers that month X monthly fee/customer) and expenses (fixed monthly salaries plus fixed monthly operative costs plus variable costs/customer/month X number of customers that month). Then determine the cumulative income each month. For example, the cumulative income in Month 1 is the Monthly Revenues – Monthly Expenses for Month 1. The cumulative income for Month 2 is the Monthly Revenues – Monthly Expenses for Month 2 plus the Cumulative Income for Month 1. The first month for the most likely scenario is filled in for you to check your formulas. Will you be able to recoup your start-up costs within two years in each scenario? If so, in what month? There is no template for this example, but you can use the format in Figure C-2. Print out a sheet with results for each scenario, clearly labeling if/when you recoup your investment.

During recessions and economic hard times, many people—particularly those

who have difficulty getting bank loans—turn to pawnshops to raise cash. But

even during boom years, pawnshops can be profitable. Because the collateral

that customers put up (such as jewelry, guns, or electric guitars) is generally

worth at least double what is lent, it generally can be sold at a profit. And

because usury laws allow higher interest ceilings for pawnshops than for other

lending institutions, pawnshops often charge spectacularly high rates of inter-est. For example, Florida’s pawnshops charge interest rates of 20% or more per month. According to Steven Kent, an analyst at Goldman, Sachs, pawnshops make 20% gross profit on defaulted loans and 205% interest on loans repaid. a. In 2012 there were about 15,000 pawnshops in the United States. This

was much higher than in 2007, when the number was about 12,000. Why

did the number increase? b. In a particular small city, do the pawnshops constitute a perfectly competitive industry? If not, what is the market structure of the industry?

c. Are there considerable barriers to entry in the pawnshop industry? (Note:

A pawnshop can be opened for less than $250,000, but a number of states

have tightened licensing requirements for pawnshops.)