SmartHelping - Financial Model Templates by Jason Varner: 2025

Going-in Cap Rate Calculations for Multi-Family Real Estate Modeling

When analyzing a potential multi-family acquisition, knowing all your going-in cap rates helps inform purchase price. It may mean more wiggle room in negotiations and generally gives the purchaser a better understanding of the opportunities, especially with value-add. It also may be relevant if you plan to have key changes to ongoing expenses.

General Explainer for Absorption Cost Accounting Method

Absorption costing, sometimes referred to as “full costing,” is a method of cost accounting in which all costs related to the manufacturing of a product are included in its overall cost. This includes both variable costs (like raw materials and direct labor) and fixed manufacturing overhead costs (such as facility rent, utilities allocated to production, and factory depreciation). Below is a comprehensive look at absorption costing—its general aspects, industries where it applies, nuances in calculation, and its necessity.

If you want to try this out for yourself, download this absorption costing template built in Excel.

1. General Aspects of Absorption Costing

Definition
- Absorption costing assigns all manufacturing costs to the product. These costs typically include:
  - Direct Materials (raw materials that become part of the finished product)
  - Direct Labor (costs of wages for the personnel directly involved in production)
  - Variable Manufacturing Overhead (indirect costs that vary with production, such as utilities for running machines or machine maintenance)
  - Fixed Manufacturing Overhead (indirect costs that do not vary directly with production, such as depreciation of equipment, factory rent, production manager’s salary)
Purpose
- To capture the full cost of producing an item. By including both variable and fixed manufacturing overhead costs, absorption costing meets external financial reporting requirements and helps companies see the total cost structure.
Treatment of Costs
- Costs are allocated or “absorbed” by the units produced. In contrast, under variable costing, only variable manufacturing costs are assigned to units; fixed overhead is treated as a period expense. In absorption costing, fixed overhead is spread out across all units produced (i.e., it’s capitalized in inventory until the product is sold).
Financial Reporting
- Absorption costing is required by GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) for external reporting. The rationale is that fixed production costs are necessary for manufacturing, so they should be included in the valuation of inventory on the balance sheet.

2. Industries That Use Absorption Costing

Manufacturing (most common)
- Automobile manufacturing: Where large overhead costs (machinery, factory costs) must be distributed among thousands of vehicles.
- Consumer goods production: Companies producing packaged foods, beverages, household items, etc.
- Electronics manufacturers: Where factories and assembly lines constitute significant fixed costs.
Process Industries
- Industries like chemicals, steel, petroleum refining, and plastics. These have high overhead that must be captured in product costs.
Pharmaceuticals
- High research and development spend may not all be allocated under manufacturing overhead, but once the product is in production, there is significant manufacturing overhead (facilities, specialized equipment, and quality control) that is spread across output.
Any Industry with Tangible Product Output
- If a company is required to maintain inventory (physical goods), absorption costing often applies for external reporting. Even custom manufacturing (e.g., custom machine parts) may have overhead costs that need to be absorbed into the final product cost.

3. Nuances in the Calculations

Allocation of Fixed Overhead
- Predetermined Overhead Rate: A common approach is to establish a predetermined overhead rate (POR) at the beginning of a period. For example:
  $\text{POR} = \frac{\text{Budgeted Fixed Overhead}}{\text{Budgeted Units of Production or Machine Hours or Labor Hours}}$
- This rate is then multiplied by the actual activity (units produced or machine hours used) to calculate the overhead cost allocated to each product.
Inventory Valuation Impact
- Under absorption costing, unsold inventory carries some portion of fixed overhead as an asset on the balance sheet. This can:
  - Increase reported profits if production exceeds sales (because some fixed overhead is deferred in unsold inventory).
  - Decrease reported profits if sales exceed production (because more overhead costs from previous periods are recognized in the cost of goods sold).
Over-/Under-Applied Overhead
- At the end of the accounting period, the actual overhead costs may differ from what was applied to the products (via the predetermined rate). This leads to:
  - Over-applied overhead: Applied overhead > Actual overhead.
  - Under-applied overhead: Applied overhead < Actual overhead.
- Companies typically adjust these differences via the cost of goods sold or through an allocation to inventory and COGS.
Choosing an Activity Base
- Companies may allocate overhead based on:
  - Direct Labor Hours
  - Machine Hours
  - Number of Units Produced
- Selecting the appropriate base is important to reflect the cause-and-effect relationship between overhead consumption and production.
Complexity in Multi-Product Scenarios
- If multiple products are being produced in the same facility, the overhead allocation can become more complex. Cost accountants may use:
  - Multiple Overhead Rates (department-specific or activity-specific)
  - Activity-Based Costing (ABC) if overhead is very high and products consume overhead in different proportions.

4. Why Absorption Costing Is Necessary

Compliance with Accounting Standards
- Absorption costing is required by GAAP and IFRS for external financial statements. It ensures that financial statements reflect all the manufacturing costs tied to the products that remain in inventory.
More Complete Profit Measurement
- By including both variable and fixed costs in product costs, absorption costing can provide a comprehensive picture of a product’s profitability in the long run. While variable costing is beneficial for internal decision-making (such as short-term pricing or contribution margin analysis), absorption costing is needed for an all-inclusive profitability view.
Inventory Valuation
- For companies that carry significant inventory, absorption costing aligns the cost of the product with its level of completion and ensures that some portion of fixed costs is recognized when (and only when) the product is sold.
Misleading Profit Signals Under Other Methods
- If a company only used variable costing in external reports, products still in inventory wouldn’t include any portion of the fixed manufacturing costs. This can understate inventory on the balance sheet and distort actual net income from a regulatory standpoint.
Matching Principle
- Absorption costing upholds the matching principle (expenses should be recognized in the same period as the revenue they help to generate). By putting some manufacturing overhead into the value of the product, the expense of that overhead is recognized when the product is sold, rather than when the costs are incurred.

5. Practical Considerations and Caveats

Short-Term Decision-Making
- Internally, managers often prefer to use variable costing or contribution margin analysis for short-term decisions (e.g., special orders, capacity considerations) because it can clarify how changes in volume affect profits. However, for long-term pricing or capacity planning, absorption costing helps ensure the company covers the full spectrum of costs.
Potential for Overproduction
- One critique of absorption costing is that it can encourage overproduction in the short run. When more units are produced than sold, some of the fixed overhead is “trapped” in inventory on the balance sheet, which can inflate operating income temporarily.
Implementation Complexity
- With multiple products, production lines, or a wide variety of costs, allocating overhead requires thorough data collection, activity measurement, and constant updating of overhead rates (particularly in dynamic production environments).
Regulatory Scrutiny
- Because absorption costing is required for external reporting, regulators and auditors will scrutinize how overhead rates are determined and whether the methodology is consistent, transparent, and adheres to applicable guidelines.

Summary

Absorption costing is a foundational accounting method where all manufacturing costs (variable and fixed) are allocated to products, aligning expenses with revenues under the matching principle.
It’s necessary for external reporting to comply with GAAP and IFRS, as it provides a more comprehensive long-term view of product costs and profitability.
While many industries (especially manufacturing and process industries) adopt this approach, its nuances in allocating overhead and the potential for over-/under-applied overhead are important considerations for accurate financial reporting and inventory valuation.
Although it has the downside of potentially incentivizing overproduction, absorption costing remains integral to both meeting accounting standards and providing complete product cost information for decision-makers.

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Article found in Accounting and Finance.

Manufacturing Financial Model Update: Adding Direct Labor and Variable Manufacturing Overhead Costs per Unit Sections

I had a client ask me how to enter direct labor costs into the made-to-order manufacturing model and the only answer I could give was to manually input the labor costs into the fixed overhead sections and adjust the costs each year according to the expected unit volumes. This was not ideal so there has been an update to the default version of this template.

Accounting Template for Absorption Costing

This template was built primarily for manufacturers to better understand their unit costs. In the default version of the spreadsheet, I included many slots for each section for maximum flexibility. It is easy to add or delete rows if you don't need that much space and it won't break the model. Absorption costing is a way to account for every single cost that relates to producing a single finished product (all direct variable and fixed costs).

Financial Models in Excel for the Best Financial Planning and Avoiding Bankruptcy

Financial planning is vital for any startup, particularly one exploring new, innovative business activities. It ensures that scarce capital is allocated responsibly, risk is managed effectively, and the company remains solvent long enough to discover sustainable revenue streams. Below is an overview of why financial planning matters for R&D, acquiring new customers, and a simple framework for avoiding bankruptcy.

Startup Financial Model for a Loan Securitization Platform or Facilitator

I've done a few different loan business startup models. Some for direct lenders and one for analyzing a single securitization deal, but now I've done something geared towards securitization facilitators and/or servicers (a middleman). This side of the business is a software platform and focuses on building out a network that connects institutions that have baskets of loans they want to liquidate and investors that want to invest in securitized products (secured by baskets of loans).

Business Plan Example for Loan Securitization Firm

Below is an illustrative (and simplified) example of a business plan for a loan securitization venture. The plan sketches out key components such as market opportunity, strategy, operations, unit economics, and a 10-year scale-up timeline. Keep in mind that real-world scenarios can be more complex, and this example is designed to provide a foundational framework.

Here is an interesting loan securitization template to help illustrate some of the underlying mechanics of this industry. And I just finished this model that is for a loan securitization dealmaker (inspired by everything you see below).

General Business Concept

The loan securitization firm earns fees by acting as both an aggregator and a structurer of loan portfolios, transforming relatively illiquid loans into tradable securities. Concretely, it collects loan pools from lenders, conducts credit analysis and due diligence, arranges legal and regulatory documentation, and works with rating agencies to establish credit ratings. In addition, it orchestrates the sale and distribution of the resulting securities to institutional investors, managing all the complexities of the transaction—from compliance and investor relations to servicing oversight—thereby justifying the upfront and ongoing fees.

Potential Risks of Being the Aggregator / Structurer of Loan Portfolios

While a securitization firm often transfers most of the underlying loan default risk to investors, it still faces a number of other significant risks:

Reputation and Liability Risk: If loans are misrepresented or improperly vetted, investors could sue the securitizer for breach of representations and warranties. Any high-profile default or improper structuring can also damage the firm’s reputation, jeopardizing future deals.
Regulatory and Compliance Risk: Securitization firms must comply with evolving regulations (e.g., risk-retention rules in the U.S. requiring the securitizer to hold a percentage of the deal). Noncompliance, or an oversight in disclosures, can lead to fines or legal action.
Warehouse/Bridging Risk: Before a pool of loans is securitized and sold to investors, the firm may have to temporarily hold those loans (often financed through a warehouse line of credit). If market conditions worsen or if they can’t place the securities, the firm could be stuck with these loans or face margin calls on its warehouse line.
Operational and Structuring Risk: Errors in structuring (e.g., inaccurate modeling, flawed documentation) can lead to deal failures or legal disputes. Poor servicing oversight or inadequate reporting can also degrade investor confidence.
Market and Liquidity Risk: Volatile interest rates or a sudden lack of investor appetite for certain asset classes can halt securitization pipelines, potentially leaving the firm with unsold loans or revenue shortfalls.

1. Executive Summary

Business Concept
Our firm, “Alpha Securitization Partners” (ASP), aims to become a leading aggregator and securitizer of loans across multiple asset classes (e.g., consumer loans, SME loans, or mortgage loans). We will originate relationships with lending institutions (both traditional and alternative lenders), bundle their loans into diversified pools, structure and sell asset-backed securities (ABS) to institutional investors, and manage ongoing securitization trusts.

Market Opportunity

Banks and non-bank lenders often look to free up capital by offloading portions of their loan portfolios.
Investors seek stable yield opportunities with diverse risk tranches.
Securitization transforms relatively illiquid loan portfolios into liquid instruments, aligning with regulators’ and institutions’ balance sheet optimization goals.

Business Model

Origination/aggregation: Acquire loans or partner with lenders to bundle them into portfolios.
Structuring: Use internal legal, compliance, and financial modeling teams to structure securities.
Placement/Distribution: Work with investment banks and broker-dealers to place securities with institutional investors.
Servicing/Monitoring: Maintain oversight of the loan pools, payments, and credit performance.

Competitive Advantage

Expertise in structuring deals across various loan types.
Proprietary analytics platform that evaluates underlying loans for credit quality and return optimization.
Strong network of originators and investors from the firm’s leadership experience in investment banking and structured finance.

2. Market Analysis

Industry Landscape
- The global securitization market has grown significantly post-financial-crisis due to revised regulations (e.g., Dodd-Frank risk retention rules), improving transparency, and a continued need for yield among institutional investors.
- Growth areas: Consumer debt securitizations (credit cards, personal loans, student loans), residential mortgages (RMBS), and SME loan securitizations (especially from alternative lenders/fintechs).
Target Clients
- Mid-size banks, credit unions, and fintech lenders with loan portfolios ranging from $50M to $500M who want to offload part of their balance sheet.
- Institutional investors (pension funds, insurance companies, asset managers, etc.) looking for structured products that provide predictable cash flows and diversified risk.
Competitors
- Large investment banks with established securitization desks.
- Specialty finance companies that target niche asset classes.
- However, many smaller or regional lenders prefer a boutique approach and specialized attention that large IBs often cannot provide, creating an opportunity for a focused securitization boutique.

3. Products & Services

Loan Aggregation
- Partner with lenders to identify and screen eligible loans for securitization.
- Develop loan acquisition agreements that define the transfer, collateralization, and servicing processes.
Structuring & Issuance
- Pool the loans into special purpose vehicles (SPVs).
- Work with rating agencies for credit enhancement strategies.
- Coordinate legal counsel, trustee services, and underwriting of securities.
Distribution & Investor Relations
- Maintain a network of institutional investors seeking different risk-return profiles.
- Issue multiple tranches of ABS with varying levels of credit enhancement and yield.
Servicing & Reporting
- Oversee loan servicing performance metrics.
- Provide ongoing surveillance, performance reporting, and investor updates.

4. Operational Plan & Timeline

Phase 1 (Years 1-2): Setup & First Securitizations

Finalize legal structure and compliance framework.
Hire key staff: CFO, Head of Structuring, Head of Origination, Legal Counsel.
Onboard initial clients (2–3 lenders) and secure first two securitizations.
Target annual securitization volume: $100–$200 million in total notional value.

Phase 2 (Years 3-4): Scaling & Process Refinement

Expand originator network: banks, credit unions, fintech lenders.
Launch proprietary analytics platform to streamline loan assessment.
Execute ~5-7 securitizations per year, covering different asset classes.
Target annual securitization volume: $500 million–$1 billion.

Phase 3 (Years 5-7): Product & Geographic Expansion

Introduce cross-border securitizations if market and regulations permit.
Develop specialized verticals (e.g., auto loan securitizations, SME loan securitizations).
Target annual securitization volume: $2–$3 billion.

Phase 4 (Years 8-10): Maturity & Market Leadership

Mature product offerings with established track record across multiple asset classes.
Potential listing or merger/acquisition for growth capital.
Target annual securitization volume: $5+ billion.

5. Organizational Structure

CEO / Managing Partner: Oversees overall strategy, investor relations, and major client relationships.
CFO: Manages financial operations, reporting, and compliance with regulations like SEC/FINRA, IFRS/GAAP, etc.
Head of Structuring: Leads deal structuring, credit modeling, relationships with rating agencies.
Head of Origination: Sources loan portfolios from partner lenders and negotiates terms.
Legal & Compliance: Ensures all securitization structures meet legal and regulatory requirements.
Analytics & Research Team: Builds models for credit risk, pool performance, and portfolio optimization.
Investor Relations & Marketing: Maintains relationships with institutional investors and coordinates issuance roadshows.

As the company grows, additional junior staff, analysts, and servicing coordinators will be added to support higher deal flow.

6. Unit Economics

While securitization economics can vary widely depending on asset class, credit quality, and market conditions, below is a simplified model for the typical fees and expenses in a single securitization:

Deal Size: $100 million (example)
Revenue Streams:
- Upfront Structuring Fee: Typically 0.5%–1.0% of the notional amount (e.g., $0.5–$1.0 million).
- Ongoing Servicing/Management Fee: Typically 0.1%–0.3% per annum on outstanding principal (e.g., $100K–$300K/year).
- Placement/Distribution Fee: If the firm also handles placement, an additional 0.2%–0.5% can be earned.
Costs:
- Rating Agency Fees: 0.05%–0.10% of deal size (e.g., $50K–$100K).
- Legal & Structuring Costs: $200K–$400K for outside counsel and documentation.
- Underwriting/Distribution: If using third-party underwriters, 0.15%–0.30% of deal size.
- Operational Overhead: Salaries, software, office space, compliance, etc.
Gross Margin:
- Upfront margins on each securitization typically hover around 30–50% after direct deal costs (rating, legal, underwriting).
- Ongoing fees (servicing, monitoring) provide recurring income but are usually smaller percentage-wise.
Breakeven Analysis:
- Estimate the firm’s annual overhead at $2–$3 million in the first couple of years (staff salaries, office, compliance).
- With an average $100 million deal generating $700K–$1.5M in fees (before direct costs), the firm would need 2–3 deals per year initially to reach operating breakeven.

7. Financial Projections (Years 1 – 10)

Below is a high-level, hypothetical financial trajectory.

Year 1 – 2

Deals: 2 securitizations per year, $100M average each = $200M total.
Total Revenues: $1.5M–$2.0M (assuming ~1% average fee & smaller distribution fees).
Expenses: $2–$2.5M (staff + operational costs).
EBITDA: Breakeven or slightly negative in Year 1; modest profit in Year 2.

Year 3 – 4

Deals: 5 securitizations per year, $100M–$200M average each = $500M–$1B total.
Total Revenues: $5M–$10M.
Expenses: $4–$6M as staffing grows.
EBITDA: $1M–$4M (more comfortable profitability).

Year 5 – 7

Deals: 8–12 securitizations per year, $200M–$300M average each = $1.6B–$3.6B total.
Total Revenues: $12M–$30M (including ongoing servicing fees from prior deals).
Expenses: $8–$12M.
EBITDA: $4M–$18M.

Year 8 – 10

Deals: 15+ securitizations per year, $300M–$400M average each = $4.5B+ total annually.
Total Revenues: $30M+ (in addition to growth in recurring servicing fees).
Expenses: $15M–$20M.
EBITDA: $15M+.

(Note: These figures are illustrative and depend heavily on market conditions, asset quality, deal types, and investor demand.)

8. Risk Factors & Mitigation

Market/Interest Rate Risk
- Mitigation: Diversify across loan types and maturities; use hedging strategies where feasible.
Credit/Default Risk
- Mitigation: Robust underwriting standards, conservative credit enhancement, maintain relationships with reliable originators.
Regulatory Risk
- Mitigation: Dedicated legal/compliance team; stay current with changes in banking and securities laws (e.g., Dodd-Frank, SEC regulations, EU securitization rules, etc.).
Operational Risk
- Mitigation: Invest in secure IT infrastructure, robust internal controls, backup servicing arrangements.
Liquidity Risk
- Mitigation: Prudent balance sheet management, credit lines with partner banks, stable cash flow from recurring fees.

9. Growth & Exit Strategy

Growth: Expand asset classes (e.g., auto, credit card, small business loans), geographic footprint, and eventually add risk retention vehicles for high-performing portfolios.
Exit: Position for acquisition by a larger financial institution or private equity firm, or potentially go public to attract more significant capital for expansion.

10. Conclusion

Alpha Securitization Partners seeks to capitalize on the strong and growing demand for structured finance solutions. By focusing on prudent underwriting, specialized asset-class expertise, and close relationships with both originators and investors, the company aims to build a profitable and sustainable securitization platform over the next decade. The combination of upfront structuring fees and ongoing servicing income provides a balanced revenue stream capable of scaling as ASP gains market presence and diversifies into new asset verticals.

Note:

This plan is only an example outline. Real-world securitization businesses must customize their strategies based on specific asset classes (mortgages, consumer loans, etc.), target geographies, regulatory frameworks, and competitive dynamics. Detailed financial models, legal opinions, and robust operational frameworks would be essential to execute this plan successfully.

You may be interested in more direct lending financial models here. If you need help building a custom financial model, I offer my services here.

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Article found in Lending.

Net Operating Income (NOI) and Real Estate

Net Operating Income (NOI) is a key financial metric in real estate that measures the profitability and performance of an income-producing property. It reflects the property’s ability to generate income after all operating expenses are taken into account but before financing costs (mortgage payments), taxes, depreciation, and amortization.

Keep in mind I've had clients who tried to put principal and interest expenses as well as CAPEX before the net operating income line. That would be highly inaccurate and you'll see why below. If you want to utilize some of the best underwriting tools, here's my entire real estate models library.

1. Understanding Net Operating Income

NOI Formula:

NOI = Gross Operating Income - Operating Expenses

Gross Operating Income (GOI) generally starts with the potential gross rent (the maximum rent you could collect if all units/spaces are fully occupied at market rates) and then subtracts vacancy and credit losses as well as loss-to-lease while adding any other income (e.g., parking fees, laundry, vending, etc.).

Operating Expenses typically include:

Property management fees
Maintenance and repairs
Utilities (if paid by the owner)
Insurance
Property taxes
Advertising and marketing costs
Landscaping and other day-to-day operational costs

Important Note: Mortgage payments and other debt service costs, owner’s personal expenses, capital expenditures (major property improvements or major repairs), depreciation, and income taxes are not part of operating expenses and are excluded from the NOI calculation.

2. What NOI Is Used For

Property Valuation
- Capitalization (Cap) Rate: The most common method to estimate a property’s value is using the cap rate formula:
  $Cap Rate = \frac{NOI}{Property Value}$
  Rearranging this formula, you can estimate the property’s value if you know its NOI and a relevant market cap rate:
  $Property Value = \frac{NOI}{Cap Rate}$
  Investors and appraisers often rely on this approach to get a quick estimate of a property’s worth based on its income-generating potential.
Comparing Investment Opportunities
- By standardizing a property’s income and operating expenses (i.e., calculating NOI), investors can compare different properties on an “apples-to-apples” basis regardless of each property’s financing structure or tax situation.
Debt Service Coverage Ratio (DSCR)
- Lenders often use NOI to calculate the Debt Service Coverage Ratio, which measures how comfortably the property’s income can cover its debt obligations:
  $DSCR = \frac{NOI}{Total Debt Service}$
  A DSCR above 1.0 indicates the property’s NOI is sufficient to cover its mortgage payments. Lenders typically want to see a DSCR of 1.2 or higher (depending on the property type and risk tolerance).
Measuring Property Performance
- Tracking changes in NOI over time helps investors and property managers gauge whether operational changes, rent increases, or expense optimizations are effectively improving the bottom line.
Strategic Decision-Making

Investors may look for properties with potential to improve NOI by:

Reducing operating expenses (e.g., installing energy-efficient systems)
Increasing rents or improving occupancy rates
Adding amenities that can generate additional income

An increased NOI can translate into higher property value and better returns on investment.

Forecasting and Budgeting
- When creating pro forma statements (financial projections for a property), investors use anticipated NOI to plan for future financing needs, potential distributions, and the overall viability of a project.
Negotiating Property Purchases and Sales
- Both buyers and sellers typically base their negotiations on the property’s current or pro forma NOI. A well-documented and stable NOI can command a higher sale price, while a lower or inconsistent NOI might reduce a property’s perceived value.

3. Key Takeaways

NOI Excludes: Mortgage payments, depreciation, personal expenses, income taxes, and capital expenditures.
NOI Focuses: Purely on operating performance—rent and other income minus operating expenses.
Uses of NOI: It’s crucial for property valuation, comparing investments, loan underwriting, measuring property performance over time, strategic decision-making, and negotiations in real estate transactions.

In summary, Net Operating Income provides a clear picture of a property’s operating performance and profitability, independent of financing decisions or tax strategies. Real estate investors and lenders rely heavily on NOI (alongside other metrics) to assess a property’s health, market value, and investment potential.

Article found in Real Estate.

Finding an Edge in Multi-Family Real Estate Investing

The largest number of templates I've built for a single industry over my career is multi-family. I've come across people doing work in the billions as well as smaller 10s of millions shops. Everyone has their own thing that they like to use to try and find an edge so lets get into it and a model is just one part. There's a lot that goes into strategy.

Multi-Family Acquisition Model - Includes T12, Joint Venture, and Detailed Forward Assumptions

This is the most comprehensive and flexible real estate model I've built. I've spent the last few years doing a lot of modeling and template building in this space. My real estate template library is now even more comprehensive as you will find the features below incredibly useful. I'm excited for feedback.

Why Does Private Equity Like Service Businesses?

Private equity firms often find service businesses attractive for several interrelated reasons:

Financial Model Template for a Startup On-Demand Car Wash / Services Business

The business model is simple. Build out a fleet of car detailers / cleaners (including vans) and develop an easy app or website to attract local customers to your on-demand services for car cleaning. The model is based on one-time fees and built to ramp in up to three regions or across three service types.

Independent GP vs Starting a Fund

In private equity or broader alternative investing, the term “independent operator” (sometimes called an independent sponsor or fundless sponsor) refers to a team or individual who sources and executes deals without managing a traditional, commingled fund. Instead of deploying capital from a pre-raised fund, an independent operator finds deals first and then raises capital from investors on a deal-by-deal basis.

Template for Calculating Interest Income Using the Effective Interest Rate Method

Bond modeling and related amortization schedules are a little different than your normal schedules. The main feature of this financial model template is to show the user how much interest income they need to recognize in each accounting period based on the idea that the facility (bond / loan) is purchased at either a discount or premium.

Real Estate KPIs: Commercial vs Residential

If you are in commercial or residential real estate as an operator or investor, these terms should be well understood. Some of the terms below are repeated between commercial and residential. However, they will have different calculation terms that are more common for the type of property.

Explaining the Difference Between an IRR Hurdle 'rate' and a Simple 'rate' for Monthly Preferred Return Waterfalls

I was thinking about these calculations for awhile and trying to articulate the core underlying math. Here is my video and a good explanation of the implications of various types of rates that could be used in a joint venture preferred return waterfall model. This is relevant for model calculations that are happening on a monthly basis.

Startup Financial Model Template for Buy Now, Pay Later Service Firm

A “buy now, pay later” (BNPL) business lets customers purchase goods or services immediately but pay for them in installments over time—often with little or no interest if payments are made on schedule. This Excel modeling template focuses on the specific assumption related to such a business for accurate bottom-up projections.

Added a New Framework to Direct Lending Business Financial Model

I started on the general lending business model years ago and it has undergone a lot of feature additions and simplifications for usability over time based on customer feedback. It has probably been one of the most successful templates of mine that has had the most use.

Financial Model for Sale-leaseback Analysis - Tenant and Landlord Views

This template was a tough build. It took mental stamina to complete in the way that maximizes usefulness. We are talking about getting down into the details of tax, NOL carryforwards, depreciation recapture effects, and a whole bunch of other assumptions that make the model flexible for sale-leaseback analysis from any point of view.

Template Update - Depreciation Recapture Logic Fix

It has been awhile since I had a template update, but when I catch a logical error, I try to fix it as soon as possible and do a video about exactly what happened so that is what you are getting here.

Original Problem: In the scenario where the asset was being sold at less than the original cost basis, the model was taking the difference in the original cost basis and the sales proceeds and counting that as a loss that offsets depreciation recapture taxable amount. In reality, the depreciation recapture is simply any amount you sell an asset for that is greater than the adjusted cost basis but less than the original cost basis.

Fix: Now, in that same scenario, the correct calculation is happening which is taking the difference between the sales proceeds and the adjusted cost basis (book value or value after accounting for accumulated depreciation) and using that as the only thing to figure out the depreciation recapture amount.

The original model worked perfectly for calculating recapture if you sold the asset for more than the original cost basis or less than the adjusted cost basis. It was that scenario where it is in between where the problem happened.

If you sell for more than the original basis, you just have to pay taxes on the amount of depreciation that was taken. Anything over the original basis still gets taxed at the capital gains tax rate and selling for less than the adjusted cost basis gives you a capital loss.

The main reason I came across this error is because I was looking at what happens if you have a net operating loss carryforward (NOL carry) and if it could be used to offset depreciation recapture due. The answer to that was yes, but now I have also improved the original depreciation recapture template.

Note, there are many caveats to taxes so please consult a tax attorney or CPA for your specific situation.

I've built many templates over the years, check out more accounting tools here and real estate models here.

Example Business Plan for Scaling ATM Machines

Below is an example business plan for starting an ATM business. It outlines key components such as the business model, unit economics, conservative deployment strategy, operational costs, cash flow projections, and exit opportunities. While these details are illustrative, they provide a robust framework that can be adapted to specific regions and market conditions.

If you want to test out your own numbers and scenarios, check out this fully editable ATM financial model template.

1. Executive Summary

Business Concept:
XYZ ATM Services (placeholder name) aims to install and operate Automated Teller Machines (ATMs) in strategic retail, hospitality, and convenience locations. The company will generate revenue primarily through surcharge fees on cash withdrawals, as well as potential interchange fees paid by card networks. By targeting high-traffic locations with favorable footfall, XYZ ATM Services plans to build a profitable and sustainable business with minimal overhead compared to traditional brick-and-mortar financial services.

Objectives:

Deploy 3–5 ATMs in the first year in high-potential locations.
Establish relationships with local small businesses, shopping centers, and gas stations.
Achieve steady monthly transaction volumes that ensure a positive monthly cash flow.
Expand to 20–30 machines by the end of Year 3 through organic growth and strategic reinvestment.
Position the business for possible acquisition or continuation through passive income.

2. Market Analysis

Industry Overview: The ATM industry in many regions remains profitable due to the persistent demand for cash transactions. Despite the rise in digital payments, niche markets and locations (bars, nightclubs, convenience stores in underserved areas) still rely heavily on cash.
Target Market: Focus on:
- High foot-traffic convenience stores and gas stations.
- Bars and nightclubs (where cash tipping and purchases are common).
- Small retail businesses lacking on-site banking.
- Tourist-heavy areas with visitors frequently needing local currency.
Competitive Landscape: Major players include large national ATM operators and banks. However, niche operators and independent ATM deployers (IADs) can succeed by selecting prime local spots, offering attractive revenue share to merchants, and providing reliable service.

3. Value Proposition

For Customers: Convenient and easy access to cash, especially in “cash-preferred” locations.
For Location Owners: Earn extra revenue through commissions (a portion of ATM surcharge) and increased customer traffic.
Differentiators:
- Local focus and hands-on relationship management with merchants.
- Customer-friendly surcharge fees in line with market rates.
- Reliable uptime through consistent maintenance and swift cash replenishment.

4. Business Model and Unit Economics

Revenue Streams

Surcharge Fees: A fee charged directly to the cardholder for withdrawing cash. Common surcharges range from $2.00 to $3.50 per transaction in many U.S. markets (this can vary by region).
Interchange Fees: Card-issuing banks pay a fee (set by the card networks) to the ATM owner per transaction. This typically ranges from $0.15 to $0.40 per withdrawal.
Merchant Revenue Share (Expense): The location owner typically receives a portion of the surcharge (often $0.50–$1.00 per transaction or a negotiated percentage).

Cost Drivers

ATM Purchase or Lease:
- Purchase price: $2,000–$4,000 per basic, retail-style ATM; can be higher ($5,000–$8,000) for advanced functionalities or brand-new machines.
- Lease options: $70–$150/month, depending on the machine and terms.
Installation & Setup:
- ~$300–$500 per ATM for delivery, installation, signage, and potential electrical or data line configuration.
Monthly Telecom/Internet Fee:
- $10–$30 per machine for wireless or broadband connectivity.
Cash Loading Services:
- If self-managed, cost is primarily the opportunity cost of owning or borrowing the cash float.
- If contracted, typically $0.20–$0.50 per transaction plus potential monthly service fees.
Maintenance & Service:
- $50–$100/month per ATM for routine servicing, parts, or extended warranties.
Insurance:
- Coverage for theft, vandalism, and cash-in-transit. Can be $40–$80 per month depending on coverage amounts.

Example Unit Economics (Monthly per ATM)

Average Transaction Volume: 200 withdrawals per month
Surcharge Fee: $2.50 per withdrawal
Revenue:
- Surcharge Revenue: 200 × $2.50 = $500
- Interchange Revenue: 200 × $0.25 = $50
- Total Revenue = $550
Expenses:
- Merchant Commission: $1.00 per transaction → 200 × $1.00 = $200
- Telecom/Internet: $20
- Maintenance & Parts: $50
- Misc. (insurance, bank fees, etc.): $30
- Total Expenses = $300
Gross Profit (Monthly per ATM) = $550 – $300 = $250

This is a simplified snapshot. Actual results will vary by location, surcharge rate, merchant split, and transaction volume.

5. Conservative Growth Strategy

Pilot Phase (Months 1–6):
- Deploy 3–5 ATMs in known high-traffic, low-competition locations.
- This phase tests operational processes (cash replenishment, maintenance, merchant relationships).
- Target a stable monthly transaction count of ~150–200 per ATM.
Validation & Refinement (Months 6–12):
- Analyze performance of existing machines and refine location criteria.
- Negotiate additional placements with the help of positive references from pilot merchants.
- Aim to add 2–3 new ATMs in carefully selected sites by the end of Year 1.
Scaling (Years 2–3):
- Focus on saturating local markets with proven location types (convenience stores, busy bars).
- Reinvest profits into purchasing additional machines (preferably 5–10 new ATMs annually).
- Maintain conservative growth—only expand when the pilot sites reach stable profitability and there is sufficient cash flow to support new deployments.
Optimization (Years 3–5):
- Monitor underperforming machines (below 100 transactions/month) and relocate or renegotiate surcharge splits.
- Optimize cash management by rotating ATMs with higher transaction volumes or through outsourcing services if it reduces overall cost.
- By Year 3, aim for 20–30 machines, each generating consistent profit.

6. Cost Structure and Cash Flow Planning

Initial Startup Costs (for first 3–5 ATMs):

ATM Machines (3 @ $2,500 each): $7,500
Installation & Setup (3 @ $400 each): $1,200
Branding & Marketing Collateral: $500
Legal & Administrative Fees (LLC formation, permits, etc.): $1,000
Insurance (annually): $800
Working Capital (Cash Float): $10,000–$15,000 (varies depending on daily/weekly load requirements)

Approximate Total Initial Outlay: $21,000–$26,000

Ongoing Monthly Operational Costs (per machine):

Merchant Commission: Varies by transaction volume
Maintenance & Telecom: $70–$150 combined
Insurance: $40–$80 total monthly (spread across machines)
Cash Replenishment: Either self or outsourced cost

Cash Flow Planning Considerations:

Timing of Surcharge & Interchange Payments: Typically, you receive the surcharge revenue directly or via ACH within 24–48 hours. Interchange fees can be received monthly or weekly.
Cash-on-Hand: Ensure a sufficient reserve for refilling ATMs. High-traffic machines may require replenishment multiple times per week.
Debt Repayment: If machines or startup were financed, factor in monthly loan/lease payments.
Profit Reinvestment: Profits from the first year can fuel expansion into additional machines for accelerated but controlled growth.

7. Risk and Mitigation Strategies

Location Risk: The site might underperform if foot traffic is overestimated.
- Mitigation: Thoroughly research foot traffic, confirm other successful ATMs in the area, negotiate initial trial periods with merchants.
Security Risk: Theft or vandalism can disrupt operations.
- Mitigation: Insurance coverage, strategic placement of machines, security cameras, reinforced ATM units.
Regulatory/Compliance Risk: Bank Secrecy Act (BSA) and other regulatory frameworks.
- Mitigation: Stay updated with industry regulations, maintain clear financial records, partner with a reputable ATM processor.
Cash Flow Risk: Insufficient cash to keep machines filled.
- Mitigation: Accurate demand forecasting, maintain strong credit lines or relationships with banks for short-term liquidity.
Technological Risk: Upgrades required (EMV, NFC, etc.).
- Mitigation: Purchase or lease newer machines capable of upgrades, budget for periodic software/hardware updates.

8. Marketing & Sales Strategy

Merchant Outreach: Directly contact local businesses with a simple value proposition: earn additional income while providing a valuable service to customers.
Referral Networks: Partner with local business associations and Chambers of Commerce.
Competitive Surcharge Strategy: Set surcharges based on local market norms. Offer a favorable split to merchants as an incentive.
Customer-Centric Focus: Position the ATM(s) in easily visible and safe locations. Good signage and lighting boost usage.

9. Management & Operations

Owner/Operator: Oversees vendor relationships (ATM suppliers, telecom providers), manages finances, signs up locations, and handles day-to-day operations (or oversees employees).
Technician/Service Personnel (in-house or outsourced): Handles installation, maintenance, repairs, and cash replenishment.
Accountant/Bookkeeper: Monitors monthly transactions, reconciles surcharges, pays out merchant commissions, and files taxes.

10. Financial Projections (Illustrative)

Below is a simplified projection for the first three years, assuming conservative assumptions and a gradual scale-up.

Year 1

Machines Deployed: 5
Average Transactions/Month/Machine: 150
Monthly Revenue per Machine: $2.50 surcharge × 150 + interchange = ~$375–$400
Monthly Expenses per Machine: $200–$250 (commissions + maintenance + other fees)
Monthly Profit per Machine: $125–$200
Annual Net Profit:
- (Monthly Profit per Machine) × 12 × 5 machines = $7,500–$12,000

Year 2

Additional Machines: +5 (Total 10)
Improved Transaction Volume: 175 transactions/month/machine
Monthly Profit per Machine: $150–$250
Annual Net Profit:
- (Monthly Profit per Machine) × 12 × 10 machines = $18,000–$30,000

Year 3

Additional Machines: +10 (Total 20)
Transaction Volume: ~200 transactions/month/machine
Monthly Profit per Machine: $200–$300
Annual Net Profit:
- (Monthly Profit per Machine) × 12 × 20 machines = $48,000–$72,000

These figures are indicative and heavily dependent on actual transaction volumes, surcharge rates, merchant splits, and operating costs.

11. Planned Exit Opportunities

Private Sale / Acquisition:
- Larger ATM operators or private equity firms may seek to acquire smaller networks, paying a multiple of EBITDA or a per-machine valuation if the machines have good transaction volumes and stable revenue.
Partnership / Merger:
- Merge with another local independent operator to increase bargaining power with processors, reduce overhead costs, and combine networks for higher valuation.
Passive Income / Operator Model:
- Continue operating the machines as a stable cash-flow business without a formal exit. Often, owners keep a lean staff or outsource day-to-day tasks and collect ongoing revenue.
Franchise or Licensing Model:
- Once proven, replicate the business model in adjacent markets, recruiting local operators who pay a fee or revenue share for access to branding, network, and supply chain.

Conclusion

Starting an ATM business can be highly profitable with the right location strategy, competitive surcharge rates, strong merchant partnerships, and efficient operations. By beginning with a small network of machines and incrementally scaling up, entrepreneurs can manage risk and maintain steady cash flow. Ultimately, the business can be positioned for a lucrative exit or retained as a reliable, semi-passive income stream once operational processes are refined and key relationships are established.

Disclaimer: The numbers and strategies provided here are for illustrative purposes and should be customized based on local regulations, market dynamics, and actual costs. It is advisable to consult with a financial advisor, accountant, or industry professional before making any business decisions.

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