Custom Builders Business Plan

Thomas
Custom Builders
BUSINESS PLAN
Business Plan Prepared By
Joe Thomas, owner
Thomas Custom Builders
12345 W. North Street

Anytown, ST 55555
(303) 555-1234
Date Prepared
January, 200B
Thomas Custom Builders Business Plan
Table of Contents
EXECUTIVE SUMMARY 5
MANAGEMENT AND ORGANIZATION 7

Management team 7
Compensation and ownership 7
Board of Advisors 7
Infrastructure 8
Contracts 8
Insurance 8
Employee stock option plan and other incentives 9
Organization charts 9
PRODUCT AND SERVICE PLAN 10

Purpose of the product or service 10
Unique features 10
Stage of development 12
Future research and development 12
Trademarks, patents, copyrights, licenses, royalties 12
Government approvals 12
Product and service limitations 13
Product liability 13
Related services and spin-offs 13
Production 13
Facilities 14
Suppliers 14
Environmental factors 14
MARKETING PLAN 15
Industry profile 15
Current size 15
Growth potential 15
Geographic location 16
Industry trends 16
Seasonality factors 17
Profit characteristics 18
Distribution channels 18
Basis of competition 18
Competition profile 19
Customer profile 19
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Target market profile 19
Pricing profile 20
Gross margin on products 20
Break-even analysis 21
Market penetration 21
Distribution channels 21
Sales representatives 22
Direct sales force 22
Direct mail/telemarketing 22
Advertising and promotion 22
Packaging and labeling 23
Service and warranties 23
Trade shows 23
Future markets 24
OPERATING AND CONTROL SYSTEMS 25

Administrative policies, procedures, and controls 25
Receiving orders 25
Billing the customers 25
Paying the suppliers 25
Collecting the accounts receivable 25
Reporting to management 26
Staff development 26
Inventory control 26
Handling warranties and returns 26
Monitoring the company budgets 27
Security systems 27
Documents and paper flow 28
Planning chart 28
Product development 28
Manufacturing 29
Financial requirements 29
Marketing flow chart 30
Market penetration 30
Management and infrastructure 30
Risk analysis 31
Salvaging assets 32
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GROWTH PLAN 33
New offerings to market 33
Capital requirements 33
Personnel requirements 33
Exit strategy 34
FINANCIAL PLAN 35
Sales Projections 35
Income Projections 35
Cash Requirements 35
Sources of Financing 36
Projected Financial Statements
Projected Cash Flow Statements
Projected Year-End Income Statements
Projected Year-End Balance Sheet
Ratio Analysis
SUPPORTING DOCUMENTS APPENDIX

Sales Projections
Inventory Projections
Operating Expenses Projections
Capital Budget Projection
Equity & Debt Worksheet
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Executive Summary
Venture Description
Thomas Custom Builders (TCB) is a professional custom home design and construction company
focused on luxury speculative and custom homebuilding in the $300,000 to $1,000,000 plus price
range.TCB will build homes in the metropolitan area initially on the north side and expanding to
the south.The concept combines both a service (architectural design and construction
management) and a product (speculative homes for sale). Industry growth figures for the last
twenty years support additional depth in the luxury home markets.Thomas Custom Builders is
currently in the start-up phase of development and is seeking financing for start-up expenses and
capital expenditures.
At the center of TCB’s strategy is a commitment to approach the emotional and frequently
frustrating task of designing and building a home in a professional and decidedly customer-focused
manner. Each home will be customized based on the client’s desires at whatever stage he or she
enters the process. As a registered architect with 20 years of experience in the design and
construction industries, Joe Thomas will serve as the client’s point of contact throughout the design
and construction processes. Not only will he provide the design leadership, but he will also be the
daily field supervisor.Therefore, clients will be assured their exact design concepts will be upheld
throughout the construction phase.
Venture Organization
Joe Thomas, owner of Thomas Custom Builders (TCB), is the primary decision maker and will be
responsible for managing all areas of the business for the first three years including marketing
strategies, financial goals, subcontractor relationships, conceptual design, and general contracting on
the home building projects. After the third year of operations, two positions will be added to the
company—an office manager and a construction supervisor.
Venture Market
The concept of Thomas Custom Builders is born of the industry’s lack of diversity and originality.
Custom homes today, in most instances, are merely expanded starter homes with little attention
given to architectural detail or current owner lifestyles.The vast majority of subdivisions today are
built on the same model as was used in the 1940s and 1950s.This model simply maximized density
by building many homes as rapidly as possible to meet the high demand of World War II veterans
returning to civilian life.Today’s and tomorrow’s discerning homebuyer will demand more personal
service, more sensitivity to environmental issues, higher quality and more choices.The sophisticated
customer who is dissatisfied with products and services offered in the current marketplace is the
target.TCB’s policy will be to exceed the client’s expectations and to exceed market norms.They
will do this by providing open communications—particularly those related to design, cost and
scheduling issues, holding focus groups bi-annually to stay ahead of emerging trends, providing
environmentally responsible fixtures and systems, and building "smart" technologies into each
home’s infrastructure.
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Backed by a historically recorded 256% industry growth rate since 1980, Anytown’s metropolitan
statistical area (MSA) is ranked eighth out of the country’s seventy-five largest MSA’s in percentage
of homeownership. Growth projections indicate a modest 3 _% industry growth rate into 200B,
slightly exceeding the national average and giving Thomas Custom Builders an opportunity to
benefit from depleted inventories and pent up demand, as the economy ramps up again in 200C. A
major goal will be to have a home entered in the spring 200DTour of Homes—Anytown’s premier
showcase for residential builders.
Venture Operations
It is anticipated that nearly all services related to the production of houses will be out-sourced
during the first five years. The owner will do initial design work, but production drawings and
renderings will be subcontracted. In the construction phase, estimating, scheduling and
procurement will be handled in-house. Thomas Custom Builders will act as general contractor and
will seek to purchase all required materials and have them delivered to the site. Subcontractors will
be hired based on labor-only contracts.
Venture Financing
Minimal start-up costs are expected in two general categories (marketing and operations) with the
bulk in operations. Costs in this category will include such items as vehicle lease payments, supplies,
printing, and accounting fees. Start-up costs are estimated at less than $15,000 and are included in
first-year budget projections.This amount should be enough to build six speculative homes.
Thomas Custom Builders’ owner, Joe Thomas, intends to commit a total of $50,000 of equity to be
used as collateral—consisting of a combination of liquid mutual funds, home equity, an existing
vehicle, and computer equipment—toward start-up capital. Debt financing is sought to cover both
land acquisition and construction processes. Financing from a single source will be preferred to
develop a mutually beneficial working relationship with a lender.
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Management and Organization Plan
Management team
Joe Thomas, owner of Thomas Custom Builders (TCB), is the primary decision maker and will be
responsible for managing all areas of the business for the first three years including marketing
strategies, financial goals, subcontractor relationships, conceptual design, and general contracting on
the home building projects.
After the third year of operations, two positions will be added to the company—an office manager
and a construction supervisor.The office manager will administer the daily operations of the office
guided by a detailed Operations Manual. The responsibilities of the office manager will include (but
not be limited to) accounts receivable and accounts payable, communication link with clients and
subcontractors, record keeping and marketing activities.
The second position will be a construction supervisor. The supervisor will primarily work with the
clients and subcontractors on daily aspects of home building, leaving the overall building and
business development strategies to Mr.Thomas.
Compensation and ownership

For the first three years, the primary compensation will go to the owner, Joe Thomas. Mr.Thomas
will be taking a moderate draw of $36,000 (as well as enough cash to cover the income taxes for
the prior year) for each of the first three years. After the third year he will take a market-rate draw
to be determined. The two positions that will be hired after the third year will receive salaries
equivalent to market rates considering their individual level of experience and responsibilities.
Ownership in Thomas Custom Builders, a sole proprietorship, will remain with Joe Thomas.
Options for employee ownership may be considered after the fifth year of operations.
Board of Advisors
Thomas Custom Builders wishes to enlist a Board of Advisors made up of successful entrepreneurs
and business owners, to provide guidance, inspiration, and legitimacy. A list of potential advisors follows:
➤ Chris Vincent (President/Owner: National Architectural Systems—gives insight into the

architectural industry trends and growth potential)
➤ Terry Allistar (President, Allistar Development Company—provides much-needed

information about general contracting and the building industry)
➤ Sam Ngysen (Executive Vice-President, Sandstone Economic Development Company—

has information and contacts locally to help achieve financing goals)
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➤ Shannan Anderson (Owner, Marketing Mélange—background in building contracting
and currently designs marketing programs)
➤ Alice Gearion (President, Plumbing Partners—blends experience defining and measuring

strategic planning processes with a good knowledge of the subcontracting aspects of
residential building)
➤ Juan Escobar (Owner, Computer Concepts—provides insight into computer trends

and aspects of transforming sole proprietorship to a publicly traded company)
Infrastructure
TCB will need to contract with the following professional consultants. These incidental costs are
accounted for either as expenses or as cost of the product.
➤ Accountant/Bookkeeper
➤ Insurance Broker
➤ Information Technology Specialist
➤ Graphic Design and Advertising
➤ Drafting Service
➤ Attorney
Contracts
Thomas Custom Builders will rely on several standard contracts to govern the operations of the
company and the relationships with clients, subcontractors, and vendors. An attorney will review
and append contractual agreements as needed. Labor-only contracts will be used for
subcontractors to execute the varied construction procedures.
Insurance
Several insurance policies will be used to manage the regular business risk associated with architectural
services and building contracting. Property insurance to protect the business equipment against
physical damage or theft will be covered for the first three years under Mr.Thomas’ homeowner’s
insurance policy. General liability insurance and architects’ errors and omissions insurance will be
acquired to help cover costs and protect the business’ assets and Mr.Thomas’ personal assets in the
unlikely event that a suit should be filed. Life insurance will be acquired for Mr.Thomas. Health
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insurance, worker’s compensation and other employee-related insurance policies would be considered
after the first three years of operations. Liability and builder’s risk insurance will be required for each
individual project or group of projects, to cover jobsite injury risks for the subcontractors and other
comprehensive industry-standard risks associated with construction. Subcontractors will provide their
own insurance and bonding. They must show proof of insurance for worker’s compensation and
general liability prior to working on any project.
Employee stock option plan and other incentives

Employee ownership plans and other incentives will be considered as a motivational tool for future
employees after the first five years of operations.
Organization charts
Mr.Thomas, as sole proprietor, will wear many hats in the beginning, and will continue to do so until
the end of the third year of operations. Luckily, the construction industry is a linear process. First,
Mr.Thomas will see to the market research and land acquisition aspects. Next, he will put on his
designer hat and do the conceptual design work. Once the home designs are in production, he will
concentrate on marketing brochures and arranging trade show materials.
Once design is complete, Mr.Thomas will concentrate on estimating, purchasing, scheduling and
contracting with labor and material vendors. Finally, once construction is underway, Mr.Thomas will
provide daily field supervision on the site to ensure timely and accurate completions.
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Product and Service Plan
Purpose of the product or service

Thomas Custom Builders is a design and construction company focused on luxury speculative and
custom homebuilding. The purpose is two-fold in providing design and construction services, and
ultimately, the product—custom homes.
The primary goal is to provide clients with an overall positive experience that will last beyond the
sale of the home and expiration of the warranty. Today’s sophisticated homeowners not only
deserve to be treated in a truly professional manner, they demand it.
The secondary goal is to build homes and neighborhoods that are diverse and original. TCB homes
will be sensitive to family interaction, safety, converging lifestyles, emerging technologies and
environmental responsibility. Thomas Custom Builders intend to be in the top 5% of all competing
builders in the metropolitan area, relative to model communities and product quality.
Unique features
The primary benefit Thomas Custom Builders offers to customers is a seamless design and
construction process with the same person at the helm of both activities. For homeowners, this
feature will result in accuracy in applying design details, enhanced communication and an interactive
process in which the homeowner becomes a welcome collaborator during the entire process. This
simple approach will solve a variety of concerns for customers, including that:
➤ A professional architect will be in charge of the construction.
➤ They have creative input at any stage of design or construction.
➤ Weekly project visits during construction will assure concerns are being addressed and
will keep clients involved in decision making.
➤ Accurate scheduling will take the stress out of move planning.
➤ Accurate estimating will allow rational decisions to be made regarding changes.
Unique features of services

➤ Joe Thomas will personally provide architectural services or will coordinate and
participate in the design process in the event a client wishes to employ his or her own
designer. This coordination assures clients that their unique and creative ideas are
effectively tested and integrated into the final design.
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➤ Thomas Custom Builders will communicate on a weekly basis during the design and
construction phases of the work. Design, budget and schedule issues will be discussed
and an action plan generated that the client can easily understand and monitor. This
open communication is the key to delivering homes in the agreed upon, timely manner.
➤ Thomas Custom Builders will provide hands-on effort. Clients will deal directly with the
owner Joe Thomas on all matters pertaining to design and construction activities
throughout the process. In this manner, homeowners will benefit from direct input to
the designers and subcontractors.
➤ Thomas Custom Builders will seek to provide premium products in TCB homes and
lessen the negative psychological impact of offering a large shopping list of additive
options.
Unique features of products

Focus groups and design activities will form the basis for the bulk of the speculative home’s features.
Some current ideas to be incorporated into both speculative and custom homes include:
➤ Mature Landscaping—Home sites will retain some native vegetation. In addition,

new landscape materials of sufficient size and scope to truly enhance curb appeal will
be supplied.
➤ Traffic Control—Home sites will provide sufficient traffic controls and land planning
techniques in order to promote safety and deter crime.
➤ Porches—Homes will prominently feature large front or side porches as a design

element. They will be large enough to be furnished and are intended to promote
neighborhood interaction. Porches also provide a protected and observable location for
children to play.
➤ Smart Tech—Homes will be wired for "smart" technologies. As computers,

communications, and digital education and entertainment become more available, homes
will be ready to move forward at the client’s pace without invasive major infrastructure
improvements.
➤ Environmentally Responsible—Homes will incorporate energy- and natural-resource

saving devices in order to operate efficiently. Clients will benefit from reduced energy bills.
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Stage of development
This business plan completes the idea and concept development stage. Thomas Custom Builders
is prepared to move into the start-up stage of business. In this stage,TCB will concentrate on
identifying the necessary plans, resources, and people needed to begin the initial operations stage
by March 200C.
Future research and development

Research is the key to offering a product and service that meets the needs of the target audience.
Therefore, continued research concerning the market and industry will be gathered and assessed to
determine changes necessary in design, construction, service, etc., to meet the demands of the
discerning customer. Mr.Thomas will join several trade groups, including the Residential Builders
Association, to keep up on local, regional, and national trends. Also, focus groups will continue to be
a source of research defining the speculative home’s features.
Trademarks, patents, copyrights, licenses, royalties

The main intellectual property produced by Thomas Custom Builders is the architectural house
plans. All plans created are original and proprietary. TCB will remain owner of all rights to
architectural plans. A license fee, included in the architectural fee, will be paid by the client for the
right to use the plans for the express purpose of building a house. In rare instances, a client may
desire to purchase the rights to the home plans for an original, custom designed plan. In such cases,
a separate fee will be negotiated.Thomas Custom Builders will provide architectural seals as
copyright protection on all its plans. In addition to this, a logo will be developed and a service mark
established in the state. A federal service mark will be sought to support expansion into additional
states. This expansion may take the form of licensing. All printed material, such as brochures and
insert sheets will be copyrighted.
Government approvals
The Secretary of State requires that a fictitious name be registered. Thomas Custom Builders has
completed that process for a sole proprietorship. Although the state does not require home plans
to be created and sealed by a registered architect,Thomas Custom Builders will provide
architectural seals as copyright protection on all its plans. During the construction process, local
building department inspections and permitting will be required as is normal in the industry.
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Product and service limitations
Each home plan is an individual effort. As such, each home plan is a custom product and may not
find additional use. However, because plans will be based on consumer trends and on-going focus
group data, an opportunity to remarket existing plans with slight modifications may arise. Licensing
may be another limitation concerning expanding the business out of state, requiring additional
capital to retrain personnel to meet requirements.
Product liability
The primary liability concerning the building projects is for safety to the workers on the project.
Liability and builder’s risk insurance will be required for each individual project or group of projects,
to cover jobsite injury risks for the subcontractors and other risks associated with construction.
Subcontractors will provide their own insurance and bonding.
Related services and spin-offs

Wide varieties of potential spin-off ideas exist within the context of residential design and
construction. For example:
➤ A Plan Shop could be created to market house plans to individuals and to other builders.
➤ Real estate location specialists could be offered to clients moving in from out of state.
➤ Interior decorating services may assist clients in furnishing and decorating their homes.
➤ Landscape design and installation services could be offered at a fee.
➤ Special services such as delivery, personal assistants, etc. could be offered to clients at a
fee to help them conserve their family time at home.
Production
It is anticipated that nearly all services related to the production of houses will be out-sourced
during the first five years. The owner will do initial design work, but production drawings and
renderings will be subcontracted. In the construction phase, estimating, scheduling and
procurement will be handled in-house. Thomas Custom Builders will act as general contractor and
will seek to purchase all required materials and have them delivered to the site. Subcontractors will
be hired based on labor-only contracts.
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Facilities
For the first three years of operations, the company will be managed from Joe Thomas’ home office.
This arrangement has several advantages. Many expenses (such as utilities, rent, and repairs) will be
reduced or eliminated, allowing for additional funds to be invested in loan repayment and future
growth. The home office is already equipped with the necessary office equipment, provided by Joe
Thomas. The home office is in the initial target region making it convenient for Mr.Thomas to
supervise production.
Suppliers
One of the keys to building a luxury home is to start with premium building materials and
products. TCB has identified suppliers that can make these first-rate materials and products
available in a cost effective and timely manner. In addition, a back-up supplier for each type of
material and product needed has been identified. (A list of reliable suppliers and an appropriate
back-upback up is included in Appendix A.)
Environmental factors
Thomas Custom Builders has an effect on the environment by the way the land is developed and
how homes are placed on a lot. First, the land is assessed for natural drainage and mature
landscaping. As much native vegetation as possible will be retained on each lot. In addition, new
landscape materials of sufficient size and scope to truly enhance curb appeal will be supplied.The
homes will be built to incorporate energy and natural resource saving devices and products in
order to operate efficiently. In addition, all marketing materials will be printed with environmentally
friendly materials and processes.
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Marketing Plan
Industry profile
Current size
As the largest single industry in the United States, construction represents an annually adjusted rate
of $830.5 million of product put in place as of January 200A, according to the US Commerce
Department Census Bureau. This represents a 3% increase over value in the previous year.
Of the entire construction industry, the Census Bureau indicates that housing represents the single
largest market sector within the industry at 32%.
In Anytown, the Residential Builders Association reports 9,377 housing starts in 200A – a 16%
decline over the record-breaking numbers from the previous year. Current projections for next
year indicate a slight decline to 9,148 units. This decline is normal and expected in the industry.
Historically, the longest run of declines lasted only three consecutive years – when interest rates
were at their peak. In all instances, the market has rebounded significantly in the years following
back-to-back declines.
Growth potential
US Industry and Trade Outlook-200A projects a national industry growth rate of 2.2% through 200C.
Historically, Anytown’s metropolitan statistical area (MSA) has enjoyed a consistent expansion in the
housing industry over the last twenty years. The Census Bureau figures show a 256% increase from
3,656 units to 9,337 units over the last 20 years. During that twenty-year run the local industry has
suffered only two periods of decline lasting two years or longer. Since 1990, the local industry has
enjoyed consistent growth with only two flat periods occurring in 1995 and 1997. This growth rate
has resulted in a homeownership rate of 73.6% in 200B, placing Anytown eighth out of the 75
largest MSA’s.
The Residential Builders Association industry experts project housing starts to rise to approximately
10,500 units peaking in 200D with a leveling out period with approximately 10,000 starts in 200E and
200F. This statistic coincides with a projected economic growth of 3.5%—approximately one-half
point above the national average, according to the Metropolitan Area Regional Research (MARR).
Four counties—Potter, Sandstone, Jefferson and Carter—are poised for modest growth according to
local industry experts. Potter and Sandstone Counties lead the way with 23% of all permits issued in
the metropolitan area. Eastern Jefferson County is showing positive signs. Current inventories are
being absorbed in these areas and show no signs of overbuilding in the upper price ranges.
Correspondingly, the Potter County Economic Research Group’s Economic Data Service reports
that the number of construction firms in the same four-county area has shown consistent growth
except for the years in which all areas experienced a decline.
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Geographic location
Thomas Custom Builders intends to focus initial efforts in the north portion of the metropolitan
area, primarily Potter and Sandstone Counties. Subdivisions such as Ramble Lake, Bushel Cliff and
Bluebird Haven offer ease of access to the airport and major retail outlets such as Home Supply,
On the Border Books, Clothing Place, etc. Also attractive in the north is less density, and great
access to the highway system. TCB will expand its home construction to the south after the first
three years of operation.
Industry trends
The key trend influencing the growth and direction of the housing industry, in particular the luxury
housing industry, is the baby boomer’s accumulation of wealth and the projected largest transfer of
wealth from one generation to the next that this country has ever experienced. Because the
housing market tends to be highly sensitive to economic factors and financial markets, the
disposition of wealth and legendary conservatism of the Midwest indicates continued growth in
residential real estate for the foreseeable future.
Other important trends include:
➤ Midwestern states have fared better economically in previous downturns than other
areas of the country.
➤ Delayed boomer buying and lack of affordable housing in the metropolitan area has led
to pent-up demand and lack of inventory for luxury housing.
➤ Interest rates are expected to fall to the lowest levels in a decade. This shift should
create opportunities for those delaying buying and moving up.
➤ Consumer loss of confidence in the stock market may prompt more buyers to reinvest
their money in residential real estate.
➤ Affordability issues have caused a steady decline in homeownership for younger

Americans ages 25-39. A more mature and informed buyer has emerged as a result.
➤ The homebuilding industry is primarily made up of small businesses, building 25 or fewer

units per year, according to the Encyclopedia of Industries in the U.S.A.—200A.
➤ Increased governmental regulation has intensified affordability issues, but raised

consumers’ consciousness of environmental issues related to homebuilding.
➤ Recent energy costs have renewed consumers’ interest in and demand for conservation
technology.
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➤ "Smart" technology – wiring for data and communications — is becoming more accepted
and demanded as home offices continue to increase and people have less leisure time.
➤ Fashion trends in housing design continue to become more inventive as the world
economy becomes increasingly global.
Appendix B contains a set of press releases and papers containing projections, statistics and
comments on a variety of important design issues. Thomas Custom Builders will use information
such as this, coupled with local focus-group input to determine design direction for homes. Some
of the more interesting trends identified by this survey, Looking Back to See the Future, are:
➤ A trend toward less living space and a contradictory trend towards more special activity
space, such as home offices, home theatres, home spas, studios, etc.
➤ More open and multi-functional space
➤ Reduction of the formal dining room
➤ Automation and energy control devices
➤ Environmentally friendly construction processes, furnishings and marketing materials
➤ Multi-functional master suites
These are all exciting trends. While much research into consumer preferences exists, the
homebuilding industry is notoriously slow to incorporate emerging trends. Only a few elite builders
seem to take these issues seriously. The larger the company is, the slower it is to embrace anything
that threatens the formula.
Thomas Custom Builders can succeed beyond the majority of competitors in keeping pace with
trends. TCB is a new venture driven to incorporate emerging trends with conviction competitors will
not match. The intent is to lead, remain flexible and operate within specific profitability guidelines.
Seasonality factors
The construction industry is always subject to the weather. However, most home construction
projects proceed without major delays or disturbances throughout the year. Normal weather
conditions (rain, heat, snow, etc.) are expected and accounted for when committing to a building
contract. Under normal weather conditions, a house can be constructed in six months. Severe
weather (such as hail, tornadoes, high winds, etc.) can have an effect on completion times and
profits. Since such events cannot be forecasted, any catastrophic losses and delays in construction
due to these events will be covered by insurance.
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Profit characteristics
Industry-standard gross margins range from 32% in companies with assets under $100,000 to 15%
in companies with assets over $50,000,000, according to Dun & Bradstreet financial statement
studies for the years 200A-200B. A similar tightening of the net profit margin occurs as a company
grows. Net profit margins range from 6.5% in companies with assets under $100,000 to 2.5% in
companies with assets over $50,000,000.
With inventory projected at three homes each year,Thomas Custom Builders will have assets in the
$1,000,000 to $5,000,000 range. Following are some key profitability ratios for companies of this
size, according to Dun & Bradstreet:
Gross margin 17%
Net profit after tax 3%
Quick Ratio 1 time
Current Ratio 1.5 times
Distribution channels
There are not specific distribution channels in the residential construction industry; however, typical
ways to sell the final product—the home—do exist. Although many tactics will be initiated to
increase the clients’ knowledge of Thomas Custom Builders, a contracted real estate agency will
handle all sales. Possible companies to consider are:
➤ Coldstone Banker
➤ Decade One
➤ Refax
➤ Realty Partners
Basis of competition
There are no specific licensing or education requirements in the construction industry; therefore,
anyone can start this type of business. This openness creates a varied basis of competition in a local
construction marketplace. In some cases, one- to two-person companies compete against nation-
wide conglomerates. A majority of custom builders in Anytown come from families of builders that
have been established locally for generations. Other custom builders come from accounting and
business backgrounds. Only a select few come from a design or architecture background. This
distinction will serve to further reduce competition for Thomas Custom Builders because it
approaches the market from a design/build perspective, with emphasis on custom design and
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service. Buyers will work directly with owner Joe Thomas during the design phase and will be
assured that Mr.Thomas will continue his high level of service as general contractor.
Competition profile
The Residential Builders Association lists 445 members engaged in home construction, remodeling
or land development in the metropolitan area. Of that number, 49 builders are building homes in
the targeted price range of $300,000 and higher in the four targeted counties—Potter, Sandstone,
Jefferson, and Carter. Of the 49, approximately half are doing business in Jefferson and Carter
County while half are building in Potter and Sandstone counties. Less than five of these builders
build both north and south. Fewer still are engaged in true design/build construction delivery. A list
of custom builders building in the $300,000 plus range is included as Appendix C.
Thomas Custom Builders seeks a modest market share, beginning with 3 units sold in 200C, 6 units
sold in 200D and eight units sold in 200E. This model fits with the historic growth rate in residential
construction companies in the metropolitan area and with the projected increase in housing starts
over the next three years.
Customer profile
Thomas Custom Builders will cater to a sophisticated and demanding clientele, targeting individuals
(30 to 55 years old) and families. Typically, customers will be double-wage earning families or mid-
to upper-level executives. In our price range, customers tend to be well educated with household
incomes exceeding $50,000 per year.
Owners will be dissatisfied with standard offerings of other builders and will be concerned with closely
monitoring the construction process. They will be interested in innovative design, "smart" technologies,
and energy and resource conservation. These will be busy professionals who expect the most from
their builder—the most service, the most communication, the most value and the most innovation.
They will be open-minded and will seek to find a builder who understands their lifestyles and who
can offer solutions that enhance those lifestyles. They will also care about how the home may be
perceived by future buyers. These are upwardly mobile individuals who likely will not stay in the same
place too long. Therefore, homes will need to appeal to general as well as to individual tastes.
Target market profile

Thomas Custom Builders intends to focus initial efforts in the north portion of the metropolitan
area. Subdivisions such as Ramble Lake, Bushel Cliff and Bluebird Haven offer ease of access to the
airport and major retail outlets. Also attractive in the north is less density, and great access to the
highway system. Touting proximity to the airport and highways will be a major selling point for
corporate relocations—one targeted customer.
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TCB will initially work in Potter County because of existing business contacts and Mr.Thomas’s
established reputation there. Potter County is a fast-growing suburban area populated by
individuals and families who fit TCB’s customer profile. The County is expected to see a 20%
increase in the number of households over the next 10 years. Potter is the second wealthiest
county in the state; the median household income in 200A was $53,000. Four targeted zip codes
boast median incomes of over $65,000. The county has ample undeveloped land and plenty of
room for expansion.
Pricing profile
Thomas Custom Builders is in the business of producing custom homes on made-to-order and
speculative bases. Because each home is individually designed, it is not possible to set a specific
price before the completion of the designs and purchase of materials and labor at current market
rates. The strategy is to employ a "cost plus" basis for pricing. Using premium materials and
advanced technology, pricing will be at, or very near, the top of the market. It is imperative that
marketing materials and sales strategies clearly identify those perceived values that will cause
prospects to choose TCB homes over those of the competition.
For the purpose of this business plan, the following conservative industry standards and rules-of-
thumb were used for projections:
➤ Developed land costs at an average of 25% of the total value of TCB’s building cost of
the home
➤ A 15% gross margin
➤ An average home selling price of $350,000
Gross margin on products

Basing gross margin on the industry standard of 15% of gross sales,*, * the first year cost of goods
sold for construction will be $892,500 ($297,500 each for three houses sold of six built) plus land
costs of $223,125 ($74,375 each for three lots) for a total of $1,115,625.
Year 2 will accumulate cost of goods sold of $2,231,250 on an inventory of six sold homes,
including the lots.
Year 3 will accumulate cost of goods sold of $2,975,000 on an inventory of eight sold homes,
including the lots.
For these purposes, the cost of goods sold includes subcontracted labor and materials, land
acquisition, design, real estate commissions, field supervision, builder’s risk insurance, warranty
service.
20
Gross margin on projected
COST OF GOODS SOLD
sales for the first three years of
operations are calculated at 4000000
15% of gross sales and are 2,975,000
3500000
given respectively as follows:
3000000
DOLLARS
➤ Year One (200C) 2500000
2000000 2,231,250
$196,875
1500000 1,115,625
➤ Year Two (200D) 1000000
$393,750
500000
➤ Year Three (200E) 0
YEARS
$525,000 200C 200D 200E
* Based on Dun & Bradstreet’s financial statement studies, 15% is an average gross margin for
companies with over $50,000,000 in assets. Although TCB’s assets will amount to considerably less
a 15% gross margin has been chosen as a conservative projection.
Break-even analysis
Break-even is calculated as total fixed costs divided by gross margin on one product.
Fixed costs = $113,014 = 1.72

Gross margin 65,625
Therefore,Thomas Custom Builders must sell 2 houses in a timely manner to break-even.
Market penetration
Distribution channels
A series of challenges and hurdles must be overcome to build a solid reputation that will carry TCB
well into the next decade. Among them,
➤ TCB is a new business in an industry that relies heavily on referrals and track records.
➤ Tight labor markets and premium material pricing may cause difficulties for a newcomer
to the industry.
21
Thomas Custom Builders intends to enter the marketing as a speculative builder with an inventory
to sell. It is imperative to an overall strategy to cultivate very satisfied customers who will provide
glowing referrals in the future.
Sales representatives
Sales will be handled by a contracted real estate agency with a strong performance track record
both in the location and price range in which Thomas Custom Builders will compete. Possible
companies to consider are:
➤ Coldstone Banker
➤ Decade One
➤ Refax
➤ Realty Partners
Direct-sales force
The direct sales force currently consists of Mr.Thomas. His sales activities will be restricted to
appearances at trade shows, meetings with potential clients, and relationship building with realtors,
suppliers, lenders, etc. Thomas Custom Builders will actively seek out corporate relocations and will
establish relationships with relocation real estate professionals.
Direct mail/telemarketing
Neither direct mail promotions nor telemarketing efforts are expected at this time.
Advertising and promotion

Advertising and promotional efforts will take place throughout the year. Both the real estate
agency and the owner, Joe Thomas, will be responsible for these activities. An important element in
advertising and promotional strategies will be to effectively establish the brand for TCB as a luxury
homebuilder. Brand awareness will be created by:
➤ Joining local chambers of commerce and associations that foster networking.
➤ Preparing interesting business cards and brochures that will be distributed to prospective
customers and other enablers in the industry.
➤ Judicious advertising in appropriate magazines and journals that target the customer
profile.
22
➤ Sponsoring events that target real estate brokers and involve them in design issues.
➤ Affixing signs to truck and properties.
Packaging and labeling

Even though TCB’s end product (a finely crafted home) is not packaged and sold in a retail setting,
the branding of the product is important. An attractive sign with Thomas Custom Builders’ name
and contact information will be placed in the front lawn of each home while in the construction
and holding stage. In addition, branding will be implemented through high quality marketing
materials targeted to the discerning customer. Inside the model home, company sales brochures
and insert sheets will be available.
Service and warranties

Builders commonly provide a standard warranty to new homeowners that covers structural and
mechanical defects for one year. Many times houses settle or shift slightly during the first year of
occupancy. This movement can often cause small cracks in woodwork and/or sheetrock. Normally,
the client makes a list of repairs or replacements requested during the first year of ownership. At the
end of the year, the builder makes all repairs and replacements that relate to the house as built by the
builder. No repairs or replacements are made concerning materials or changes made by the owner.
In addition to this standard,Thomas Custom Builders provides warranty checks during the
construction of the home and one month after the house is complete. With this strategy, many
repairs and replacements are made quickly so as not to create additional problems. The clients
understand the benefit since they do not have to wait 12 months to have several simple
repairs completed.
All appliances and other products installed or provided by Thomas Custom Builders will be covered
by the manufacturers’ warranty, which is typically one to seven years depending on the product.
Trade shows
Trade shows will provide a valuable marketing outlet for Thomas Custom Builders. Typically in the
metropolitan area, two home shows highlight new residential construction—one is held each
October in the south, and the larger home show is held each February in the north. These home
shows attract 1,000-1,500 new home shoppers yearly whose profile matches the profile of TCB’s
target market. (Information provided by the Metropolitan Home Show marketing department.)
23
In addition to the two home shows, the Tour of Homes presented by the Residential Builders
Association, provides an excellent opportunity to exhibit a luxury home. The Tour of Homes is the
third largest new home tour in the nation. The tour is held two times each year in the spring and
fall. In 200A, tour attendees ranked the Tour of Homes the number one place to evaluate new
homes and homebuilders. (Information provided by the Residential Builders Association.)
Future markets
TCB will build homes in the metropolitan area initially on the north side and expanding to the
south. During and following the third year,TCB will continue to produce 12 homes annually as the
market dictates. The growth strategy from that point forward is to seek out other markets and
apply and duplicate this model.
24
Operating and Control Systems
Administrative policies, procedures, and controls

Receiving orders
All initial inquiries from potential clients concerning building a TCB home will flow through the
supporting real estate agency/realtor. The realtor will contact the builder for specific questions
concerning custom features, design alterations, construction schedules, etc. Once the client decides
to have a home built by Thomas Custom Builders, the realtor will record the individual wishes of
the client and will schedule a builder/client meeting. This meeting will begin the process of
identifying specific client requests, determining construction costs and purchase price, and
completing the residential new construction sale contract. The realtor will primarily be responsible
for collecting necessary paperwork and arranging builder/client meetings.
Billing the customers

Thomas Custom Builders requires a five percent deposit upon signing the residential new
construction sale contract and another five percent payment at three months into the project.
The client may choose to contribute the entire ten percent at the signing of the residential
new construction sale contract. All overages for selected products (such as flooring, lighting,
plumbing fixtures, etc.) must be paid prior to closing or at the supplier’s business at the time of
purchase. The balance due on the home will be paid upon closing. This closing date will be
estimated at six months plus two weeks from the date of the signing of the residential new
construction sale contract.
Paying the suppliers

Bills will be paid as they become due. Some suppliers will provide TCB with payment terms of two
to four weeks. Others will require payment upon receipt of materials or product.
Collecting the accounts receivable

Two important sources of cash are available to Thomas Custom Builders. The first is from the
client. The client will be required to contribute a total of ten percent towards the purchase price of
the home prior to its completion. This amount is not typically difficult to collect. The first five
percent (paid by money order) is collected at the signing of the residential new construction sale
contract. Clients are usually eager to get started and have this deposit readily available. The second
five percent (also paid by money order) is collected after three months of construction. Clients
have agreed to pay this amount when signing the sales contract and, therefore, are expecting this
outlay of cash.
25
The second and most important source of cash is made available from the lender in the form of a
construction loan. This construction loan will be for up to 85% of the cost of the home. This
amount will cover all products, material and subcontractor labor costs for the project. Construction
draws will be requested monthly to cover these costs. Detailed records will be kept to make this
process simple and accurate.
Reporting to management
Joe Thomas is the primary manager and is responsible for all areas of the business including
marketing strategies, financial goals, subcontractor relationships, conceptual design, and general
contracting on the home building projects. The important factor is not so much reporting to
management as it is documenting processes so that as the company grows, past successes can
be repeated.
Staff development
After the third year of operations two positions will be added to the company—an office manager
and a construction supervisor. The office manager will administer the daily operations of the office.
The construction supervisor will primarily work with the clients and subcontractors on the daily
aspects of the home building project. These employees, and others, will be encouraged to seek
professional growth through seminars, classes, and other training opportunities. In addition, industry
trade journals and other publications will be subscribed to and made available for employee review.
Inventory control
Having an inventory of luxury homes provides more opportunities for sales to potential clients.
Initially,TCB will build six homes, of which three units will be custom ordered. One model home
and two speculative homes will remain in inventory entering 200D. The model home will be held
in inventory as a show place for potential clients. This model home will eventually be sold, as a new
model is completed in another subdivision. By the third year,TCB will produce 12 homes of which
eight units will be sold, four will be works in progress, and three completed homes will remain in
inventory entering 200F. Three houses will be in inventory on an annual basis—one model and two
speculative homes at any given time.
Handling warranties and returns

Thomas Custom Builders supports a standard contract to make all necessary repairs and
replacements that relate to the house (as built by the builder) during the first year of ownership by
the client. No repairs or replacements are made concerning materials or changes made by the
owner. The owner is to make a list of repairs and/or replacements and Mr.Thomas will arrange for
the appropriate labor and materials, if necessary, to complete the repairs and/or replacements.
26
In addition to this standard,Thomas Custom Builders provides warranty checks during the
construction of the home and one month after the house is completed. In partnership with the
client, Mr.Thomas reviews the quality of materials and workmanship provided throughout the
construction process and makes repairs and/or replacements as needed. Also, contact will be
made with the client 30 days after the homeowner takes possession to arrange for any repairs
and/or replacements.
All appliances and other products installed or provided by Thomas Custom Builders will be covered
by the manufacturers’ warranty, which is typically one to seven years depending on the product.
The homeowner will be responsible for arranging repairs or replacements on these items.
Monitoring the company budgets

For the first three years of operation, FastBooks accounting software will be used for bookkeeping.
At the beginning of each year, a budget will be determined for the following:
➤ Revenue
➤ Inventory
➤ Sales and Marketing Expenses
➤ Administrative Expenses
➤ General Expenses
➤ Capital Expenditures
These budget figures will be entered into the FastBooks budget system. Each month, a Budget vs.
Actual variance report will be compiled. Using this report, Mr.Thomas will identify areas of
overspending and be prepared to make the appropriate adjustments to the budget or to future
spending. Each quarter, Mr.Thomas will discuss the company budgets with an outside accountant
and the advisory board.
Security systems
Thomas Custom Builders has two primary concerns for security. The first is to keep the
inventory—the homes—secure. This is a difficult job with so many individuals and companies
working together to complete the project. Since the home sits unprotected for several months,
some vandalism and pilferage is expected. Generally, the security options necessary to reduce
these actions cost more than accepting some vandalism and pilferage. Insurance will cover huge
losses, when necessary.
27
The second security issue is with the office equipment and proprietary information. Mr.Thomas’
home currently has a home security system that is continually monitored by a security service. The
proprietary information is protected on the computer with passwords and back-ups.
Documents and paper flow

In most cases, the realtor is the first one to generate important documents concerning custom
home clients. The realtor will keep one copy of documents during the construction process.
Thomas Custom Builders will keep a second copy. Verbal communication will be documented with
hand-written or computer-generated notes to be contained in the clients’ files. When Thomas
Custom Builders initiates the building of a speculative home, copies of documents are provided to
the realtor concerning the home for selling purposes. All other documentation will be sorted and
stored at Mr.Thomas’ home office.
Planning chart
Product development
First, Mr.Thomas will see to the market research and land acquisition aspects. Next, he will
complete the necessary designs (much of this work has been done for the initial speculative
homes). The actual production drawings and renderings will be subcontracted. Once design is
complete, Mr.Thomas will concentrate on estimating, purchasing, scheduling and contracting with
labor and material vendors. Mr.Thomas will complete or supervise the following product
development activities:
1. Market research—to be completed 11/10/0B*—Mr.Thomas
2. Site evaluation and land acquisition—to be completed 1/25/0C—Mr.Thomas
3. Conceptual design work and drawings—to be completed 1/31/0C—designer
4. Developer approval of drawings and site plan—to be completed 2/15/0C—

Mr.Thomas
5. Construction costs estimate on speculative home—to be completed 2/20/0C

—accountant
6. Construction loan approved—to be completed 3/10/0C—Mr.Thomas
7. Purchasing and scheduling with subcontractors and material providers—to be

completed 3/15/0C Mr.Thomas
28
* Dates pertain to the first home project. Each 4-6 weeks a new home project will commence to
total six homes the first year. Three of these will be built-to-order for client prospects that are
already discussing plans. Three of the homes are projected to be speculative (built without a
customer in mind), one of which will be held as the model home for the first 18 months.
Manufacturing
Once construction is underway, Mr.Thomas will provide daily site supervision to ensure timely and
accurate completions. Mr.Thomas will complete or supervise the following manufacturing activities:
1. City permits—to be completed 3/10/0C*—Mr.Thomas
2. Construction begins with excavation—to be completed 3/15/0C—subcontractor
3. Foundation work—to be completed 3/20/0C—subcontractor
4. Framing—to be completed 5/30/0C—subcontractor
5. Rough-ins (Plumbing, electricity, HVAC, etc.)—to be completed 7/20/0C—

subcontractors
6. Interior Finishes (Cabinetry, walls, lighting, etc.)—to be completed 8/31/0C—

subcontractors
7. Exterior Finishes—to be completed 9/15/0C—subcontractors
8. Landscaping—to be completed 9/15/0C—subcontractor
9. Sale closing—to be completed 9/20/0C—Mr.Thomas
* Dates pertain to the first to-order home project. Each 4-6 weeks a new home project will
commence to total six homes the first year.
Financial requirements
Minimal start-up costs are expected in two general categories (marketing and operations) with the
bulk in operations. Costs in this category will include such items as vehicle lease payments, supplies,
printing, and accounting fees. Start-up costs are estimated at less than $15,000 and are included in
first-year budget projections. It is anticipated that this amount will support efforts necessary to
build six speculative homes.
29
Thomas Custom Builders’ owner, Joe Thomas, intends to commit a total of $50,000 of equity
consisting of a combination of liquid mutual funds, home equity, existing vehicle, and computer
equipment, toward start-up capital. Debt financing is sought to cover both land acquisition and
construction processes. Financing from a single source will be preferred to develop a mutually
beneficial working relationship with a lender. Some additional funding may be available from friends
and family.
Marketing flow chart

Joe Thomas will concentrate on marketing brochures and trade show materials. In addition,TCB
will actively seek out corporate relocations, and will establish relationships with relocation real
estate professionals. Mr.Thomas will complete or supervise the following marketing activities:
➤ Print Advertising—Newspaper and magazine advertising at strategic market cycles (i.e.

prior to home shows and Tour of Homes).
➤ Trade Shows—Two home shows and the Tour of Homes sponsored by the Residential
Builders Association.
➤ Internet Advertising—Web site development in year one and further development

and maintenance in years two and three.
➤ Brochures/Posters—Initial design and printing of company sales brochure and insert

sheets in year one and additional printing and insert sheets in years two and three.
➤ Signs and Promotional Gifts—Graphic design and printing in year one with additional
printing costs in years two and three for site signs, truck signs, shirts, caps and coffee mugs.
Market Penetration
Thomas Custom Builders intends to enter the market as both a design/build custom builder and a
speculative builder with an inventory to sell. It is imperative to an overall strategy to cultivate very
satisfied customers who will provide glowing referrals in the future. The initial penetration strategy
is to build six homes by the end of the first fiscal year, of which three units are projected to sell as
custom designed homes. One model home and two speculative homes will remain in inventory
entering 200D.
Sales will be handled by a contracted real estate agency with a strong performance track record
both in the location and price range in which Thomas Custom Builders will compete.
30
The current direct sales force consists of Mr.Thomas. His sales activities will be restricted to
appearances at trade shows, meetings with potential clients, and relationship building with realtors,
suppliers, lenders, etc. Thomas Custom Builders will actively seek out corporate relocations and will
establish relationships with relocation real estate professionals.
Management and infrastructure

Joe Thomas is the primary decision maker and will be responsible for marketing strategies,
financial goals, subcontractor relationships, conceptual design, and general contracting on the
home building projects.
Additionally,Thomas Custom Builders will rely upon a Board of Advisors, made up of successful
entrepreneurs and business owners, to provide guidance, inspiration, and legitimacy. This board will
meet quarterly to discuss strategic issues.
Thomas Custom Builders will contract with the following professional consultants:
➤ Accountant/Bookkeeper
➤ Insurance Broker
➤ Information Technology Specialist
➤ Graphic Design and Advertising
➤ Drafting Service
➤ Attorney
Risk analysis
Challenges
A variety of potential pitfalls could present challenges. Among them:
➤ The financial issues are complicated and require relatively large amounts of capital
against future sales. The only remedy here is to be able to conform to schedules that
fall within preferred lending guidelines.
➤ The cost of developed land and conditions of purchase in preferred "closed"

developments significantly increases the amount of start-up capital needed. TCB could
seek to collaborate with other local builders to leapfrog some of these impediments.
31
➤ Finding and holding on to labor in the booming economy of the past few years has
proven a challenge even to established builders. The goal is to package six home
projects together as one construction project. This consolidation will encourage
subcontractors and material suppliers to provide reasonable rates, quality workmanship,
and consistency.
➤ Prices for all labor and materials have been at an all-time high. A slowed economy may
reduce rates if TCB can act within the next 12 months.
➤ The second "worst-case scenario" exists if the built homes do not sell. TCB will need a
fallback rental program to help reduce holding costs and interest.
Positive Points
While those challenges are formidable, research has turned up many positive issues.They are:
➤ Mr.Thomas’ depth of experience in homebuilding, general construction, architecture and

marketing provides stability and strong leadership.
➤ Local industry projects growth to continue on par with historical data.
➤ The luxury home market statistics show that it is not currently overbuilt.
➤ The metropolitan area has seen consistent growth for 20 years.
➤ As a home-based business,TCB is already equipped to begin.
➤ Low interest rates are predicted to go lower.
Salvaging assets
The primary risk in the speculative construction business is holding inventory that does not sell—
or, inventory that does not sell quick enough. TCB speculative homes need to sell in less than three
months or the interest costs will eliminate projected profits. However, homes are a very
salvageable asset in that they can be sold quickly at a loss to avoid additional interests costs if
the business needs to liquidate.
32
Growth Plan
New offerings to market

Growth strategies initially will be concentrated in the areas of regional expansion into new markets
in the counties south of the metropolitan area. In addition to regional growth, expansion into other
states will be explored.
There are additional opportunities to expand within the existing markets by offering new products
or services. By virtue of Mr.Thomas’ architectural seal,Thomas Custom Builders home plans will
assume proprietary status. As the company grows and matures, this bank of copyrighted plans will
offer a secondary source of profits.
In addition to offering copyrighted plans, the following spin-off ideas exist within the context of
residential design and construction.
➤ Real estate location specialists could be offered to clients moving in from out of state.
➤ Interior decorating services may assist clients in furnishing and decorating their homes.
➤ Landscape design and installation services could be offered at a fee.
➤ Special services such as delivery, personal assistants, etc. could be offered to clients at a
fee to help them conserve their family time at home.
Capital requirements
There will be no added costs to expand into the counties south of the metropolitan area.
Therefore, this growth strategy will be explored first. Another option is to expand into adjoining
states through licensing. This strategy may be cost prohibitive, however, requiring additional capital
to retrain personnel to meet each state’s requirements. Offering copyrighted plans could be a low-
or high-cost option depending on the market strategies. A low-cost method of selling plans would
be to make them available to builders in the area through a licensing fee. A high-cost method
would be to set up a Plan Shop on the Internet. All growth strategies will be explored and
researched in detail before pursuit.
Personnel requirements
There are no additional personnel requirements based on the above growth strategies. After the
third year of operations, two positions will be added to the company—an office manager and a
construction supervisor.
33
Exit strategy
During the first three years,TCB will concentrate on building a profitable process that can be
duplicated. Then TCB will begin to expand the company through the growth opportunities
available. After the first five years of operations,Thomas Custom Builders will look for ways to
increase company value. Opportunities may include merging with another residential builder or
architectural firm, merging with a current vendor or material provider, or buying a complementary
company. Within ten years, Joe Thomas would like to sell Thomas Custom Builders.
34
Financial Plan
Sales Projections
The initial penetration strategy is to build six homes by the end of the first fiscal year, of which three
custom units are projected to sell at an estimated sales price of $437,500 ($350,000 for the house,
and $87,500 for the lot). One model home and two speculative homes will remain in inventory
entering 200D.
In 200D TCB will produce six homes and sell six (at the estimated price of $437,500) leaving one
model home and two speculative homes in inventory entering 200E.
In year three,TCB will produce 12 homes, of which eight units will be sold (at the same estimated
price of $437,500). The year-end inventory will then consist of 7 homes (including a model home).
The projected financials were derived by the efforts of the Board of Advisors. Dun & Bradstreet
financial statement studies were used for calculations relating to profit margins and ratios. Also, real
estate professionals were consulted in the local area to verify the pricing of our product in this
region. Otherwise, the experience within this group in the construction industry provides assurance
regarding both the source and reasonableness of the projected financial information.
Income Projections
TCB projects to have net income amounts of $70,208 in 200C, $169,917 in 200D and $184,480 in
200E. Running operations from the owner’s residence for the first three years of business
contributes greatly to the company’s start-up profitability.
Cash Requirements
As previously mentioned, the business operations will take place at the owner’s residence, and as
that is the case, this will greatly reduce the need for start-up capital. However, the owner is still
going to commit $50,000 worth of equity to be used by the business for initial operations. No
major equipment purchases are planned in the first three years as TCB will subcontract with
construction companies.
Cash will certainly be needed in order for the company to operate, as well as for future growth. As
each home is constructed, funds will be needed throughout the process until completion. It is the
intention of TCB to obtain the operating and/or growth funds from a series of construction loans
(drawn upon in much the same way as a line of credit) with a lending institution.
35
Sources of Financing
Each building project will be funded with project-collateralized debt financing (secured by warranties
and bonds) on a project-by-project basis. This is in line with industry norms, and will be easier to
accomplish once a banking relationship has been established.
Based upon discussions with various lending agencies, the cost of these funds is generally going to
be based upon a percentage plus prime. The projected financial statements were prepared based
upon an average borrowing rate of 8%.
36
Cash Flow Statement
200C Pre Start-up JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Cash In
Cash Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500
Collections from Accounts Receivables - - - - - - - - - - - - -
Equity Received - 50,000 - - - - - - - - - - - 50,000
Loans Received - - 150,000 210,000 240,000 275,000 315,000 350,000 175,000 160,000 - - 25,000 1,900,000
Other Cash In (receipts from other assets) - - - - - - - - - - - - -
Other Cash In (interest, royalties etc.) - - - - - - - - - - - - -
Total Cash In - 50,000 150,000 227,500 257,500 292,500 332,500 367,500 192,500 160,000 402,500 402,500 427,500 3,262,500
Total Cash Available - 50,000 194,414 237,124 267,803 303,648 342,987 379,644 204,066 172,426 416,196 417,526 445,256 3,262,500
Cash Out
Inventory Expenditures
Inventory/Raw Material (Cash) - - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250
Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - - -
Production Expenses - - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000
Operating Expenses
Advertising - - - 3,300 500 500 500 500 500 1,300 300 300 300 8,000
Bank Charges - - - - - - - - - - - - - -
Dues & Subscriptions - - 250 - - 250 - - 250 - - 250 - 1,000
Insurance - 833 833 834 833 833 834 833 833 834 833 833 834 10,000
Licenses & Fees - - 200 - - 100 - - 100 - - 100 - 500
Marketing & Promotion - - 1,000 4,000 - - 1,000 1,000 1,000 1,000 - - 1,000 10,000
Meals & Entertainment - - - 100 100 100 100 100 100 100 100 100 100 1,000
Miscellaneous - - - - - - - - - - - - - -
Office Expense - 20 20 20 150 20 20 20 20 20 150 20 20 500
Office Supplies - 83 83 84 83 83 84 83 83 84 83 83 84 1,000
Outside Services - - - - - - - - - - - - - -
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - - -
Professional Fees - 750 - - 250 - 250 500 - 250 - - - 2,000
Property Taxes - - - - - - - - - - - - - -
Rent - - - - - - - - - - - - - -
Repairs & Maintenance - - - - - - - - - - - - - -
Shipping & Delivery - - - - - - - - - - - - - -
Telephone - 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Training & Development - - - - - - - - - - - - - -
Travel - - - - - - - - - - - - - -
Utilities - - - - - - - - - - - - - -
Vehicle - 500 500 500 500 500 500 500 500 500 500 500 500 6,000
Other Supplies - 25 50 50 25 50 50 25 50 50 25 50 50 500
Other General Expenses - 42 41 42 42 41 42 42 41 42 41 42 42 500
Other Administrative - 167 167 167 167 167 167 167 167 167 167 167 163 2,000
Paid on Account - - - - - - - - - - - - - -
Non-operating Costs
Capital Purchases - - - - - - - - - - - - - -
Estimated Income Tax Payments - - - - - - - - - - - - 21,063 21,063
Interest Payments - - 1,000 2,400 4,000 5,833 7,933 10,267 11,433 12,500 10,767 8,800 6,733 81,667
Loan Principal Payments - - - - - - - - - - 260,000 295,000 335,000 890,000
Owner's Draw - 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Other Cash Out - - - - - - - - - - - - - -
Total Cash Out - 5,586 184,790 226,821 256,655 293,161 330,843 368,078 191,640 158,730 401,170 399,770 424,735 3,241,979
Monthly Cash Flow (cash in - cash out) - 44,414 (34,790) 679 846 (661) 1,657 (578) 860 1,270 1,330 2,730 2,765 20,521
Beginning Cash Balance - - 44,414 9,624 10,303 11,148 10,487 12,144 11,566 12,426 13,696 15,026 17,756 -
Ending Cash Balance - 44,414 9,624 10,303 11,148 10,487 12,144 11,566 12,426 13,696 15,026 17,756 20,521 20,521
Cash Flow Statement
200D JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Cash In
Cash Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000
Equity Received - - - - - - - - - - - - -
Loans Received 190,000 230,000 245,000 270,000 310,000 330,000 - - - - - 30,000 1,605,000
Total Cash In 190,000 230,000 280,000 305,000 345,000 365,000 437,500 437,500 402,500 402,500 402,500 432,500 4,230,000
Total Cash Available 210,521 248,389 297,369 323,086 365,819 391,461 451,173 458,791 427,280 422,179 426,371 457,096 4,250,521
Cash Out
Inventory/Raw Material (Cash) 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250
Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - -
Production Expenses 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000
Operating Expenses
Advertising - - 6,600 1,000 1,000 1,000 1,000 1,000 2,600 600 600 600 16,000
Bank Charges - - - - - - - - - - - - -
Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000
Insurance 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000
Licenses & Fees - 400 - - 200 - - 200 - - 200 - 1,000
Marketing & Promotion - 2,000 8,000 - - 2,000 2,000 2,000 2,000 - - 2,000 20,000
Meals & Entertainment 250 250 250 250 250 250 250 250 250 250 250 250 3,000
Miscellaneous - - - - - - - - - - - - -
Office Expense 20 20 20 150 20 20 20 20 20 150 20 20 500
Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000
Outside Services - - - - - - - - - - - - -
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - -
Professional Fees 750 750 750 750 750 750 750 750 750 750 750 750 9,000
Property Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
Repairs & Maintenance - - - - - - - - - - - - -
Shipping & Delivery - - - - - - - - - - - - -
Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Training & Development - - - - - - - - - - - - -
Travel - - - - - - - - - - - - -
Utilities - - - - - - - - - - - - -
Vehicle 750 750 750 750 750 750 750 750 750 750 750 750 9,000
Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500
Other General Expenses 92 91 92 92 91 92 92 91 92 91 92 92 1,100
Other Administrative 267 267 267 267 267 267 267 267 267 267 267 263 3,200
Paid on Account - - - - - - - - - - - - -
Non-operating Costs
Capital Purchases - - - - - - - - - - - - -
Estimated Income Tax Payments - - - - - - - - 8,784 - - 42,191 50,975
Interest Payments 8,000 9,533 11,167 12,967 15,033 17,233 15,833 14,167 12,500 10,567 8,367 6,167 141,533
Loan Principal Payments - - - - - - 210,000 250,000 250,000 290,000 330,000 360,000 1,690,000
Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Other Cash Out - - - - - - - - - - - - -
Total Cash Out 192,132 231,020 279,283 302,267 339,357 377,788 429,882 434,011 407,600 398,308 401,775 438,634 4,232,058
Monthly Cash Flow (cash in - cash out) (2,132) (1,020) 717 2,733 5,643 (12,788) 7,618 3,489 (5,100) 4,192 725 (6,134) (2,058)
Beginning Cash Balance 20,521 18,389 17,369 18,086 20,819 26,461 13,673 21,291 24,780 19,679 23,871 24,596 20,521
Ending Cash Balance 18,389 17,369 18,086 20,819 26,461 13,673 21,291 24,780 19,679 23,871 24,596 18,463 18,463
Cash Flow Statement
200E JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Cash In
Cash Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000
Equity Received - - - - - - - - - - - - -
Loans Received 370,000 455,000 505,000 560,000 660,000 325,000 - - - - - - 2,875,000
Total Cash In 370,000 455,000 540,000 595,000 660,000 762,500 875,000 437,500 402,500 437,500 437,500 402,500 6,375,000
Total Cash Available 388,463 472,337 563,739 616,565 685,560 782,787 896,638 459,979 423,697 456,275 461,254 421,254 6,393,463
Cash Out
Inventory/Raw Material (Cash) 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500
Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - -
Production Expenses 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000
Operating Expenses
Advertising - - 9,900 1,500 1,500 1,500 1,500 1,500 3,900 900 900 900 24,000
Bank Charges - - - - - - - - - - - - -
Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
Licenses & Fees - 800 - - 400 - - 400 - - 400 - 2,000
Miscellaneous - - - - - - - - - - - - -
Office Expense 30 30 30 200 30 30 30 30 30 200 30 30 700
Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - -
Professional Fees 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 13,200
Property Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Travel - - - - - - - - - - - - -
Utilities - - - - - - - - - - - - -
Vehicle 900 900 900 900 900 900 900 900 900 900 900 900 10,800
Other Supplies 30 60 60 30 60 60 30 60 60 30 60 60 600
Paid on Account - - - - - - - - - - - - -
Non-operating Costs
Capital Purchases - - - - - - - - - - - - -
Estimated Income Tax Payments - - - - - - - - 19,548 - - 35,796 55,344
Interest Payments 8,633 11,667 15,033 18,767 23,167 25,333 22,333 21,633 20,833 19,200 17,027 14,893 218,520
Loan Principal Payments - - - - - - 450,000 105,000 120,000 245,000 326,000 320,000 1,566,000
Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Other Cash Out - - - - - - - - - - - - -
Total Cash Out 371,126 448,598 542,173 591,005 665,273 761,149 874,159 438,782 404,922 432,522 442,500 404,155 6,376,364
Monthly Cash Flow (cash in - cash out) (1,126) 6,402 (2,173) 3,995 (5,273) 1,351 841 (1,282) (2,422) 4,978 (5,000) (1,655) (1,364)
Beginning Cash Balance 18,463 17,337 23,739 21,565 25,560 20,287 21,638 22,479 21,197 18,775 23,754 18,754 18,463
Ending Cash Balance 17,337 23,739 21,565 25,560 20,287 21,638 22,479 21,197 18,775 23,754 18,754 17,099 17,099
Year-End
Income Statement (Projected)
200C 200D 200E
Net Sales (less returns & allowances) 1,312,500 2,625,000 3,500,000
Cost of Goods Sold 1,115,625 2,231,250 2,975,000
Gross Margin $ 196,875 $ 393,750 $ 525,000
Operating Expenses
Advertising 8,000 16,000 24,000
Bad Debt Expense - - -
Bank Charges - - -
Depreciation & Amortization - - -
Dues & Subscriptions 1,000 1,000 1,000
Insurance 10,000 15,000 18,000
Licenses & Fees 500 1,000 2,000
Marketing & Promotion 10,000 20,000 40,000
Meals & Entertainment 1,000 3,000 3,600
Miscellaneous - - -
Office Expense 500 500 700
Office Supplies 1,000 1,000 1,000
Outside Services - - -
Payroll Expenses
Salaries & Wages - - -
Payroll Taxes - - -
Benefits - - -
Professional Fees 2,000 9,000 13,200
Property Taxes - - -
Rent - - -
Repairs & Maintenance - - -
Shipping & Delivery - - -
Telephone 2,000 2,000 2,000
Training & Development - - -
Travel - - -
Utilities - - -
Vehicle 6,000 9,000 10,800
Other Supplies 500 500 600
Other General Expenses 500 1,100 1,500
Other Administrative 2,000 3,200 3,600
Total Operating Expenses $ 45,000 $ 82,300 $ 122,000
Operating Income $ 151,875 $ 311,450 $ 403,000
Interest Expense 81,667 141,533 218,520

Other Income (interest, royalties, etc.) - - -
Income Before Taxes $ 70,208 $ 169,917 $ 184,480
Income Taxes (if C Corp) - - -
Net Income $ 70,208 $ 169,917 $ 184,480

Year-End
Balance Sheet (Projected)
200C 200D 200E
Assets
Current Assets
Cash & Equivalents 20,521 18,463 17,099
Accounts Receivable - - -
Inventory 1,052,625 1,052,625 2,456,125
Security Deposits - - -
Other Current Assets - - -
Total Current Assets $ 1,073,146 $ 1,071,088 $ 2,473,224
Fixed Assets
Property, Plant & Equipment - - -
Less: Accumulated Depreciation - - -
Other Non-Current Assets - - -
Total Non-Current Assets $ - $ - $ -
Total Assets $ 1,073,146 $ 1,071,088 $ 2,473,224
Liabilities
Current Liabilities
Accounts Payable - - -
Line of Credit 1,010,000 925,000 2,234,000
Other Current Liabilities - - -
Total Current Liabilities $ 1,010,000 $ 925,000 $ 2,234,000
Long-term Liabilities
Loans - - -
Mortgages - - -
Other Non-Current Liabilities - - -
Total Non-Current Liabilities $ - $ - $ -
Total Liabilities $ 1,010,000 $ 925,000 $ 2,234,000
Equity
Equity Investments 50,000 50,000 50,000
Retained Earnings 70,208 240,125 424,605
Less: Owner's & Investor's Draws (57,063) (144,038) (235,382)
Total Equity $ 63,146 $ 146,088 $ 239,224
Total Liabilities and Equity $ 1,073,146 $ 1,071,088 $ 2,473,224

Financial Ratios
200C 200D 200E
Profitability Ratios
Gross Margin Gross Income 15.00% 15.00% 15.00%

Net Sales
Operating Margin Operating Income 11.57% 11.86% 11.51%

Net Sales
Net Margin Net Income 5.35% 6.47% 5.27%

Net Sales
Return on Assets (ROA) Net Income 6.54% 15.86% 7.46%

Total Assets
Return on Equity (ROE) Net Income 111.18% 116.31% 77.12%

Shareholders' Equity
Liquidity Ratios
Current Ratio Total Current Assets 1.06 1.16 1.11

Total Current Liabilities
Quick Ratio Current Assets - Inventory 0.02 0.02 0.01

Current Liabilities
Risk Ratios
Debt Ratio Total Liabilities 0.94 0.86 0.90

Total Assets
Debt to Equity Total Liabilities 15.99 6.33 9.34

Shareholders' Equity
Efficiency Ratios
Inventory Turnover Cost of Goods Sold 1.06 2.12 1.21

Inventory
Days Sales Outstanding (DSO) Accounts Receivable 0.00 0.00 0.00

Net Sales/365
Investment Turnover Ratio Net Sales 1.22 2.45 1.42

Total Assets
Supporting Documents
Appendix
47
SALES PROJECTIONS
Year 1 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Sales Budget
Deposits - - 17,500 17,500 17,500 17,500 17,500 17,500 - - - - 105,000
YEAR 1
House Sales - - - - - - - - - 315,000 315,000 315,000 945,000

Lot Sales - - - - - - - - - 87,500 87,500 87,500 262,500
Product/Service Category D - - - - - - - - - - - - -
Product/Service Category E - - - - - - - - - - - - -
YEAR 1
Product/Service Category F - - - - - - - - - - - - -
Product/Service Category G - - - - - - - - - - - - -
Gross Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500
YEAR 1
Less: Returns & Allowances - - - - - - - - - - - - -

Net Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500
Other Income - - - - - - - - - - - - -
Total Income - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500
Credit Management
YEAR 1
Sales (cash) - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500
Sales (credit) - - - - - - - - - - - - -
Received on Account - - - - - - - - - - - - -
Bad Debt Expense - - - - - - - - - - - - -
Year 1 Assumptions
Deposits staged deposists on 3 houses
YEAR 1
House Sales closing on 3 houses @ $350,000 (deposits applied)

Lot Sales closing on 3 lots @ $87,500
Product/Service Category D
Product/Service Category E
YEAR 1
Product/Service Category F
Product/Service Category G
Less: Returns & Allowances
Other Income
YEAR 1
Sales (cash)
Sales (credit)
Received on Account
Bad Debt Expense
Appendix
SALES PROJECTIONS
Sales Budget
Deposits - - 35,000 35,000 35,000 35,000 35,000 35,000 - - - - 210,000
YEAR 2
House Sales - - - - - 315,000 315,000 315,000 315,000 315,000 315,000 1,890,000

Lot Sales - - - - - 87,500 87,500 87,500 87,500 87,500 87,500 525,000
YEAR 2
Gross Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000
YEAR 2

Net Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000
Other Income - - - - - - - - - - - - -
Total Income - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000
Credit Management
YEAR 2
Sales (cash) - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000
Sales (credit) - - - - - - - - - - - - -
Bad Debt Expense - - - - - - - - - - - - -
Year 2 Assumptions
YEAR 2

YEAR 2
Other Income
YEAR 2
Sales (cash)
Sales (credit)
Received on Account
Bad Debt Expense
Appendix
SALES PROJECTIONS
Sales Budget
Deposits - - 35,000 35,000 - 35,000 70,000 35,000 - 35,000 35,000 - 280,000
YEAR 3
House Sales - - - - - 315,000 630,000 315,000 315,000 315,000 315,000 315,000 2,520,000
Lot Sales - - - - - 87,500 175,000 87,500 87,500 87,500 87,500 87,500 700,000
YEAR 3
Gross Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000
YEAR 3

Net Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000
Other Income - - - - - - - - - - - - -
Total Income - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000
Credit Management
YEAR 3
Sales (cash) - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000
Sales (credit) - - - - - - - - - - - - -
Bad Debt Expense - - - - - - - - - - - - -
Year 3 Assumptions
YEAR 3

YEAR 3
Other Income
YEAR 3
Sales (cash)
Sales (credit)
Received on Account
Bad Debt Expense
Appendix
INVENTORY PROJECTIONS
Inventory Management
Inventory Purchases - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250
Inventory/ Raw Material Purchases (Cash) - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250
Inventory/ Raw Material Purchases (Credit) - - - - - - - - - - - - -
YEAR 1
Payment on Account - - - - - - - - - - - - -
Production Expenses
YEAR 1
Freight-in & Trucking - - - - - - - - - - - - -

Insurance - 8,925 8,925 8,925 8,925 8,925 8,925 - - - - - 53,550
Payroll Expenses - production
Salaries & Wages - - - - - - - - - - - - -
YEAR 1
Employee Benefits - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 1

Rework - - - - - - - - - - - - -
Subcontracting - 34,679 69,358 104,038 138,717 173,396 208,075 173,396 138,717 104,038 69,358 34,679 1,248,450
Utilities - - - - - - - - - - - - -
Other Production Expenses - - - - - - - - - 21,000 21,000 21,000 63,000
Inventory Production Expenses - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000
Inventory Balance
Beginning Inventory Balance - - 177,479 374,763 606,725 873,367 1,174,688 1,510,688 1,669,208 1,807,925 1,590,838 1,339,071 -
Inventory Purchased - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250
Inventory Production - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000
YEAR 1
(Cost of Goods Sold) - - (14,875) (14,875) (14,875) (14,875) (14,875) (14,875) - (342,125) (342,125) (342,125) (1,115,625)
Ending Inventory Balance - 177,479 374,763 606,725 873,367 1,174,688 1,510,688 1,669,208 1,807,925 1,590,838 1,339,071 1,052,625 1,052,625
Year 1 Assumptions
YEAR 1
Inventory/ Raw Material Purchases budget to purchase 6 lots @ $74,375 plus materials for 6 houses @ 20% of house cost $59,500 per house
Freight-in & Trucking
Insurance builder's risk and warranty service--estimated at 3% of total cost to build each house--$8,925 per house - 6 houses
YEAR 1

Salaries & Wages
Employee Benefits
Payroll Taxes
YEAR 1
Rent
Repairs & Maintenance
Rework
Subcontracting subcontracted construction and design labor estimated at 71% of house cost
Utilities
Other Production Expenses real estate commission at 6% of sale price - $21,000 per sale - 3 houses sold
Appendix
Inventory Purchases 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250
Inventory/ Raw Material Purchases (Cash) 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250
YEAR 2
Production Expenses
YEAR 2

Insurance 8,925 8,925 8,925 8,925 8,925 8,925 - - - - - - 53,550
Salaries & Wages - - - - - - - - - - - - -
YEAR 2
Payroll Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 2

Rework - - - - - - - - - - - - -
Subcontracting 34,679 69,358 104,038 138,717 173,396 208,075 173,396 138,717 104,038 69,358 34,679 - 1,248,450
Utilities - - - - - - - - - - - - -
Other Production Expenses - - - - - - 21,000 21,000 21,000 21,000 21,000 21,000 126,000
Inventory Production Expenses 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000
Inventory Balance
Beginning Inventory Balance 1,052,625 1,230,104 1,442,263 1,659,350 1,911,117 2,197,563 2,518,688 2,341,208 2,129,050 1,911,963 1,660,196 1,373,750 1,052,625
Inventory Purchased 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250
Inventory Production 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000
YEAR 2
(Cost of Goods Sold) - - (29,750) (29,750) (29,750) (29,750) (371,875) (371,875) (342,125) (342,125) (342,125) (342,125) (2,231,250)
Ending Inventory Balance 1,230,104 1,442,263 1,659,350 1,911,117 2,197,563 2,518,688 2,341,208 2,129,050 1,911,963 1,660,196 1,373,750 1,052,625 1,052,625
Year 2 Assumptions
YEAR 2
YEAR 2

Salaries & Wages
Employee Benefits
Payroll Taxes
YEAR 2
Rent
Rework
Utilities
Appendix
Inventory Purchases 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500
Inventory/ Raw Material Purchases (Cash) 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500
YEAR 3
Production Expenses
YEAR 3

Insurance 17,850 17,850 17,850 17,850 17,850 17,850 - - - - - - 107,100
Salaries & Wages - - - - - - - - - - - - -
YEAR 3
Payroll Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 3

Rework - - - - - - - - - - - - -
Subcontracting 69,358 138,717 208,075 277,433 346,792 416,150 346,792 277,433 208,075 138,717 69,358 - 2,496,900
Utilities - - - - - - - - - - - - -
Other Production Expenses - - - - - 21,000 42,000 21,000 21,000 21,000 21,000 21,000 168,000
Inventory Production Expenses 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000
Inventory Balance
Beginning Inventory Balance 1,052,625 1,407,583 1,831,900 2,295,825 2,829,108 3,461,500 3,812,375 3,457,417 3,383,975 3,270,925 3,058,767 2,777,250 1,052,625
Inventory Purchased 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500
Inventory Production 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000
YEAR 3
(Cost of Goods Sold) - - (29,750) (29,750) - (371,875) (743,750) (371,875) (342,125) (371,875) (371,875) (342,125) (2,975,000)
Ending Inventory Balance 1,407,583 1,831,900 2,295,825 2,829,108 3,461,500 3,812,375 3,457,417 3,383,975 3,270,925 3,058,767 2,777,250 2,456,125 2,456,125
YEAR 3
Year 3 Assumptions
YEAR 3

Salaries & Wages
Employee Benefits
Payroll Taxes
YEAR 3
Rent
Rework
Utilities
Appendix
OPERATING EXPENSE PROJECTIONS
Operating Expenses
Advertising - - 3,300 500 500 500 500 500 1,300 300 300 300 8,000
Bank Charges - - - - - - - - - - - - -
YEAR 1
Insurance 833 833 834 833 833 834 833 833 834 833 833 834 10,000
Licenses & Fees 200 - - 100 - - 100 - - 100 - 500
Meals & Entertainment - - 100 100 100 100 100 100 100 100 100 100 1,000
YEAR 1
Miscellaneous - - - - - - - - - - - - -
Office Expense (postage) 20 20 20 150 20 20 20 20 20 150 20 20 500
Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000
YEAR 1
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - -
YEAR 1
Professional Fees 750 - - 250 - 250 500 - 250 - - - 2,000

Property Taxes - - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 1

Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Travel - - - - - - - - - - - - -
YEAR 1
Utilities - - - - - - - - - - - - -
Vehicle 500 500 500 500 500 500 500 500 500 500 500 500 6,000
Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500
Other General Expenses 42 41 42 42 41 42 42 41 42 41 42 42 500
Total Operating Expenses 2,586 3,311 9,263 2,817 2,811 3,714 3,936 3,811 4,513 2,366 2,612 3,260 45,000
Assumptions - Year 1
Advertising newspaper and magazine advertising at strategic market cycles (prior to home shows and Tour of Homes)
Bank Charges
Dues & Subscriptions annual dues to the USA Associatin of Architects and the Residential Builders Association
YEAR 1
Insurance general business liability (builder's risk is part of COGs)

Licenses & Fees city taxes and business licenses
Marketing & Promotion web site development and maintenance, brochures, trade shows, graphic design
Meals & Entertainment little time is required for entertaining--budgeted amount covers special events with lenders, vendors & real estate professionals
YEAR 1
Miscellaneous
Office Expense (postage) postage budget
Office Supplies drafting supplies and general office suppliesbudget
Outside Services
YEAR 1
Payroll Expenses
Salaries & Wages
Payroll Taxes
Benefits
YEAR 1
Professional Fees outside accounting assistance, architectural licensing fees

Property Taxes
Rent
YEAR 1

Shipping & Delivery
Telephone cell phone and one office line with cable modem access
Training & Development
YEAR 1
Travel
Utilities
Vehicle truck lease payments, insurance, maintenance and fuel
Other Supplies contingency
Other General Expenses contingency
Other Administrative contingency fund for unplanned expense
Appendix
Operating Expenses
Advertising - - 6,600 1,000 1,000 1,000 1,000 1,000 2,600 600 600 600 16,000
Bank Charges - - - - - - - - - - - - -
YEAR 2
Insurance 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000
Licenses & Fees - 400 - - 200 - - 200 - - 200 - 1,000
YEAR 2
Miscellaneous - - - - - - - - - - - - -
Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000
YEAR 2
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - -
YEAR 2
Professional Fees 750 750 750 750 750 750 750 750 750 750 750 750 9,000
Property Taxes - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 2

Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Travel - - - - - - - - - - - - -
YEAR 2
Utilities - - - - - - - - - - - - -
Vehicle 750 750 750 750 750 750 750 750 750 750 750 750 9,000
Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500
Bank Charges
YEAR 2

YEAR 2
Miscellaneous
Outside Services
YEAR 2
Payroll Expenses
Salaries & Wages
Payroll Taxes
Benefits
YEAR 2

Property Taxes
Rent
YEAR 2

Shipping & Delivery
YEAR 2
Travel
Utilities
Appendix
Operating Expenses
Advertising - - 9,900 1,500 1,500 1,500 1,500 1,500 3,900 900 900 900 24,000
Bank Charges - - - - - - - - - - - - -
YEAR 3
Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000
Licenses & Fees - 800 - - 400 - - 400 - - 400 - 2,000
YEAR 3
Miscellaneous - - - - - - - - - - - - -
Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000
YEAR 3
Payroll Expenses
Salaries & Wages - - - - - - - - - - - - -
Payroll Taxes - - - - - - - - - - - - -
Benefits - - - - - - - - - - - - -
YEAR 3
Professional Fees 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 13,200
Property Taxes - - - - - - - - - - - -
Rent - - - - - - - - - - - - -
YEAR 3

Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000
Travel - - - - - - - - - - - - -
YEAR 3
Utilities - - - - - - - - - - - - -
Vehicle 900 900 900 900 900 900 900 900 900 900 900 900 10,800
Other Supplies 30 60 60 30 60 60 30 60 60 30 60 60 600
Bank Charges
YEAR 3

YEAR 3
Miscellaneous
Outside Services
YEAR 3
Payroll Expenses
Salaries & Wages
Payroll Taxes
Benefits
YEAR 3

Property Taxes
Rent
YEAR 3

Shipping & Delivery
YEAR 3
Travel
Utilities
Appendix
CAPITAL BUDGET PROJECTIONS
YEAR 1
Capital Budget
Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Investor's Draw - - - - - - - - - - - - -
YEAR 1
Dividends Paid - - - - - - - - - - - - -
Security Deposits - - - - - - - - - - - - -
Amortization - - - - - - - - - - - - -
Depreciation (existing assets) - - - - - - - - - - - - -
YEAR 1
Capital Asset Purchases - - - - - - - - - - - - -

Depreciation (new purchases) - - - - - - - - - - - - -
Land - - - - - - - - - - - - -
Year 1 Total Depreciation -
Owner's Draw
YEAR 1
Investor's Draw
Dividends Paid
Security Deposits
Amortization
YEAR 1
Equipment
Equipment Depreciation
Furniture
YEAR 1
Furniture Depreciation
Leasehold Improvements
Leasehold Depreciation
Vehicles
YEAR 1
Vehicle Depreciation
Building
Building Depreciation
Land
Appendix
YEAR 2
Capital Budget
Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Investor's Draw - - - - - - - - - - - - -
YEAR 2
Dividends Paid - - - - - - - - - - - - -
Amortization - - - - - - - - - - - - -
YEAR 2

Land - - - - - - - - - - - - -
Owner's Draw
YEAR 2
Investor's Draw
Dividends Paid
Security Deposits
Amortization
YEAR 2
Equipment
Furniture
YEAR 2
Vehicles
YEAR 2
Building
Land
Appendix
YEAR 3
Capital Budget
Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000
Investor's Draw - - - - - - - - - - - - -
YEAR 3
Dividends Paid - - - - - - - - - - - - -
Amortization - - - - - - - - - - - - -
YEAR 3

Land - - - - - - - - - - - - -
Owner's Draw
YEAR 3
Investor's Draw
Dividends Paid
Security Deposits
Amortization
YEAR 3
Equipment
Furniture
YEAR 3
Vehicles
YEAR 3
Building
Land
Appendix
Equity Investment
Thomas Custom Builders JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 50,000 - - - - - - - - - - - 50,000
Year 2 - - - - - - - - - - - - -
Year 3 - - - - - - - - - - - - -
Real Estate Loans

Existing Balance -
New Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 - - - - - - - - - - - - -
Outstanding balance - - - - - - - - - - - -
Year 2 - - - - - - - - - - - - -
Year 3 - - - - - - - - - - - - -
Repayment JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 - principal - - - - - - - - - - - - -
Year 1 - interest - - - - - - - - - - - - -
Year 2 - principal - - - - - - - - - - - - -
Year 2 - interest - - - - - - - - - - - - -
Year 3 - principal - - - - - - - - - - - - -
Year 3 - interest - - - - - - - - - - - - -
Traditional Business Loan and/or other Long-term Loans

Loan 1
Existing Balance -
New Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 - - - - - - - - - - - - -
Year 2 - - - - - - - - - - - - -
Year 3 - - - - - - - - - - - - -
Year 1 - principal - - - - - - - - - - - - -
Year 1 - interest - - - - - - - - - - - - -
Year 2 - principal - - - - - - - - - - - - -
Year 2 - interest - - - - - - - - - - - - -
Year 3 - principal - - - - - - - - - - - - -
Year 3 - interest - - - - - - - - - - - - -
Loan 2
Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 - - - - - - - - - - - - -
Year 2 - - - - - - - - - - - - -
Year 3 - - - - - - - - - - - - -
Year 1 - principal - - - - - - - - - - - - -
Year 1 - interest - - - - - - - - - - - - -
Year 2 - principal - - - - - - - - - - - - -
Year 2 - interest - - - - - - - - - - - - -
Year 3 - principal - - - - - - - - - - - - -
Year 3 - interest - - - - - - - - - - - - -
Line of Credit
Existing Balance -
Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Year 1 - 150,000 210,000 240,000 275,000 315,000 350,000 175,000 160,000 - - 25,000 1,900,000
Outstanding balance - 150,000 360,000 600,000 875,000 1,190,000 1,540,000 1,715,000 1,875,000 1,615,000 1,320,000 1,010,000
Year 2 190,000 230,000 245,000 270,000 310,000 330,000 - - - - - 30,000 1,605,000
Outstanding balance 1,200,000 1,430,000 1,675,000 1,945,000 2,255,000 2,585,000 2,375,000 2,125,000 1,875,000 1,585,000 1,255,000 925,000
Year 3 370,000 455,000 505,000 560,000 660,000 325,000 - - - - - - 2,875,000
Outstanding balance 1,295,000 1,750,000 2,255,000 2,815,000 3,475,000 3,800,000 3,350,000 3,245,000 3,125,000 2,880,000 2,554,000 2,234,000
Year 1 - principal - - - - - - - - - 260,000 295,000 335,000 890,000
Year 1 - interest - 1,000 2,400 4,000 5,833 7,933 10,267 11,433 12,500 10,767 8,800 6,733 81,667
Year 2 - principal - - - - - - 210,000 250,000 250,000 290,000 330,000 360,000 1,690,000
Year 2 - interest 8,000 9,533 11,167 12,967 15,033 17,233 15,833 14,167 12,500 10,567 8,367 6,167 141,533
Year 3 - principal - - - - - - 450,000 105,000 120,000 245,000 326,000 320,000 1,566,000
Year 3 - interest 8,633 11,667 15,033 18,767 23,167 25,333 22,333 21,633 20,833 19,200 17,027 14,893 218,520
Year 1 - total principal paid 890,000

Year 1 - total interest paid 81,667
Year 2 - total principal paid 1,690,000
Year 3 - total principal paid 1,566,000
Appendix

Custom Builders Business Plan

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Thomas

12345 W. North Street

MANAGEMENT AND ORGANIZATION 7

PRODUCT AND SERVICE PLAN 10

OPERATING AND CONTROL SYSTEMS 25

SUPPORTING DOCUMENTS APPENDIX

Management and Organization Plan

Compensation and ownership

➤ Chris Vincent (President/Owner: National Architectural Systems—gives insight into the

➤ Terry Allistar (President, Allistar Development Company—provides much-needed

➤ Sam Ngysen (Executive Vice-President, Sandstone Economic Development Company—

➤ Alice Gearion (President, Plumbing Partners—blends experience defining and measuring

➤ Juan Escobar (Owner, Computer Concepts—provides insight into computer trends

➤ Information Technology Specialist

➤ Graphic Design and Advertising

Employee stock option plan and other incentives

Product and Service Plan

Purpose of the product or service

➤ A professional architect will be in charge of the construction.

➤ They have creative input at any stage of design or construction.

➤ Accurate scheduling will take the stress out of move planning.

➤ Accurate estimating will allow rational decisions to be made regarding changes.

Unique features of services

Unique features of products

➤ Mature Landscaping—Home sites will retain some native vegetation. In addition,

➤ Porches—Homes will prominently feature large front or side porches as a design

➤ Smart Tech—Homes will be wired for "smart" technologies. As computers,

➤ Environmentally Responsible—Homes will incorporate energy- and natural-resource

Future research and development

Trademarks, patents, copyrights, licenses, royalties

Related services and spin-offs

➤ Landscape design and installation services could be offered at a fee.

Other important trends include:

➤ Affordability issues have caused a steady decline in homeownership for younger

➤ The homebuilding industry is primarily made up of small businesses, building 25 or fewer

➤ Increased governmental regulation has intensified affordability issues, but raised

➤ More open and multi-functional space

➤ Reduction of the formal dining room

➤ Automation and energy control devices

➤ Environmentally friendly construction processes, furnishings and marketing materials

➤ Multi-functional master suites

Target market profile

➤ A 15% gross margin

➤ An average home selling price of $350,000

Gross margin on products

Fixed costs = $113,014 = 1.72

Therefore,Thomas Custom Builders must sell 2 houses in a timely manner to break-even.

Advertising and promotion

➤ Joining local chambers of commerce and associations that foster networking.

➤ Affixing signs to truck and properties.

Packaging and labeling

Service and warranties

Operating and Control Systems

Administrative policies, procedures, and controls

Billing the customers

Paying the suppliers

Collecting the accounts receivable

Handling warranties and returns

Monitoring the company budgets

➤ Sales and Marketing Expenses

Documents and paper flow

1. Market research—to be completed 11/10/0B*—Mr.Thomas

2. Site evaluation and land acquisition—to be completed 1/25/0C—Mr.Thomas

3. Conceptual design work and drawings—to be completed 1/31/0C—designer