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 Management team Compensation and ownership Board of Advisors Infrastructure Contracts Insurance Employee stock option plan and other incentives Organization charts

7 7 7 7 8 8 8 9 9

PRODUCT AND SERVICE PLAN Purpose of the product or service Unique features Stage of development Future research and development Trademarks, patents, copyrights, licenses, royalties Government approvals Product and service limitations Product liability Related services and spin-offs Production Facilities Suppliers Environmental factors

10 10 10 12 12 12 12 13 13 13 13 14 14 14

MARKETING PLAN Industry profile Current size Growth potential Geographic location Industry trends Seasonality factors Profit characteristics Distribution channels Basis of competition Competition profile Customer profile

15 15 15 15 16 16 17 18 18 18 19 19 2

Target market profile Pricing profile Gross margin on products Break-even analysis Market penetration Distribution channels Sales representatives Direct sales force Direct mail/telemarketing Advertising and promotion Packaging and labeling Service and warranties Trade shows Future markets

19 20 20 21 21 21 22 22 22 22 23 23 23 24

OPERATING AND CONTROL SYSTEMS Administrative policies, procedures, and controls Receiving orders Billing the customers Paying the suppliers Collecting the accounts receivable Reporting to management Staff development Inventory control Handling warranties and returns Monitoring the company budgets Security systems Documents and paper flow Planning chart Product development Manufacturing Financial requirements Marketing flow chart Market penetration Management and infrastructure Risk analysis Salvaging assets

25 25 25 25 25 25 26 26 26 26 27 27 28 28 28 29 29 30 30 30 31 32

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GROWTH PLAN New offerings to market Capital requirements Personnel requirements Exit strategy

33 33 33 33 34

FINANCIAL PLAN Sales Projections Income Projections Cash Requirements Sources of Financing Projected Financial Statements Projected Cash Flow Statements Projected Year-End Income Statements Projected Year-End Balance Sheet Ratio Analysis

35 35 35 35 36

SUPPORTING DOCUMENTS Sales Projections Inventory Projections Operating Expenses Projections Capital Budget Projection Equity & Debt Worksheet

APPENDIX

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Thomas Custom Builders Business Plan 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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Thomas Custom Builders Business Plan 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)

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Terry Allistar (President, Allistar Development Company—provides much-needed information about general contracting and the building industry)

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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)

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Alice Gearion (President, Plumbing Partners—blends experience defining and measuring strategic planning processes with a good knowledge of the subcontracting aspects of residential building)

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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

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Insurance Broker

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Information Technology Specialist

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Graphic Design and Advertising

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Drafting Service

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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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Thomas Custom Builders Business Plan 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.

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

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Weekly project visits during construction will assure concerns are being addressed and will keep clients involved in decision making.

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Accurate scheduling will take the stress out of move planning.

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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.

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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.

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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.

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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.

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Real estate location specialists could be offered to clients moving in from out of state.

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Interior decorating services may assist clients in furnishing and decorating their homes.

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

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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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Thomas Custom Builders Business Plan 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. 15

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.

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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.

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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.

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Consumer loss of confidence in the stock market may prompt more buyers to reinvest their money in residential real estate.

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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.

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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.

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Increased governmental regulation has intensified affordability issues, but raised consumers’ consciousness of environmental issues related to homebuilding.

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Recent energy costs have renewed consumers’ interest in and demand for conservation technology. 16

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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.

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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.

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More open and multi-functional space

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Reduction of the formal dining room

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Automation and energy control devices

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Environmentally friendly construction processes, furnishings and marketing materials

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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

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Decade One

➤

Refax

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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 nationwide 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 midto 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. 19

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-ofthumb were used for projections: ➤

Developed land costs at an average of 25% of the total value of TCB’s building cost of the home

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A 15% gross margin

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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 sales for the first three years of operations are calculated at 15% of gross sales and are given respectively as follows:

➤

➤

4000000

Year One (200C) $196,875 Year Two (200D) $393,750

2,975,000

3500000 3000000 DOLLARS

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COST OF GOODS SOLD

2500000

2,231,250

2000000 1500000

1,115,625

1000000 500000 0

Year Three (200E) $525,000

200C

YEARS 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 Gross margin

=

$113,014 65,625

=

1.72

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.

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Tight labor markets and premium material pricing may cause difficulties for a newcomer to the industry.

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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

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Decade One

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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

Thomas Custom Builders Business Plan 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

Thomas Custom Builders Business Plan 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 lowor 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

Thomas Custom Builders Business Plan 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

Thomas Custom Builders Cash Flow Statement 200C Cash In Cash Sales Collections from Accounts Receivables Equity Received Loans Received Other Cash In (receipts from other assets) Other Cash In (interest, royalties etc.) Total Cash In Total Cash Available Cash Out Inventory Expenditures Inventory/Raw Material (Cash) Inventory/Raw Material (Paid on Account) Production Expenses Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative Paid on Account Non-operating Costs Capital Purchases Estimated Income Tax Payments Interest Payments Loan Principal Payments Owner's Draw Other Cash Out Total Cash Out Monthly Cash Flow (cash in - cash out) Beginning Cash Balance Ending Cash Balance

Pre Start-up

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

-

50,000 50,000 50,000

150,000 150,000 194,414

17,500 210,000 227,500 237,124

17,500 240,000 257,500 267,803

17,500 275,000 292,500 303,648

17,500 315,000 332,500 342,987

17,500 350,000 367,500 379,644

17,500 175,000 192,500 204,066

160,000 160,000 172,426

402,500 402,500 416,196

402,500 402,500 417,526

402,500 25,000 427,500 445,256

1,312,500 50,000 1,900,000 3,262,500 3,262,500

-

-

133,875 43,604

133,875 78,283

133,875 112,963

133,875 147,642

133,875 182,321

133,875 217,000

173,396

138,717

125,038

90,358

55,679

803,250 1,365,000

-

833 20 83 -

250 833 200 1,000 20 83 -

3,300 834 4,000 100 20 84 -

500 833 100 150 83 -

500 250 833 100 100 20 83 -

500 834 1,000 100 20 84 -

500 833 1,000 100 20 83 -

500 250 833 100 1,000 100 20 83 -

1,300 834 1,000 100 20 84 -

300 833 100 150 83 -

300 250 833 100 100 20 83 -

300 834 1,000 100 20 84 -

8,000 1,000 10,000 500 10,000 1,000 500 1,000 -

-

750 166 500 25 42 167 -

167 500 50 41 167 -

166 500 50 42 167 -

250 167 500 25 42 167 -

167 500 50 41 167 -

250 167 500 50 42 167 -

500 166 500 25 42 167 -

167 500 50 41 167 -

250 166 500 50 42 167 -

167 500 25 41 167 -

167 500 50 42 167 -

167 500 50 42 163 -

2,000 2,000 6,000 500 500 2,000 -

-

3,000 5,586

1,000 3,000 184,790

2,400 3,000 226,821

4,000 3,000 256,655

5,833 3,000 293,161

7,933 3,000 330,843

10,267 3,000 368,078

11,433 3,000 191,640

12,500 3,000 158,730

10,767 260,000 3,000 401,170

8,800 295,000 3,000 399,770

21,063 6,733 335,000 3,000 424,735

21,063 81,667 890,000 36,000 3,241,979

-

44,414 44,414

(34,790) 44,414 9,624

679 9,624 10,303

846 10,303 11,148

860 11,566 12,426

1,270 12,426 13,696

1,330 13,696 15,026

2,730 15,026 17,756

2,765 17,756 20,521

20,521 20,521

-

(661) 11,148 10,487

1,657 10,487 12,144

(578) 12,144 11,566

Thomas Custom Builders Cash Flow Statement 200D Cash In Cash Sales Collections from Accounts Receivables Equity Received Loans Received Other Cash In (receipts from other assets) Other Cash In (interest, royalties etc.) Total Cash In Total Cash Available Cash Out Inventory Expenditures Inventory/Raw Material (Cash) Inventory/Raw Material (Paid on Account) Production Expenses Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative Paid on Account Non-operating Costs Capital Purchases Estimated Income Tax Payments Interest Payments Loan Principal Payments Owner's Draw Other Cash Out Total Cash Out Monthly Cash Flow (cash in - cash out) Beginning Cash Balance Ending Cash Balance

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

190,000 190,000 210,521

230,000 230,000 248,389

35,000 245,000 280,000 297,369

35,000 270,000 305,000 323,086

35,000 310,000 345,000 365,819

35,000 330,000 365,000 391,461

437,500 437,500 451,173

437,500 437,500 458,791

402,500 402,500 427,280

402,500 402,500 422,179

402,500 402,500 426,371

402,500 30,000 432,500 457,096

2,625,000 1,605,000 4,230,000 4,250,521

133,875 43,604

133,875 78,283

133,875 112,963

133,875 147,642

133,875 182,321

133,875 217,000

194,396

159,717

125,038

90,358

55,679

21,000

803,250 1,428,000

1,250 250 20 83 -

250 1,250 400 2,000 250 20 83 -

6,600 1,250 8,000 250 20 84 -

1,000 1,250 250 150 83 -

1,000 250 1,250 200 250 20 83 -

1,000 1,250 2,000 250 20 84 -

1,000 1,250 2,000 250 20 83 -

1,000 250 1,250 200 2,000 250 20 83 -

2,600 1,250 2,000 250 20 84 -

600 1,250 250 150 83 -

600 250 1,250 200 250 20 83 -

600 1,250 2,000 250 20 84 -

16,000 1,000 15,000 1,000 20,000 3,000 500 1,000 -

750 166 750 25 92 267 -

750 167 750 50 91 267 -

750 166 750 50 92 267 -

750 167 750 25 92 267 -

750 167 750 50 91 267 -

750 167 750 50 92 267 -

750 166 750 25 92 267 -

750 167 750 50 91 267 -

750 166 750 50 92 267 -

750 167 750 25 91 267 -

750 167 750 50 92 267 -

750 167 750 50 92 263 -

9,000 2,000 9,000 500 1,100 3,200 -

-

-

-

-

-

15,033 3,000 339,357

17,233 3,000 377,788

15,833 210,000 3,000 429,882

14,167 250,000 3,000 434,011

8,784 12,500 250,000 3,000 407,600

10,567 290,000 3,000 398,308

8,367 330,000 3,000 401,775

42,191 6,167 360,000 3,000 438,634

50,975 141,533 1,690,000 36,000 4,232,058

5,643 20,819 26,461

(12,788) 26,461 13,673

7,618 13,673 21,291

3,489 21,291 24,780

4,192 19,679 23,871

725 23,871 24,596

-

-

-

-

-

-

8,000 3,000 192,132

9,533 3,000 231,020

11,167 3,000 279,283

12,967 3,000 302,267

717 17,369 18,086

2,733 18,086 20,819

(2,132) 20,521 18,389

(1,020) 18,389 17,369

-

(5,100) 24,780 19,679

(6,134) 24,596 18,463

(2,058) 20,521 18,463

Thomas Custom Builders Cash Flow Statement 200E Cash In Cash Sales Collections from Accounts Receivables Equity Received Loans Received Other Cash In (receipts from other assets) Other Cash In (interest, royalties etc.) Total Cash In Total Cash Available Cash Out Inventory Expenditures Inventory/Raw Material (Cash) Inventory/Raw Material (Paid on Account) Production Expenses Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative Paid on Account Non-operating Costs Capital Purchases Estimated Income Tax Payments Interest Payments Loan Principal Payments Owner's Draw Other Cash Out Total Cash Out Monthly Cash Flow (cash in - cash out) Beginning Cash Balance Ending Cash Balance

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

370,000 370,000 388,463

455,000 455,000 472,337

35,000 505,000 540,000 563,739

35,000 560,000 595,000 616,565

660,000 660,000 685,560

437,500 325,000 762,500 782,787

875,000 875,000 896,638

437,500 437,500 459,979

402,500 402,500 423,697

437,500 437,500 456,275

437,500 437,500 461,254

402,500 402,500 421,254

3,500,000 2,875,000 6,375,000 6,393,463

267,750 87,208

267,750 156,567

267,750 225,925

267,750 295,283

267,750 364,642

267,750 455,000

388,792

298,433

229,075

159,717

90,358

21,000

1,606,500 2,772,000

1,500 300 30 83 -

250 1,500 800 4,000 300 30 83 -

9,900 1,500 16,000 300 30 84 -

1,500 1,500 300 200 83 -

1,500 250 1,500 400 300 30 83 -

1,500 1,500 4,000 300 30 84 -

1,500 1,500 4,000 300 30 83 -

1,500 250 1,500 400 4,000 300 30 83 -

3,900 1,500 4,000 300 30 84 -

900 1,500 300 200 83 -

900 250 1,500 400 300 30 83 -

900 1,500 4,000 300 30 84 -

24,000 1,000 18,000 2,000 40,000 3,600 700 1,000 -

1,100 166 900 30 125 300 -

1,100 167 900 60 125 300 -

1,100 166 900 60 125 300 -

1,100 167 900 30 125 300 -

1,100 167 900 60 125 300 -

1,100 167 900 60 125 300 -

1,100 166 900 30 125 300 -

1,100 167 900 60 125 300 -

1,100 166 900 60 125 300 -

1,100 167 900 30 125 300 -

1,100 167 900 60 125 300 -

1,100 167 900 60 125 300 -

13,200 2,000 10,800 600 1,500 3,600 -

18,767 3,000 591,005

-

25,333 3,000 761,149

-

-

-

-

22,333 450,000 3,000 874,159

21,633 105,000 3,000 438,782

19,548 20,833 120,000 3,000 404,922

19,200 245,000 3,000 432,522

17,027 326,000 3,000 442,500

35,796 14,893 320,000 3,000 404,155

55,344 218,520 1,566,000 36,000 6,376,364

1,351 20,287 21,638

841 21,638 22,479

-

-

-

-

-

-

8,633 3,000 371,126

11,667 3,000 448,598

15,033 3,000 542,173

(1,126) 18,463 17,337

6,402 17,337 23,739

(2,173) 23,739 21,565

3,995 21,565 25,560

-

23,167 3,000 665,273 (5,273) 25,560 20,287

(1,282) 22,479 21,197

(2,422) 21,197 18,775

4,978 18,775 23,754

(5,000) 23,754 18,754

(1,655) 18,754 17,099

(1,364) 18,463 17,099

Thomas Custom Builders Year-End Income Statement (Projected) Net Sales (less returns & allowances) Cost of Goods Sold Gross Margin Operating Expenses Advertising Bad Debt Expense Bank Charges Depreciation & Amortization Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative Total Operating Expenses Operating Income

$

$

200E 3,500,000 2,975,000 525,000

16,000 1,000 15,000 1,000 20,000 3,000 500 1,000 -

24,000 1,000 18,000 2,000 40,000 3,600 700 1,000 -

$

2,000 2,000 6,000 500 500 2,000 45,000

$

9,000 2,000 9,000 500 1,100 3,200 82,300

$

13,200 2,000 10,800 600 1,500 3,600 122,000

$

151,875

$

311,450

$

403,000

81,667 $

Income Taxes (if C Corp) Net Income

$

200D 2,625,000 2,231,250 393,750

8,000 1,000 10,000 500 10,000 1,000 500 1,000 -

Interest Expense Other Income (interest, royalties, etc.) Income Before Taxes

200C 1,312,500 1,115,625 196,875

70,208

141,533 $

$

70,208

169,917

218,520 $

$

169,917

184,480 -

$

184,480

Thomas Custom Builders Year-End Balance Sheet (Projected) 200C

200D

200E

$

20,521 1,052,625 1,073,146

$

18,463 1,052,625 1,071,088

$

17,099 2,456,125 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

$

1,010,000 1,010,000

$

925,000 925,000

$

2,234,000 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

$

50,000 240,125 (144,038) 146,088

Assets Current Assets Cash & Equivalents Accounts Receivable Inventory Security Deposits Other Current Assets Total Current Assets

Liabilities Current Liabilities Accounts Payable Line of Credit Other Current Liabilities Total Current Liabilities

Equity Equity Investments Retained Earnings Less: Owner's & Investor's Draws Total Equity

Total Liabilities and Equity

$

$

50,000 70,208 (57,063) 63,146

1,073,146

$

1,071,088

$

$

50,000 424,605 (235,382) 239,224

2,473,224

Thomas Custom Builders Financial Ratios 200C

200D

200E

Profitability Ratios Gross Margin

Gross Income Net Sales

15.00%

15.00%

15.00%

Operating Income Net Sales

11.57%

11.86%

11.51%

Net Margin

Net Income Net Sales

5.35%

6.47%

5.27%

Return on Assets (ROA)

Net Income Total Assets

6.54%

15.86%

7.46%

Return on Equity (ROE)

Net Income Shareholders' Equity

111.18%

116.31%

77.12%

Total Current Assets Total Current Liabilities

1.06

1.16

1.11

Current Assets - Inventory Current Liabilities

0.02

0.02

0.01

Total Liabilities Total Assets

0.94

0.86

0.90

Total Liabilities Shareholders' Equity

15.99

6.33

9.34

Cost of Goods Sold Inventory

1.06

2.12

1.21

Accounts Receivable Net Sales/365

0.00

0.00

0.00

Net Sales Total Assets

1.22

2.45

1.42

Operating Margin

Liquidity Ratios Current Ratio

Quick Ratio

Risk Ratios Debt Ratio

Debt to Equity

Efficiency Ratios Inventory Turnover

Days Sales Outstanding (DSO)

Investment Turnover Ratio

Thomas Custom Builders Business Plan Supporting Documents

Appendix

47

YEAR 1 YEAR 1 YEAR 1 YEAR 1

SALES PROJECTIONS Thomas Custom Builders Year 1 Sales Budget Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Gross Sales Less: Returns & Allowances Net Sales Other Income Total Income Credit Management Sales (cash) Sales (credit) Received on Account Bad Debt Expense

YEAR 1 YEAR 1 YEAR 1

Year 1 Assumptions Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Less: Returns & Allowances Other Income Sales (cash) Sales (credit) Received on Account Bad Debt Expense

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

-

-

17,500 17,500 17,500 17,500

17,500 17,500 17,500 17,500

17,500 17,500 17,500 17,500

17,500 17,500 17,500 17,500

17,500 17,500 17,500 17,500

17,500 17,500 17,500 17,500

-

315,000 87,500 402,500 402,500 402,500

315,000 87,500 402,500 402,500 402,500

315,000 87,500 402,500 402,500 402,500

105,000 945,000 262,500 1,312,500 1,312,500 1,312,500

-

-

17,500 -

17,500 -

17,500 -

17,500 -

17,500 -

17,500 -

-

402,500 -

402,500 -

402,500 -

1,312,500 -

staged deposists on 3 houses closing on 3 houses @ $350,000 (deposits applied) closing on 3 lots @ $87,500

Appendix

YEAR 2 YEAR 2 YEAR 2 YEAR 2

SALES PROJECTIONS Thomas Custom Builders Year 2 Sales Budget Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Gross Sales Less: Returns & Allowances Net Sales Other Income Total Income Credit Management Sales (cash) Sales (credit) Received on Account Bad Debt Expense

YEAR 2 YEAR 2 YEAR 2

Year 2 Assumptions Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Less: Returns & Allowances Other Income Sales (cash) Sales (credit) Received on Account Bad Debt Expense

JAN

FEB

MAR

APR

MAY

JUN

-

-

35,000 35,000 35,000 35,000

35,000 35,000 35,000 35,000

35,000 35,000 35,000 35,000

-

-

35,000 -

35,000 -

35,000 -

35,000

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

35,000 35,000 35,000

35,000 315,000 87,500 437,500 437,500 437,500

35,000 315,000 87,500 437,500 437,500 437,500

315,000 87,500 402,500 402,500 402,500

315,000 87,500 402,500 402,500 402,500

315,000 87,500 402,500 402,500 402,500

315,000 87,500 402,500 402,500 402,500

210,000 1,890,000 525,000 2,625,000 2,625,000 2,625,000

35,000 -

437,500 -

437,500 -

402,500 -

402,500 -

402,500 -

402,500 -

2,625,000 -

staged deposists on 6 houses closing on 6 houses @ $350,000 (deposits applied) closing on 6 lots @ $87,500

Appendix

YEAR 3 YEAR 3 YEAR 3 YEAR 3

SALES PROJECTIONS Thomas Custom Builders Year 3 Sales Budget Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Gross Sales Less: Returns & Allowances Net Sales Other Income Total Income Credit Management Sales (cash) Sales (credit) Received on Account Bad Debt Expense

YEAR 3 YEAR 3 YEAR 3

Year 3 Assumptions Deposits House Sales Lot Sales Product/Service Category D Product/Service Category E Product/Service Category F Product/Service Category G Less: Returns & Allowances Other Income Sales (cash) Sales (credit) Received on Account Bad Debt Expense

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

-

-

35,000 35,000 35,000 35,000

35,000 35,000 35,000 35,000

-

35,000 315,000 87,500 437,500 437,500 437,500

70,000 630,000 175,000 875,000 875,000 875,000

35,000 315,000 87,500 437,500 437,500 437,500

315,000 87,500 402,500 402,500 402,500

35,000 315,000 87,500 437,500 437,500 437,500

35,000 315,000 87,500 437,500 437,500 437,500

315,000 87,500 402,500 402,500 402,500

280,000 2,520,000 700,000 3,500,000 3,500,000 3,500,000

-

-

35,000 -

35,000 -

-

437,500 -

875,000 -

437,500 -

402,500 -

437,500 -

437,500 -

402,500 -

3,500,000 -

staged deposists on 8 houses closing on 8 houses @ $350,000 (deposits applied) closing on 8 lots @ $87,500

Appendix

YEAR 1

INVENTORY PROJECTIONS Thomas Custom Builders Year 1 Inventory Management Inventory Purchases Inventory/ Raw Material Purchases (Cash) Inventory/ Raw Material Purchases (Credit) Payment on Account

YEAR 1 YEAR 1 YEAR 1

Production Expenses Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses Inventory Production Expenses

YEAR 1

Inventory Balance Beginning Inventory Balance Inventory Purchased Inventory Production (Cost of Goods Sold) Ending Inventory Balance

YEAR 1 YEAR 1 YEAR 1

Year 1 Assumptions Inventory/ Raw Material Purchases Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

-

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

-

-

-

-

-

803,250 803,250 -

-

8,925

8,925

8,925

8,925

8,925

8,925

-

-

-

-

-

53,550

-

34,679 43,604

69,358 78,283

104,038 112,963

138,717 147,642

173,396 182,321

208,075 217,000

173,396 173,396

138,717 138,717

104,038 21,000 125,038

69,358 21,000 90,358

34,679 21,000 55,679

1,248,450 63,000 1,365,000

-

133,875 43,604 177,479

177,479 133,875 78,283 (14,875) 374,763

374,763 133,875 112,963 (14,875) 606,725

606,725 133,875 147,642 (14,875) 873,367

873,367 133,875 182,321 (14,875) 1,174,688

1,174,688 133,875 217,000 (14,875) 1,510,688

1,510,688 173,396 (14,875) 1,669,208

budget to purchase 6 lots @ $74,375 plus materials for 6 houses @ 20% of house cost $59,500 per house builder's risk and warranty service--estimated at 3% of total cost to build each house--$8,925 per house - 6 houses

subcontracted construction and design labor estimated at 71% of house cost real estate commission at 6% of sale price - $21,000 per sale - 3 houses sold

Appendix

1,669,208 138,717 1,807,925

1,807,925 125,038 (342,125) 1,590,838

1,590,838 90,358 (342,125) 1,339,071

1,339,071 55,679 (342,125) 1,052,625

803,250 1,365,000 (1,115,625) 1,052,625

YEAR 2

INVENTORY PROJECTIONS Thomas Custom Builders Year 2 Inventory Management Inventory Purchases Inventory/ Raw Material Purchases (Cash) Inventory/ Raw Material Purchases (Credit) Payment on Account

YEAR 2 YEAR 2 YEAR 2

Production Expenses Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses Inventory Production Expenses

YEAR 2

Inventory Balance Beginning Inventory Balance Inventory Purchased Inventory Production (Cost of Goods Sold) Ending Inventory Balance

YEAR 2 YEAR 2 YEAR 2

Year 2 Assumptions Inventory/ Raw Material Purchases Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

133,875 133,875 -

-

-

-

-

-

-

803,250 803,250 -

8,925

8,925

8,925

8,925

8,925

8,925

-

-

-

-

-

-

53,550

34,679 43,604

69,358 78,283

104,038 112,963

138,717 147,642

173,396 182,321

208,075 217,000

173,396 21,000 194,396

138,717 21,000 159,717

104,038 21,000 125,038

69,358 21,000 90,358

34,679 21,000 55,679

21,000 21,000

1,248,450 126,000 1,428,000

1,052,625 133,875 43,604 1,230,104

1,230,104 133,875 78,283 1,442,263

1,442,263 133,875 112,963 (29,750) 1,659,350

1,659,350 133,875 147,642 (29,750) 1,911,117

1,911,117 133,875 182,321 (29,750) 2,197,563

2,197,563 133,875 217,000 (29,750) 2,518,688

2,518,688 194,396 (371,875) 2,341,208

2,341,208 159,717 (371,875) 2,129,050

2,129,050 125,038 (342,125) 1,911,963

budget to purchase 6 lots @ $74,375 plus materials for 6 houses @ 20% of house cost $59,500 per house builder's risk and warranty service--estimated at 3% of total cost to build each house--$8,925 per house - 6 houses

subcontracted construction and design labor estimated at 71% of house cost real estate commission at 6% of sale price - $21,000 per sale - 6 houses sold

Appendix

SEP

OCT

NOV

1,911,963 90,358 (342,125) 1,660,196

DEC

1,660,196 55,679 (342,125) 1,373,750

TOTAL

1,373,750 21,000 (342,125) 1,052,625

1,052,625 803,250 1,428,000 (2,231,250) 1,052,625

YEAR 3

INVENTORY PROJECTIONS Thomas Custom Builders Year 3 Inventory Management Inventory Purchases Inventory/ Raw Material Purchases (Cash) Inventory/ Raw Material Purchases (Credit) Payment on Account

YEAR 3 YEAR 3 YEAR 3

Production Expenses Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses Inventory Production Expenses

YEAR 3

Inventory Balance Beginning Inventory Balance Inventory Purchased Inventory Production (Cost of Goods Sold) Ending Inventory Balance

YEAR 3 YEAR 3 YEAR 3

Year 3 Assumptions Inventory/ Raw Material Purchases Freight-in & Trucking Insurance Payroll Expenses - production Salaries & Wages Employee Benefits Payroll Taxes Rent Repairs & Maintenance Rework Subcontracting Utilities Other Production Expenses

JAN

FEB

MAR

APR

MAY

267,750 267,750 -

267,750 267,750 -

267,750 267,750 -

267,750 267,750 -

267,750 267,750 -

267,750 267,750 -

-

-

-

-

-

-

1,606,500 1,606,500 -

17,850

17,850

17,850

17,850

17,850

17,850

-

-

-

-

-

-

107,100

69,358 87,208

138,717 156,567

208,075 225,925

277,433 295,283

346,792 364,642

416,150 21,000 455,000

346,792 42,000 388,792

277,433 21,000 298,433

208,075 21,000 229,075

138,717 21,000 159,717

69,358 21,000 90,358

21,000 21,000

2,496,900 168,000 2,772,000

1,052,625 267,750 87,208 1,407,583

1,407,583 267,750 156,567 1,831,900

1,831,900 267,750 225,925 (29,750) 2,295,825

2,295,825 267,750 295,283 (29,750) 2,829,108

3,461,500 267,750 455,000 (371,875) 3,812,375

3,812,375 388,792 (743,750) 3,457,417

3,457,417 298,433 (371,875) 3,383,975

3,383,975 229,075 (342,125) 3,270,925

3,270,925 159,717 (371,875) 3,058,767

2,829,108 267,750 364,642 3,461,500

JUN

JUL

AUG

budget to purchase 12 lots @ $74,375 plus materials for 12 houses @ 20% of house cost $59,500 per house builder's risk and warranty service--estimated at 3% of total cost to build each house--$8,925 per house - 12 houses

subcontracted construction and design labor estimated at 71% of house cost real estate commission at 6% of sale price - $21,000 per sale - 8 houses sold

Appendix

SEP

OCT

NOV

DEC

3,058,767 90,358 (371,875) 2,777,250

TOTAL

2,777,250 21,000 (342,125) 2,456,125

1,052,625 1,606,500 2,772,000 (2,975,000) 2,456,125

YEAR 1 YEAR 1 YEAR 1 YEAR 1 YEAR 1 YEAR 1

OPERATING EXPENSE PROJECTIONS Thomas Custom Builders Year 1 JAN Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance 833 Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense (postage) 20 Office Supplies 83 Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees 750 Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone 166 Training & Development Travel Utilities Vehicle 500 Other Supplies 25 Other General Expenses 42 Other Administrative 167 Total Operating Expenses 2,586

YEAR 1 YEAR 1 YEAR 1 YEAR 1 YEAR 1 YEAR 1

Assumptions - Year 1 Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense (postage) Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

250 833 200 1,000 20 83 -

3,300 834 4,000 100 20 84 -

500 833 100 150 83 -

500 250 833 100 100 20 83 -

500 834 1,000 100 20 84 -

500 833 1,000 100 20 83 -

500 250 833 100 1,000 100 20 83 -

1,300 834 1,000 100 20 84 -

300 833 100 150 83 -

300 250 833 100 100 20 83 -

300 834 1,000 100 20 84 -

8,000 1,000 10,000 500 10,000 1,000 500 1,000 -

167 500 50 41 167 3,311

166 500 50 42 167 9,263

250 167 500 25 42 167 2,817

167 500 50 41 167 2,811

250 167 500 50 42 167 3,714

500 166 500 25 42 167 3,936

167 500 50 41 167 3,811

250 166 500 50 42 167 4,513

167 500 25 41 167 2,366

167 500 50 42 167 2,612

167 500 50 42 163 3,260

2,000 2,000 6,000 500 500 2,000 45,000

newspaper and magazine advertising at strategic market cycles (prior to home shows and Tour of Homes) annual dues to the USA Associatin of Architects and the Residential Builders Association general business liability (builder's risk is part of COGs) city taxes and business licenses web site development and maintenance, brochures, trade shows, graphic design little time is required for entertaining--budgeted amount covers special events with lenders, vendors & real estate professionals postage budget drafting supplies and general office suppliesbudget

outside accounting assistance, architectural licensing fees

cell phone and one office line with cable modem access

truck lease payments, insurance, maintenance and fuel contingency contingency contingency fund for unplanned expense

Appendix

YEAR 2 YEAR 2 YEAR 2 YEAR 2 YEAR 2 YEAR 2

OPERATING EXPENSE PROJECTIONS Thomas Custom Builders Year 2 JAN Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance 1,250 Licenses & Fees Marketing & Promotion Meals & Entertainment 250 Miscellaneous Office Expense (postage) 20 Office Supplies 83 Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees 750 Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone 166 Training & Development Travel Utilities Vehicle 750 Other Supplies 25 Other General Expenses 92 Other Administrative 267 Total Operating Expenses 3,653

YEAR 2 YEAR 2 YEAR 2 YEAR 2 YEAR 2 YEAR 2

Assumptions - Year 2 Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense (postage) Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

250 1,250 400 2,000 250 20 83 -

6,600 1,250 8,000 250 20 84 -

1,000 1,250 250 150 83 -

1,000 250 1,250 200 250 20 83 -

1,000 1,250 2,000 250 20 84 -

1,000 1,250 2,000 250 20 83 -

1,000 250 1,250 200 2,000 250 20 83 -

2,600 1,250 2,000 250 20 84 -

600 1,250 250 150 83 -

600 250 1,250 200 250 20 83 -

600 1,250 2,000 250 20 84 -

16,000 1,000 15,000 1,000 20,000 3,000 500 1,000 -

750 167 750 50 91 267 6,328

750 166 750 50 92 267 18,279

750 167 750 25 92 267 4,784

750 167 750 50 91 267 5,128

750 167 750 50 92 267 6,680

750 166 750 25 92 267 6,653

750 167 750 50 91 267 7,128

750 166 750 50 92 267 8,279

750 167 750 25 91 267 4,383

750 167 750 50 92 267 4,729

750 167 750 50 92 263 6,276

9,000 2,000 9,000 500 1,100 3,200 82,300

newspaper and magazine advertising at strategic market cycles (prior to home shows and Tour of Homes) annual dues to the USA Associatin of Architects and the Residential Builders Association general business liability (builder's risk is part of COGs) city taxes and business licenses web site development and maintenance, brochures, trade shows, graphic design little time is required for entertaining--budgeted amount covers special events with lenders, vendors & real estate professionals postage budget drafting supplies and general office suppliesbudget

outside accounting assistance, architectural licensing fees

cell phone and one office line with cable modem access

truck lease payments, insurance, maintenance and fuel contingency contingency contingency fund for unplanned expense

Appendix

YEAR 3 YEAR 3 YEAR 3 YEAR 3 YEAR 3 YEAR 3

OPERATING EXPENSE PROJECTIONS Thomas Custom Builders Year 3 JAN Operating Expenses Advertising Bank Charges Dues & Subscriptions Insurance 1,500 Licenses & Fees Marketing & Promotion Meals & Entertainment 300 Miscellaneous Office Expense (postage) 30 Office Supplies 83 Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees 1,100 Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone 166 Training & Development Travel Utilities Vehicle 900 Other Supplies 30 Other General Expenses 125 Other Administrative 300 Total Operating Expenses 4,534

YEAR 3 YEAR 3 YEAR 3 YEAR 3 YEAR 3 YEAR 3

Assumptions - Year 3 Advertising Bank Charges Dues & Subscriptions Insurance Licenses & Fees Marketing & Promotion Meals & Entertainment Miscellaneous Office Expense (postage) Office Supplies Outside Services Payroll Expenses Salaries & Wages Payroll Taxes Benefits Professional Fees Property Taxes Rent Repairs & Maintenance Shipping & Delivery Telephone Training & Development Travel Utilities Vehicle Other Supplies Other General Expenses Other Administrative

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

250 1,500 800 4,000 300 30 83 -

9,900 1,500 16,000 300 30 84 -

1,500 1,500 300 200 83 -

1,500 250 1,500 400 300 30 83 -

1,500 1,500 4,000 300 30 84 -

1,500 1,500 4,000 300 30 83 -

1,500 250 1,500 400 4,000 300 30 83 -

3,900 1,500 4,000 300 30 84 -

900 1,500 300 200 83 -

900 250 1,500 400 300 30 83 -

900 1,500 4,000 300 30 84 -

24,000 1,000 18,000 2,000 40,000 3,600 700 1,000 -

1,100 167 900 60 125 300 9,615

1,100 166 900 60 125 300 30,465

1,100 167 900 30 125 300 6,205

1,100 167 900 60 125 300 6,715

1,100 167 900 60 125 300 10,066

1,100 166 900 30 125 300 10,034

1,100 167 900 60 125 300 10,715

1,100 166 900 60 125 300 12,465

1,100 167 900 30 125 300 5,605

1,100 167 900 60 125 300 6,115

1,100 167 900 60 125 300 9,466

13,200 2,000 10,800 600 1,500 3,600 122,000

newspaper and magazine advertising at strategic market cycles (prior to home shows and Tour of Homes) annual dues to the USA Associatin of Architects and the Residential Builders Association general business liability (builder's risk is part of COGs) city taxes and business licenses web site development and maintenance, brochures, trade shows, graphic design little time is required for entertaining--budgeted amount covers special events with lenders, vendors & real estate professionals postage budget drafting supplies and general office suppliesbudget

outside accounting assistance, architectural licensing fees

cell phone and one office line with cable modem access

truck lease payments, insurance, maintenance and fuel contingency contingency contingency fund for unplanned expense

Appendix

YEAR 1 YEAR 1 YEAR 1

CAPITAL BUDGET PROJECTIONS Year 1 Capital Budget Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Depreciation (existing assets) Capital Asset Purchases Depreciation (new purchases) Land

JAN 3,000 -

FEB 3,000 -

MAR 3,000 -

APR 3,000 -

MAY

JUN

3,000 -

3,000 -

YEAR 1 YEAR 1 YEAR 1 YEAR 1

Assumptions - Year 1 Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Equipment Equipment Depreciation Furniture Furniture Depreciation Leasehold Improvements Leasehold Depreciation Vehicles Vehicle Depreciation Building Building Depreciation Land

Appendix

JUL 3,000 -

AUG

SEP 3,000 -

3,000 -

OCT 3,000 -

NOV

DEC

3,000 3,000 Year 1 Total Depreciation

TOTAL 36,000 -

YEAR 2 YEAR 2 YEAR 2

CAPITAL BUDGET PROJECTIONS Year 2 Capital Budget Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Depreciation (existing assets) Capital Asset Purchases Depreciation (new purchases) Land

JAN 3,000 -

FEB 3,000 -

MAR 3,000 -

APR 3,000 -

MAY

JUN

3,000 -

3,000 -

YEAR 2 YEAR 2 YEAR 2 YEAR 2

Assumptions - Year 2 Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Equipment Equipment Depreciation Furniture Furniture Depreciation Leasehold Improvements Leasehold Depreciation Vehicles Vehicle Depreciation Building Building Depreciation Land

Appendix

JUL 3,000 -

AUG

SEP 3,000 -

3,000 -

OCT 3,000 -

NOV

DEC

3,000 3,000 Year 2 Total Depreciation

TOTAL 36,000 -

YEAR 3 YEAR 3 YEAR 3

CAPITAL BUDGET PROJECTIONS Year 3 Capital Budget Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Depreciation (existing assets) Capital Asset Purchases Depreciation (new purchases) Land

JAN 3,000 -

FEB 3,000 -

MAR 3,000 -

APR 3,000 -

MAY

JUN

3,000 -

3,000 -

YEAR 3 YEAR 3 YEAR 3 YEAR 3

Assumptions - Year 3 Owner's Draw Investor's Draw Dividends Paid Security Deposits Amortization Equipment Equipment Depreciation Furniture Furniture Depreciation Leasehold Improvements Leasehold Depreciation Vehicles Vehicle Depreciation Building Building Depreciation Land

Appendix

JUL 3,000 -

AUG

SEP 3,000 -

3,000 -

OCT 3,000 -

NOV

DEC

3,000 3,000 Year 3 Total Depreciation

TOTAL 36,000 -

Equity Investment Thomas Custom Builders Year 1 Year 2 Year 3 Real Estate Loans Thomas Custom Builders Existing Balance New Borrowing Year 1 Outstanding balance Year 2 Outstanding balance Year 3 Outstanding balance Repayment Year 1 - principal Year 1 - interest Year 2 - principal Year 2 - interest Year 3 - principal Year 3 - interest

JAN 50,000 -

FEB

MAR -

Loan 2 Borrowing Year 1 Outstanding balance Year 2 Outstanding balance Year 3 Outstanding balance Repayment Year 1 - principal Year 1 - interest Year 2 - principal Year 2 - interest Year 3 - principal Year 3 - interest

FEB -

JAN

MAR -

FEB -

JAN

MAR

Repayment Year 1 - principal Year 1 - interest Year 2 - principal Year 2 - interest Year 3 - principal Year 3 - interest Year 1 - total principal paid Year 1 - total interest paid Year 2 - total principal paid Year 2 - total interest paid Year 3 - total principal paid Year 3 - total interest paid

FEB

JAN

JUN -

JAN

MAR

JUL -

AUG -

SEP -

OCT -

NOV -

DEC -

-

TOTAL 50,000 -

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

-

-

-

-

-

-

-

-

FEB 150,000 150,000 230,000 1,430,000 455,000 1,750,000

MAR 210,000 360,000 245,000 1,675,000 505,000 2,255,000

APR 240,000 600,000 270,000 1,945,000 560,000 2,815,000

MAY 275,000 875,000 310,000 2,255,000 660,000 3,475,000

JUN 315,000 1,190,000 330,000 2,585,000 325,000 3,800,000

JUL 350,000 1,540,000 2,375,000 3,350,000

AUG 175,000 1,715,000 2,125,000 3,245,000

SEP 160,000 1,875,000 1,875,000 3,125,000

TOTAL

-

TOTAL

DEC

NOV

-

-

-

-

-

DEC

NOV

-

TOTAL

DEC

-

-

-

-

NOV

OCT -

DEC

NOV

-

TOTAL -

-

OCT

SEP -

NOV

OCT

-

DEC -

-

SEP

AUG -

OCT

SEP

-

NOV -

-

AUG

JUL -

SEP

AUG

-

OCT -

-

JUL

JUN -

AUG

JUL

-

SEP -

-

JUN

MAY -

JUL

JUN

-

AUG -

-

MAY

APR -

JUN

MAY

-

JUL -

-

APR

MAR

FEB

MAY

APR

-

JUN -

-

-

-

-

APR

MAR

FEB

MAY -

-

-

-

APR -

-

-

Line of Credit Thomas Custom Builders Existing Balance Borrowing Year 1 Outstanding balance Year 2 Outstanding balance Year 3 Outstanding balance

MAY -

JAN

Traditional Business Loan and/or other Long-term Loans Thomas Custom Builders Loan 1 Existing Balance New Borrowing JAN FEB Year 1 Outstanding balance Year 2 Outstanding balance Year 3 Outstanding balance Repayment Year 1 - principal Year 1 - interest Year 2 - principal Year 2 - interest Year 3 - principal Year 3 - interest

APR -

-

TOTAL -

DEC

-

TOTAL

-

-

-

1,615,000 1,585,000 2,880,000

1,320,000 1,255,000 2,554,000

DEC 25,000 1,010,000 30,000 925,000 2,234,000

TOTAL 1,900,000

OCT 260,000 10,767 290,000 10,567 245,000 19,200

NOV 295,000 8,800 330,000 8,367 326,000 17,027

DEC 335,000 6,733 360,000 6,167 320,000 14,893

TOTAL 890,000 81,667 1,690,000 141,533 1,566,000 218,520

JAN 190,000 1,200,000 370,000 1,295,000 JAN 8,000 8,633

FEB 1,000 9,533 11,667

MAR 2,400 11,167 15,033

APR 4,000 12,967 18,767

MAY 5,833 15,033 23,167

JUN 7,933 17,233 25,333

890,000 81,667 1,690,000 141,533 1,566,000 218,520

Appendix

JUL 10,267 210,000 15,833 450,000 22,333

AUG 11,433 250,000 14,167 105,000 21,633

SEP 12,500 250,000 12,500 120,000 20,833

OCT

NOV

1,605,000 2,875,000