Custom Builders Business Plan

BUSINESS PLAN

Business Plan Prepared ByJoe Thomas, owner

Thomas Custom Builders

12345 W. North Street

Anytown, ST 55555

(303) 555-1234

Date PreparedJanuary, 200B

ThomasThomasCustom BuildersCustom Builders

Thomas Custom Builders Business Plan

Table of Contents

EXECUTIVE SUMMARY 5

MANAGEMENT AND ORGANIZATION 7

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

PRODUCT AND SERVICE PLAN 10

Purpose of the product or service 10Unique features 10Stage of development 12Future research and development 12Trademarks, patents, copyrights, licenses, royalties 12Government approvals 12Product and service limitations 13Product liability 13Related services and spin-offs 13Production 13Facilities 14Suppliers 14Environmental factors 14

MARKETING PLAN 15

Industry profile 15Current size 15Growth potential 15Geographic location 16Industry trends 16Seasonality factors 17Profit characteristics 18Distribution channels 18Basis of competition 18Competition profile 19Customer profile 19

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Target market profile 19Pricing profile 20Gross margin on products 20Break-even analysis 21Market penetration 21Distribution channels 21Sales representatives 22Direct sales force 22Direct mail/telemarketing 22Advertising and promotion 22Packaging and labeling 23Service and warranties 23Trade shows 23Future markets 24

OPERATING AND CONTROL SYSTEMS 25

Administrative policies, procedures, and controls 25Receiving orders 25Billing the customers 25Paying the suppliers 25Collecting the accounts receivable 25Reporting to management 26Staff development 26Inventory control 26Handling warranties and returns 26Monitoring the company budgets 27Security systems 27Documents and paper flow 28Planning chart 28Product development 28Manufacturing 29Financial requirements 29Marketing flow chart 30Market penetration 30Management and infrastructure 30Risk analysis 31Salvaging assets 32

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GROWTH PLAN 33

New offerings to market 33Capital requirements 33Personnel requirements 33Exit strategy 34

FINANCIAL PLAN 35

Sales Projections 35Income Projections 35Cash Requirements 35Sources of Financing 36Projected Financial Statements

Projected Cash Flow StatementsProjected Year-End Income StatementsProjected Year-End Balance SheetRatio Analysis

SUPPORTING DOCUMENTS APPENDIX

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

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Venture DescriptionThomas Custom Builders (TCB) is a professional custom home design and construction companyfocused on luxury speculative and custom homebuilding in the $300,000 to $1,000,000 plus pricerange.TCB will build homes in the metropolitan area initially on the north side and expanding tothe south.The concept combines both a service (architectural design and constructionmanagement) and a product (speculative homes for sale). Industry growth figures for the lasttwenty years support additional depth in the luxury home markets.Thomas Custom Builders iscurrently in the start-up phase of development and is seeking financing for start-up expenses andcapital expenditures.

At the center of TCB’s strategy is a commitment to approach the emotional and frequentlyfrustrating task of designing and building a home in a professional and decidedly customer-focusedmanner. Each home will be customized based on the client’s desires at whatever stage he or sheenters the process. As a registered architect with 20 years of experience in the design andconstruction industries, Joe Thomas will serve as the client’s point of contact throughout the designand construction processes. Not only will he provide the design leadership, but he will also be thedaily field supervisor.Therefore, clients will be assured their exact design concepts will be upheldthroughout the construction phase.

Venture OrganizationJoe Thomas, owner of Thomas Custom Builders (TCB), is the primary decision maker and will beresponsible for managing all areas of the business for the first three years including marketingstrategies, financial goals, subcontractor relationships, conceptual design, and general contracting onthe home building projects. After the third year of operations, two positions will be added to thecompany—an office manager and a construction supervisor.

Venture MarketThe 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 attentiongiven to architectural detail or current owner lifestyles.The vast majority of subdivisions today arebuilt on the same model as was used in the 1940s and 1950s.This model simply maximized densityby building many homes as rapidly as possible to meet the high demand of World War II veteransreturning to civilian life.Today’s and tomorrow’s discerning homebuyer will demand more personalservice, more sensitivity to environmental issues, higher quality and more choices.The sophisticatedcustomer who is dissatisfied with products and services offered in the current marketplace is thetarget.TCB’s policy will be to exceed the client’s expectations and to exceed market norms.Theywill do this by providing open communications—particularly those related to design, cost andscheduling issues, holding focus groups bi-annually to stay ahead of emerging trends, providingenvironmentally responsible fixtures and systems, and building "smart" technologies into eachhome’s infrastructure.

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Executive Summary

Backed by a historically recorded 256% industry growth rate since 1980, Anytown’s metropolitanstatistical area (MSA) is ranked eighth out of the country’s seventy-five largest MSA’s in percentageof homeownership. Growth projections indicate a modest 3 _% industry growth rate into 200B,slightly exceeding the national average and giving Thomas Custom Builders an opportunity tobenefit from depleted inventories and pent up demand, as the economy ramps up again in 200C. Amajor goal will be to have a home entered in the spring 200DTour of Homes—Anytown’s premiershowcase for residential builders.

Venture OperationsIt is anticipated that nearly all services related to the production of houses will be out-sourcedduring the first five years. The owner will do initial design work, but production drawings andrenderings will be subcontracted. In the construction phase, estimating, scheduling andprocurement will be handled in-house. Thomas Custom Builders will act as general contractor andwill seek to purchase all required materials and have them delivered to the site. Subcontractors willbe hired based on labor-only contracts.

Venture FinancingMinimal start-up costs are expected in two general categories (marketing and operations) with thebulk 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 infirst-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 beused as collateral—consisting of a combination of liquid mutual funds, home equity, an existingvehicle, and computer equipment—toward start-up capital. Debt financing is sought to cover bothland acquisition and construction processes. Financing from a single source will be preferred todevelop a mutually beneficial working relationship with a lender.

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Management and Organization Plan

Management team

Joe Thomas, owner of Thomas Custom Builders (TCB), is the primary decision maker and will beresponsible for managing all areas of the business for the first three years including marketingstrategies, financial goals, subcontractor relationships, conceptual design, and general contracting onthe home building projects.

After the third year of operations, two positions will be added to the company—an office managerand a construction supervisor.The office manager will administer the daily operations of the officeguided by a detailed Operations Manual. The responsibilities of the office manager will include (butnot be limited to) accounts receivable and accounts payable, communication link with clients andsubcontractors, record keeping and marketing activities.

The second position will be a construction supervisor. The supervisor will primarily work with theclients and subcontractors on daily aspects of home building, leaving the overall building andbusiness development strategies to Mr.Thomas.

Compensation and ownership

For the first three years, the primary compensation will go to the owner, Joe Thomas. Mr.Thomaswill be taking a moderate draw of $36,000 (as well as enough cash to cover the income taxes forthe prior year) for each of the first three years. After the third year he will take a market-rate drawto be determined. The two positions that will be hired after the third year will receive salariesequivalent 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 entrepreneursand business owners, to provide guidance, inspiration, and legitimacy. A list of potential advisors follows:

➤ Chris Vincent (President/Owner: National Architectural Systems—gives insight into thearchitectural industry trends and growth potential)

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

➤ Sam Ngysen (Executive Vice-President, Sandstone Economic Development Company—has information and contacts locally to help achieve financing goals)

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➤ Shannan Anderson (Owner, Marketing Mélange—background in building contractingand currently designs marketing programs)

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

➤ Juan Escobar (Owner, Computer Concepts—provides insight into computer trendsand aspects of transforming sole proprietorship to a publicly traded company)

Infrastructure

TCB will need to contract with the following professional consultants. These incidental costs areaccounted for either as expenses or as cost of the product.

➤ Accountant/Bookkeeper

➤ Insurance Broker

➤ Information Technology Specialist

➤ Graphic Design and Advertising

➤ Drafting Service

➤ Attorney

Contracts

Thomas Custom Builders will rely on several standard contracts to govern the operations of thecompany and the relationships with clients, subcontractors, and vendors. An attorney will reviewand append contractual agreements as needed. Labor-only contracts will be used forsubcontractors to execute the varied construction procedures.

Insurance

Several insurance policies will be used to manage the regular business risk associated with architecturalservices and building contracting. Property insurance to protect the business equipment againstphysical damage or theft will be covered for the first three years under Mr.Thomas’ homeowner’sinsurance policy. General liability insurance and architects’ errors and omissions insurance will beacquired to help cover costs and protect the business’ assets and Mr.Thomas’ personal assets in theunlikely event that a suit should be filed. Life insurance will be acquired for Mr.Thomas. Health

insurance, worker’s compensation and other employee-related insurance policies would be consideredafter the first three years of operations. Liability and builder’s risk insurance will be required for eachindividual project or group of projects, to cover jobsite injury risks for the subcontractors and othercomprehensive industry-standard risks associated with construction. Subcontractors will provide theirown insurance and bonding. They must show proof of insurance for worker’s compensation andgeneral 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 futureemployees 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 untilthe 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 hisdesigner hat and do the conceptual design work. Once the home designs are in production, he willconcentrate on marketing brochures and arranging trade show materials.

Once design is complete, Mr.Thomas will concentrate on estimating, purchasing, scheduling andcontracting with labor and material vendors. Finally, once construction is underway, Mr.Thomas willprovide daily field supervision on the site to ensure timely and accurate completions.

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Purpose of the product or service

Thomas Custom Builders is a design and construction company focused on luxury speculative andcustom homebuilding. The purpose is two-fold in providing design and construction services, andultimately, the product—custom homes.

The primary goal is to provide clients with an overall positive experience that will last beyond thesale of the home and expiration of the warranty. Today’s sophisticated homeowners not onlydeserve 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 homeswill be sensitive to family interaction, safety, converging lifestyles, emerging technologies andenvironmental responsibility. Thomas Custom Builders intend to be in the top 5% of all competingbuilders 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 andconstruction process with the same person at the helm of both activities. For homeowners, thisfeature will result in accuracy in applying design details, enhanced communication and an interactiveprocess in which the homeowner becomes a welcome collaborator during the entire process. Thissimple approach will solve a variety of concerns for customers, including that:

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

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

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

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

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

Unique features of services

➤ Joe Thomas will personally provide architectural services or will coordinate andparticipate in the design process in the event a client wishes to employ his or her owndesigner. This coordination assures clients that their unique and creative ideas areeffectively tested and integrated into the final design.


Product and Service Plan

➤ Thomas Custom Builders will communicate on a weekly basis during the design andconstruction phases of the work. Design, budget and schedule issues will be discussedand an action plan generated that the client can easily understand and monitor. Thisopen 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 theowner Joe Thomas on all matters pertaining to design and construction activitiesthroughout the process. In this manner, homeowners will benefit from direct input tothe designers and subcontractors.

➤ Thomas Custom Builders will seek to provide premium products in TCB homes andlessen the negative psychological impact of offering a large shopping list of additiveoptions.

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 planningtechniques in order to promote safety and deter crime.

➤ Porches—Homes will prominently feature large front or side porches as a designelement. They will be large enough to be furnished and are intended to promoteneighborhood interaction. Porches also provide a protected and observable location forchildren to play.

➤ Smart Tech—Homes will be wired for "smart" technologies. As computers,communications, and digital education and entertainment become more available, homeswill be ready to move forward at the client’s pace without invasive major infrastructureimprovements.

➤ Environmentally Responsible—Homes will incorporate energy- and natural-resourcesaving 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 onidentifying 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 todetermine changes necessary in design, construction, service, etc., to meet the demands of thediscerning customer. Mr.Thomas will join several trade groups, including the Residential BuildersAssociation, to keep up on local, regional, and national trends. Also, focus groups will continue to bea 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 houseplans. All plans created are original and proprietary. TCB will remain owner of all rights toarchitectural plans. A license fee, included in the architectural fee, will be paid by the client for theright to use the plans for the express purpose of building a house. In rare instances, a client maydesire 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 ascopyright protection on all its plans. In addition to this, a logo will be developed and a service markestablished in the state. A federal service mark will be sought to support expansion into additionalstates. This expansion may take the form of licensing. All printed material, such as brochures andinsert sheets will be copyrighted.

Government approvals

The Secretary of State requires that a fictitious name be registered. Thomas Custom Builders hascompleted that process for a sole proprietorship. Although the state does not require home plansto be created and sealed by a registered architect,Thomas Custom Builders will providearchitectural seals as copyright protection on all its plans. During the construction process, localbuilding 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 notfind additional use. However, because plans will be based on consumer trends and on-going focusgroup data, an opportunity to remarket existing plans with slight modifications may arise. Licensingmay be another limitation concerning expanding the business out of state, requiring additionalcapital 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 andconstruction. For example:

➤ A Plan Shop could be created to market house plans to individuals and to other builders.

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

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

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

➤ Special services such as delivery, personal assistants, etc. could be offered to clients at afee 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-sourcedduring the first five years. The owner will do initial design work, but production drawings andrenderings will be subcontracted. In the construction phase, estimating, scheduling andprocurement will be handled in-house. Thomas Custom Builders will act as general contractor andwill seek to purchase all required materials and have them delivered to the site. Subcontractors willbe 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 bereduced or eliminated, allowing for additional funds to be invested in loan repayment and futuregrowth. The home office is already equipped with the necessary office equipment, provided by JoeThomas. The home office is in the initial target region making it convenient for Mr.Thomas tosupervise production.

Suppliers

One of the keys to building a luxury home is to start with premium building materials andproducts. TCB has identified suppliers that can make these first-rate materials and productsavailable in a cost effective and timely manner. In addition, a back-up supplier for each type ofmaterial and product needed has been identified. (A list of reliable suppliers and an appropriateback-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 andhow homes are placed on a lot. First, the land is assessed for natural drainage and maturelandscaping. As much native vegetation as possible will be retained on each lot. In addition, newlandscape materials of sufficient size and scope to truly enhance curb appeal will be supplied.Thehomes will be built to incorporate energy and natural resource saving devices and products inorder to operate efficiently. In addition, all marketing materials will be printed with environmentallyfriendly materials and processes.

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Industry profile

Current size

As the largest single industry in the United States, construction represents an annually adjusted rateof $830.5 million of product put in place as of January 200A, according to the US CommerceDepartment 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 singlelargest 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 nextyear 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 rateswere at their peak. In all instances, the market has rebounded significantly in the years followingback-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 thehousing industry over the last twenty years. The Census Bureau figures show a 256% increase from3,656 units to 9,337 units over the last 20 years. During that twenty-year run the local industry hassuffered only two periods of decline lasting two years or longer. Since 1990, the local industry hasenjoyed consistent growth with only two flat periods occurring in 1995 and 1997. This growth ratehas resulted in a homeownership rate of 73.6% in 200B, placing Anytown eighth out of the 75largest MSA’s.

The Residential Builders Association industry experts project housing starts to rise to approximately10,500 units peaking in 200D with a leveling out period with approximately 10,000 starts in 200E and200F. This statistic coincides with a projected economic growth of 3.5%—approximately one-halfpoint 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 tolocal industry experts. Potter and Sandstone Counties lead the way with 23% of all permits issued inthe metropolitan area. Eastern Jefferson County is showing positive signs. Current inventories arebeing 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 reportsthat the number of construction firms in the same four-county area has shown consistent growthexcept for the years in which all areas experienced a decline.

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Marketing Plan

Geographic location

Thomas Custom Builders intends to focus initial efforts in the north portion of the metropolitanarea, primarily Potter and Sandstone Counties. Subdivisions such as Ramble Lake, Bushel Cliff andBluebird 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 greataccess to the highway system. TCB will expand its home construction to the south after the firstthree years of operation.

Industry trends

The key trend influencing the growth and direction of the housing industry, in particular the luxuryhousing industry, is the baby boomer’s accumulation of wealth and the projected largest transfer ofwealth from one generation to the next that this country has ever experienced. Because thehousing market tends to be highly sensitive to economic factors and financial markets, thedisposition of wealth and legendary conservatism of the Midwest indicates continued growth inresidential real estate for the foreseeable future.

Other important trends include:

➤ Midwestern states have fared better economically in previous downturns than otherareas of the country.

➤ Delayed boomer buying and lack of affordable housing in the metropolitan area has ledto pent-up demand and lack of inventory for luxury housing.

➤ Interest rates are expected to fall to the lowest levels in a decade. This shift shouldcreate opportunities for those delaying buying and moving up.

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

➤ Affordability issues have caused a steady decline in homeownership for youngerAmericans ages 25-39. A more mature and informed buyer has emerged as a result.

➤ The homebuilding industry is primarily made up of small businesses, building 25 or fewerunits per year, according to the Encyclopedia of Industries in the U.S.A.—200A.

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

➤ Recent energy costs have renewed consumers’ interest in and demand for conservationtechnology.

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➤ "Smart" technology – wiring for data and communications — is becoming more acceptedand demanded as home offices continue to increase and people have less leisure time.

➤ Fashion trends in housing design continue to become more inventive as the worldeconomy becomes increasingly global.

Appendix B contains a set of press releases and papers containing projections, statistics andcomments on a variety of important design issues. Thomas Custom Builders will use informationsuch as this, coupled with local focus-group input to determine design direction for homes. Someof 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 activityspace, such as home offices, home theatres, home spas, studios, etc.

➤ More open and multi-functional space

➤ Reduction of the formal dining room

➤ Automation and energy control devices

➤ Environmentally friendly construction processes, furnishings and marketing materials

➤ Multi-functional master suites

These are all exciting trends. While much research into consumer preferences exists, thehomebuilding industry is notoriously slow to incorporate emerging trends. Only a few elite buildersseem to take these issues seriously. The larger the company is, the slower it is to embrace anythingthat threatens the formula.

Thomas Custom Builders can succeed beyond the majority of competitors in keeping pace withtrends. TCB is a new venture driven to incorporate emerging trends with conviction competitors willnot 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 constructionprojects proceed without major delays or disturbances throughout the year. Normal weatherconditions (rain, heat, snow, etc.) are expected and accounted for when committing to a buildingcontract. Under normal weather conditions, a house can be constructed in six months. Severeweather (such as hail, tornadoes, high winds, etc.) can have an effect on completion times andprofits. Since such events cannot be forecasted, any catastrophic losses and delays in constructiondue 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 statementstudies for the years 200A-200B. A similar tightening of the net profit margin occurs as a companygrows. Net profit margins range from 6.5% in companies with assets under $100,000 to 2.5% incompanies 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 thissize, according to Dun & Bradstreet:

Gross margin 17%Net profit after tax 3%Quick Ratio 1 timeCurrent Ratio 1.5 times

Distribution channels

There are not specific distribution channels in the residential construction industry; however, typicalways to sell the final product—the home—do exist. Although many tactics will be initiated toincrease the clients’ knowledge of Thomas Custom Builders, a contracted real estate agency willhandle all sales. Possible companies to consider are:

➤ Coldstone Banker

➤ Decade One

➤ Refax

➤ Realty Partners

Basis of competition

There are no specific licensing or education requirements in the construction industry; therefore,anyone can start this type of business. This openness creates a varied basis of competition in a localconstruction marketplace. In some cases, one- to two-person companies compete against nation-wide conglomerates. A majority of custom builders in Anytown come from families of builders thathave been established locally for generations. Other custom builders come from accounting andbusiness backgrounds. Only a select few come from a design or architecture background. Thisdistinction will serve to further reduce competition for Thomas Custom Builders because itapproaches 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 beassured 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, remodelingor land development in the metropolitan area. Of that number, 49 builders are building homes inthe 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 CarterCounty while half are building in Potter and Sandstone counties. Less than five of these buildersbuild both north and south. Fewer still are engaged in true design/build construction delivery. A listof 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 unitssold in 200D and eight units sold in 200E. This model fits with the historic growth rate in residentialconstruction companies in the metropolitan area and with the projected increase in housing startsover the next three years.

Customer profile

Thomas Custom Builders will cater to a sophisticated and demanding clientele, targeting individuals(30 to 55 years old) and families. Typically, customers will be double-wage earning families or mid-to upper-level executives. In our price range, customers tend to be well educated with householdincomes exceeding $50,000 per year.

Owners will be dissatisfied with standard offerings of other builders and will be concerned with closelymonitoring 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 fromtheir 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 beperceived by future buyers. These are upwardly mobile individuals who likely will not stay in the sameplace 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 metropolitanarea. Subdivisions such as Ramble Lake, Bushel Cliff and Bluebird Haven offer ease of access to theairport and major retail outlets. Also attractive in the north is less density, and great access to thehighway system. Touting proximity to the airport and highways will be a major selling point forcorporate relocations—one targeted customer.

TCB will initially work in Potter County because of existing business contacts and Mr.Thomas’sestablished reputation there. Potter County is a fast-growing suburban area populated byindividuals 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 wealthiestcounty in the state; the median household income in 200A was $53,000. Four targeted zip codesboast median incomes of over $65,000. The county has ample undeveloped land and plenty ofroom for expansion.

Pricing profile

Thomas Custom Builders is in the business of producing custom homes on made-to-order andspeculative bases. Because each home is individually designed, it is not possible to set a specificprice before the completion of the designs and purchase of materials and labor at current marketrates. The strategy is to employ a "cost plus" basis for pricing. Using premium materials andadvanced technology, pricing will be at, or very near, the top of the market. It is imperative thatmarketing materials and sales strategies clearly identify those perceived values that will causeprospects to choose TCB homes over those of the competition.

For the purpose of this business plan, the following conservative industry standards and rules-of-thumb were used for projections:

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

➤ A 15% gross margin

➤ An average home selling price of $350,000

Gross margin on products

Basing gross margin on the industry standard of 15% of gross sales,*, * the first year cost of goodssold for construction will be $892,500 ($297,500 each for three houses sold of six built) plus landcosts 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, landacquisition, design, real estate commissions, field supervision, builder’s risk insurance, warrantyservice.

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Gross margin on projectedsales for the first three years ofoperations are calculated at15% of gross sales and aregiven respectively as follows:

➤ Year One (200C)$196,875

➤ Year Two (200D) $393,750

➤ Year Three (200E) $525,000

* Based on Dun & Bradstreet’s financial statement studies, 15% is an average gross margin forcompanies with over $50,000,000 in assets. Although TCB’s assets will amount to considerably lessa 15% gross margin has been chosen as a conservative projection.

Break-even analysis

Break-even is calculated as total fixed costs divided by gross margin on one product.

Fixed costs = $113,014 = 1.72Gross margin 65,625

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

Market penetration

Distribution channels

A series of challenges and hurdles must be overcome to build a solid reputation that will carry TCBwell into the next decade. Among them,

➤ TCB is a new business in an industry that relies heavily on referrals and track records.

➤ Tight labor markets and premium material pricing may cause difficulties for a newcomerto the industry.

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COST OF GOODS SOLD

200E200D200C

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

YEARS

DO

LL

AR

S1,115,625

2,975,000

2,231,250

Thomas Custom Builders intends to enter the marketing as a speculative builder with an inventoryto sell. It is imperative to an overall strategy to cultivate very satisfied customers who will provideglowing referrals in the future.

Sales representatives

Sales will be handled by a contracted real estate agency with a strong performance track recordboth in the location and price range in which Thomas Custom Builders will compete. Possiblecompanies to consider are:

➤ Coldstone Banker

➤ Decade One

➤ Refax

➤ Realty Partners

Direct-sales force

The direct sales force currently consists of Mr.Thomas. His sales activities will be restricted toappearances 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 willestablish 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 estateagency and the owner, Joe Thomas, will be responsible for these activities. An important element inadvertising and promotional strategies will be to effectively establish the brand for TCB as a luxuryhomebuilder. 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 prospectivecustomers and other enablers in the industry.

➤ Judicious advertising in appropriate magazines and journals that target the customerprofile.

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➤ 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’ nameand contact information will be placed in the front lawn of each home while in the constructionand holding stage. In addition, branding will be implemented through high quality marketingmaterials targeted to the discerning customer. Inside the model home, company sales brochuresand insert sheets will be available.

Service and warranties

Builders commonly provide a standard warranty to new homeowners that covers structural andmechanical defects for one year. Many times houses settle or shift slightly during the first year ofoccupancy. 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 theend of the year, the builder makes all repairs and replacements that relate to the house as built by thebuilder. 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 theconstruction of the home and one month after the house is complete. With this strategy, manyrepairs and replacements are made quickly so as not to create additional problems. The clientsunderstand 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 coveredby 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 themetropolitan area, two home shows highlight new residential construction—one is held eachOctober in the south, and the larger home show is held each February in the north. These homeshows attract 1,000-1,500 new home shoppers yearly whose profile matches the profile of TCB’starget market. (Information provided by the Metropolitan Home Show marketing department.)

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In addition to the two home shows, the Tour of Homes presented by the Residential BuildersAssociation, provides an excellent opportunity to exhibit a luxury home. The Tour of Homes is thethird largest new home tour in the nation. The tour is held two times each year in the spring andfall. In 200A, tour attendees ranked the Tour of Homes the number one place to evaluate newhomes 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 thesouth. During and following the third year,TCB will continue to produce 12 homes annually as themarket dictates. The growth strategy from that point forward is to seek out other markets andapply and duplicate this model.

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Administrative policies, procedures, and controls

Receiving orders

All initial inquiries from potential clients concerning building a TCB home will flow through thesupporting real estate agency/realtor. The realtor will contact the builder for specific questionsconcerning custom features, design alterations, construction schedules, etc. Once the client decidesto have a home built by Thomas Custom Builders, the realtor will record the individual wishes ofthe client and will schedule a builder/client meeting. This meeting will begin the process ofidentifying specific client requests, determining construction costs and purchase price, andcompleting the residential new construction sale contract. The realtor will primarily be responsiblefor collecting necessary paperwork and arranging builder/client meetings.

Billing the customers

Thomas Custom Builders requires a five percent deposit upon signing the residential newconstruction 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 ofpurchase. The balance due on the home will be paid upon closing. This closing date will beestimated at six months plus two weeks from the date of the signing of the residential newconstruction sale contract.

Paying the suppliers

Bills will be paid as they become due. Some suppliers will provide TCB with payment terms of twoto 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 theclient. The client will be required to contribute a total of ten percent towards the purchase price ofthe home prior to its completion. This amount is not typically difficult to collect. The first fivepercent (paid by money order) is collected at the signing of the residential new construction salecontract. Clients are usually eager to get started and have this deposit readily available. The secondfive percent (also paid by money order) is collected after three months of construction. Clientshave agreed to pay this amount when signing the sales contract and, therefore, are expecting thisoutlay of cash.

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Operating and Control Systems

The second and most important source of cash is made available from the lender in the form of aconstruction loan. This construction loan will be for up to 85% of the cost of the home. Thisamount will cover all products, material and subcontractor labor costs for the project. Constructiondraws will be requested monthly to cover these costs. Detailed records will be kept to make thisprocess simple and accurate.

Reporting to management

Joe Thomas is the primary manager and is responsible for all areas of the business includingmarketing strategies, financial goals, subcontractor relationships, conceptual design, and generalcontracting on the home building projects. The important factor is not so much reporting tomanagement 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 managerand 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 dailyaspects of the home building project. These employees, and others, will be encouraged to seekprofessional growth through seminars, classes, and other training opportunities. In addition, industrytrade 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 homeand two speculative homes will remain in inventory entering 200D. The model home will be heldin inventory as a show place for potential clients. This model home will eventually be sold, as a newmodel is completed in another subdivision. By the third year,TCB will produce 12 homes of whicheight units will be sold, four will be works in progress, and three completed homes will remain ininventory entering 200F. Three houses will be in inventory on an annual basis—one model and twospeculative homes at any given time.

Handling warranties and returns

Thomas Custom Builders supports a standard contract to make all necessary repairs andreplacements that relate to the house (as built by the builder) during the first year of ownership bythe client. No repairs or replacements are made concerning materials or changes made by theowner. The owner is to make a list of repairs and/or replacements and Mr.Thomas will arrange forthe appropriate labor and materials, if necessary, to complete the repairs and/or replacements.

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In addition to this standard,Thomas Custom Builders provides warranty checks during theconstruction of the home and one month after the house is completed. In partnership with theclient, Mr.Thomas reviews the quality of materials and workmanship provided throughout theconstruction process and makes repairs and/or replacements as needed. Also, contact will bemade with the client 30 days after the homeowner takes possession to arrange for any repairsand/or replacements.

All appliances and other products installed or provided by Thomas Custom Builders will be coveredby 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 ofoverspending and be prepared to make the appropriate adjustments to the budget or to futurespending. Each quarter, Mr.Thomas will discuss the company budgets with an outside accountantand the advisory board.

Security systems

Thomas Custom Builders has two primary concerns for security. The first is to keep theinventory—the homes—secure. This is a difficult job with so many individuals and companiesworking 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 reducethese actions cost more than accepting some vandalism and pilferage. Insurance will cover hugelosses, when necessary.

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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. Theproprietary 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 customhome 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 withhand-written or computer-generated notes to be contained in the clients’ files. When ThomasCustom Builders initiates the building of a speculative home, copies of documents are provided tothe realtor concerning the home for selling purposes. All other documentation will be sorted andstored at Mr.Thomas’ home office.

Planning chart

Product development

First, Mr.Thomas will see to the market research and land acquisition aspects. Next, he willcomplete the necessary designs (much of this work has been done for the initial speculativehomes). The actual production drawings and renderings will be subcontracted. Once design iscomplete, Mr.Thomas will concentrate on estimating, purchasing, scheduling and contracting withlabor and material vendors. Mr.Thomas will complete or supervise the following productdevelopment 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 becompleted 3/15/0C Mr.Thomas

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* Dates pertain to the first home project. Each 4-6 weeks a new home project will commence tototal six homes the first year. Three of these will be built-to-order for client prospects that arealready discussing plans. Three of the homes are projected to be speculative (built without acustomer 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 andaccurate 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 willcommence to total six homes the first year.

Financial requirements

Minimal start-up costs are expected in two general categories (marketing and operations) with thebulk 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 infirst-year budget projections. It is anticipated that this amount will support efforts necessary tobuild six speculative homes.

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Thomas Custom Builders’ owner, Joe Thomas, intends to commit a total of $50,000 of equityconsisting of a combination of liquid mutual funds, home equity, existing vehicle, and computerequipment, toward start-up capital. Debt financing is sought to cover both land acquisition andconstruction processes. Financing from a single source will be preferred to develop a mutuallybeneficial working relationship with a lender. Some additional funding may be available from friendsand family.

Marketing flow chart

Joe Thomas will concentrate on marketing brochures and trade show materials. In addition,TCBwill actively seek out corporate relocations, and will establish relationships with relocation realestate 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 ResidentialBuilders Association.

➤ Internet Advertising—Web site development in year one and further developmentand maintenance in years two and three.

➤ Brochures/Posters—Initial design and printing of company sales brochure and insertsheets 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 additionalprinting 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 aspeculative builder with an inventory to sell. It is imperative to an overall strategy to cultivate verysatisfied customers who will provide glowing referrals in the future. The initial penetration strategyis to build six homes by the end of the first fiscal year, of which three units are projected to sell ascustom designed homes. One model home and two speculative homes will remain in inventoryentering 200D.

Sales will be handled by a contracted real estate agency with a strong performance track recordboth in the location and price range in which Thomas Custom Builders will compete.

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The current direct sales force consists of Mr.Thomas. His sales activities will be restricted toappearances 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 willestablish 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 successfulentrepreneurs and business owners, to provide guidance, inspiration, and legitimacy. This board willmeet 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 capitalagainst future sales. The only remedy here is to be able to conform to schedules thatfall 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 couldseek to collaborate with other local builders to leapfrog some of these impediments.

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➤ Finding and holding on to labor in the booming economy of the past few years hasproven a challenge even to established builders. The goal is to package six homeprojects together as one construction project. This consolidation will encouragesubcontractors 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 mayreduce 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 afallback 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 andmarketing 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 threemonths or the interest costs will eliminate projected profits. However, homes are a verysalvageable asset in that they can be sold quickly at a loss to avoid additional interests costs if the business needs to liquidate.

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New offerings to market

Growth strategies initially will be concentrated in the areas of regional expansion into new marketsin the counties south of the metropolitan area. In addition to regional growth, expansion into otherstates will be explored.

There are additional opportunities to expand within the existing markets by offering new productsor services. By virtue of Mr.Thomas’ architectural seal,Thomas Custom Builders home plans willassume proprietary status. As the company grows and matures, this bank of copyrighted plans willoffer a secondary source of profits.

In addition to offering copyrighted plans, the following spin-off ideas exist within the context ofresidential 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 afee 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 adjoiningstates through licensing. This strategy may be cost prohibitive, however, requiring additional capitalto retrain personnel to meet each state’s requirements. Offering copyrighted plans could be a low-or high-cost option depending on the market strategies. A low-cost method of selling plans wouldbe to make them available to builders in the area through a licensing fee. A high-cost methodwould be to set up a Plan Shop on the Internet. All growth strategies will be explored andresearched in detail before pursuit.

Personnel requirements

There are no additional personnel requirements based on the above growth strategies. After thethird year of operations, two positions will be added to the company—an office manager and aconstruction supervisor.

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Growth Plan

Exit strategy

During the first three years,TCB will concentrate on building a profitable process that can beduplicated. Then TCB will begin to expand the company through the growth opportunitiesavailable. After the first five years of operations,Thomas Custom Builders will look for ways toincrease company value. Opportunities may include merging with another residential builder orarchitectural firm, merging with a current vendor or material provider, or buying a complementarycompany. Within ten years, Joe Thomas would like to sell Thomas Custom Builders.

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Sales Projections

The initial penetration strategy is to build six homes by the end of the first fiscal year, of which threecustom 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 inventoryentering 200D.

In 200D TCB will produce six homes and sell six (at the estimated price of $437,500) leaving onemodel 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 estimatedprice 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 & Bradstreetfinancial statement studies were used for calculations relating to profit margins and ratios. Also, realestate professionals were consulted in the local area to verify the pricing of our product in thisregion. Otherwise, the experience within this group in the construction industry provides assuranceregarding 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 in200E. Running operations from the owner’s residence for the first three years of businesscontributes 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 asthat is the case, this will greatly reduce the need for start-up capital. However, the owner is stillgoing to commit $50,000 worth of equity to be used by the business for initial operations. Nomajor equipment purchases are planned in the first three years as TCB will subcontract withconstruction companies.

Cash will certainly be needed in order for the company to operate, as well as for future growth. Aseach home is constructed, funds will be needed throughout the process until completion. It is theintention 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.

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Financial Plan

Sources of Financing

Each building project will be funded with project-collateralized debt financing (secured by warrantiesand bonds) on a project-by-project basis. This is in line with industry norms, and will be easier toaccomplish once a banking relationship has been established.

Based upon discussions with various lending agencies, the cost of these funds is generally going tobe based upon a percentage plus prime. The projected financial statements were prepared basedupon an average borrowing rate of 8%.

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Cash Flow StatementThomas Custom Builders

200C Pre Start-up JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL

Cash In Cash Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500 Collections from Accounts Receivables - - - - - - - - - - - - - Equity Received - 50,000 - - - - - - - - - - - 50,000 Loans Received - - 150,000 210,000 240,000 275,000 315,000 350,000 175,000 160,000 - - 25,000 1,900,000 Other Cash In (receipts from other assets) - - - - - - - - - - - - - Other Cash In (interest, royalties etc.) - - - - - - - - - - - - - Total Cash In - 50,000 150,000 227,500 257,500 292,500 332,500 367,500 192,500 160,000 402,500 402,500 427,500 3,262,500 Total Cash Available - 50,000 194,414 237,124 267,803 303,648 342,987 379,644 204,066 172,426 416,196 417,526 445,256 3,262,500

Cash Out Inventory Expenditures Inventory/Raw Material (Cash) - - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250 Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - - - Production Expenses - - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000 Operating Expenses Advertising - - - 3,300 500 500 500 500 500 1,300 300 300 300 8,000 Bank Charges - - - - - - - - - - - - - - Dues & Subscriptions - - 250 - - 250 - - 250 - - 250 - 1,000 Insurance - 833 833 834 833 833 834 833 833 834 833 833 834 10,000 Licenses & Fees - - 200 - - 100 - - 100 - - 100 - 500 Marketing & Promotion - - 1,000 4,000 - - 1,000 1,000 1,000 1,000 - - 1,000 10,000 Meals & Entertainment - - - 100 100 100 100 100 100 100 100 100 100 1,000 Miscellaneous - - - - - - - - - - - - - - Office Expense - 20 20 20 150 20 20 20 20 20 150 20 20 500 Office Supplies - 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - - Professional Fees - 750 - - 250 - 250 500 - 250 - - - 2,000 Property Taxes - - - - - - - - - - - - - - Rent - - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - - Telephone - 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - - Travel - - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - - Vehicle - 500 500 500 500 500 500 500 500 500 500 500 500 6,000 Other Supplies - 25 50 50 25 50 50 25 50 50 25 50 50 500 Other General Expenses - 42 41 42 42 41 42 42 41 42 41 42 42 500 Other Administrative - 167 167 167 167 167 167 167 167 167 167 167 163 2,000 Paid on Account - - - - - - - - - - - - - - Non-operating Costs Capital Purchases - - - - - - - - - - - - - - Estimated Income Tax Payments - - - - - - - - - - - - 21,063 21,063 Interest Payments - - 1,000 2,400 4,000 5,833 7,933 10,267 11,433 12,500 10,767 8,800 6,733 81,667 Loan Principal Payments - - - - - - - - - - 260,000 295,000 335,000 890,000 Owner's Draw - 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Other Cash Out - - - - - - - - - - - - - - Total Cash Out - 5,586 184,790 226,821 256,655 293,161 330,843 368,078 191,640 158,730 401,170 399,770 424,735 3,241,979

Monthly Cash Flow (cash in - cash out) - 44,414 (34,790) 679 846 (661) 1,657 (578) 860 1,270 1,330 2,730 2,765 20,521 Beginning Cash Balance - - 44,414 9,624 10,303 11,148 10,487 12,144 11,566 12,426 13,696 15,026 17,756 - Ending Cash Balance - 44,414 9,624 10,303 11,148 10,487 12,144 11,566 12,426 13,696 15,026 17,756 20,521 20,521


200D JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL

Cash In Cash Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000 Collections from Accounts Receivables - - - - - - - - - - - - - Equity Received - - - - - - - - - - - - - Loans Received 190,000 230,000 245,000 270,000 310,000 330,000 - - - - - 30,000 1,605,000 Other Cash In (receipts from other assets) - - - - - - - - - - - - - Other Cash In (interest, royalties etc.) - - - - - - - - - - - - - Total Cash In 190,000 230,000 280,000 305,000 345,000 365,000 437,500 437,500 402,500 402,500 402,500 432,500 4,230,000 Total Cash Available 210,521 248,389 297,369 323,086 365,819 391,461 451,173 458,791 427,280 422,179 426,371 457,096 4,250,521

Cash Out Inventory Expenditures Inventory/Raw Material (Cash) 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250 Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - - Production Expenses 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000 Operating Expenses Advertising - - 6,600 1,000 1,000 1,000 1,000 1,000 2,600 600 600 600 16,000 Bank Charges - - - - - - - - - - - - - Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000 Insurance 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000 Licenses & Fees - 400 - - 200 - - 200 - - 200 - 1,000 Marketing & Promotion - 2,000 8,000 - - 2,000 2,000 2,000 2,000 - - 2,000 20,000 Meals & Entertainment 250 250 250 250 250 250 250 250 250 250 250 250 3,000 Miscellaneous - - - - - - - - - - - - - Office Expense 20 20 20 150 20 20 20 20 20 150 20 20 500 Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - Professional Fees 750 750 750 750 750 750 750 750 750 750 750 750 9,000 Property Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - Travel - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - Vehicle 750 750 750 750 750 750 750 750 750 750 750 750 9,000 Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500 Other General Expenses 92 91 92 92 91 92 92 91 92 91 92 92 1,100 Other Administrative 267 267 267 267 267 267 267 267 267 267 267 263 3,200 Paid on Account - - - - - - - - - - - - - Non-operating Costs Capital Purchases - - - - - - - - - - - - - Estimated Income Tax Payments - - - - - - - - 8,784 - - 42,191 50,975 Interest Payments 8,000 9,533 11,167 12,967 15,033 17,233 15,833 14,167 12,500 10,567 8,367 6,167 141,533 Loan Principal Payments - - - - - - 210,000 250,000 250,000 290,000 330,000 360,000 1,690,000 Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Other Cash Out - - - - - - - - - - - - - Total Cash Out 192,132 231,020 279,283 302,267 339,357 377,788 429,882 434,011 407,600 398,308 401,775 438,634 4,232,058

Monthly Cash Flow (cash in - cash out) (2,132) (1,020) 717 2,733 5,643 (12,788) 7,618 3,489 (5,100) 4,192 725 (6,134) (2,058) Beginning Cash Balance 20,521 18,389 17,369 18,086 20,819 26,461 13,673 21,291 24,780 19,679 23,871 24,596 20,521 Ending Cash Balance 18,389 17,369 18,086 20,819 26,461 13,673 21,291 24,780 19,679 23,871 24,596 18,463 18,463


200E JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL

Cash In Cash Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000 Collections from Accounts Receivables - - - - - - - - - - - - - Equity Received - - - - - - - - - - - - - Loans Received 370,000 455,000 505,000 560,000 660,000 325,000 - - - - - - 2,875,000 Other Cash In (receipts from other assets) - - - - - - - - - - - - - Other Cash In (interest, royalties etc.) - - - - - - - - - - - - - Total Cash In 370,000 455,000 540,000 595,000 660,000 762,500 875,000 437,500 402,500 437,500 437,500 402,500 6,375,000 Total Cash Available 388,463 472,337 563,739 616,565 685,560 782,787 896,638 459,979 423,697 456,275 461,254 421,254 6,393,463

Cash Out Inventory Expenditures Inventory/Raw Material (Cash) 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500 Inventory/Raw Material (Paid on Account) - - - - - - - - - - - - - Production Expenses 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000 Operating Expenses Advertising - - 9,900 1,500 1,500 1,500 1,500 1,500 3,900 900 900 900 24,000 Bank Charges - - - - - - - - - - - - - Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000 Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Licenses & Fees - 800 - - 400 - - 400 - - 400 - 2,000 Marketing & Promotion - 4,000 16,000 - - 4,000 4,000 4,000 4,000 - - 4,000 40,000 Meals & Entertainment 300 300 300 300 300 300 300 300 300 300 300 300 3,600 Miscellaneous - - - - - - - - - - - - - Office Expense 30 30 30 200 30 30 30 30 30 200 30 30 700 Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - Professional Fees 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 13,200 Property Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - Travel - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - Vehicle 900 900 900 900 900 900 900 900 900 900 900 900 10,800 Other Supplies 30 60 60 30 60 60 30 60 60 30 60 60 600 Other General Expenses 125 125 125 125 125 125 125 125 125 125 125 125 1,500 Other Administrative 300 300 300 300 300 300 300 300 300 300 300 300 3,600 Paid on Account - - - - - - - - - - - - - Non-operating Costs Capital Purchases - - - - - - - - - - - - - Estimated Income Tax Payments - - - - - - - - 19,548 - - 35,796 55,344 Interest Payments 8,633 11,667 15,033 18,767 23,167 25,333 22,333 21,633 20,833 19,200 17,027 14,893 218,520 Loan Principal Payments - - - - - - 450,000 105,000 120,000 245,000 326,000 320,000 1,566,000 Owner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Other Cash Out - - - - - - - - - - - - - Total Cash Out 371,126 448,598 542,173 591,005 665,273 761,149 874,159 438,782 404,922 432,522 442,500 404,155 6,376,364

Monthly Cash Flow (cash in - cash out) (1,126) 6,402 (2,173) 3,995 (5,273) 1,351 841 (1,282) (2,422) 4,978 (5,000) (1,655) (1,364) Beginning Cash Balance 18,463 17,337 23,739 21,565 25,560 20,287 21,638 22,479 21,197 18,775 23,754 18,754 18,463 Ending Cash Balance 17,337 23,739 21,565 25,560 20,287 21,638 22,479 21,197 18,775 23,754 18,754 17,099 17,099

Thomas Custom Builders Year-End

Income Statement (Projected)200C 200D 200E

Net Sales (less returns & allowances) 1,312,500 2,625,000 3,500,000 Cost of Goods Sold 1,115,625 2,231,250 2,975,000 Gross Margin $ 196,875 $ 393,750 $ 525,000

Operating Expenses Advertising 8,000 16,000 24,000 Bad Debt Expense - - - Bank Charges - - - Depreciation & Amortization - - - Dues & Subscriptions 1,000 1,000 1,000 Insurance 10,000 15,000 18,000 Licenses & Fees 500 1,000 2,000 Marketing & Promotion 10,000 20,000 40,000 Meals & Entertainment 1,000 3,000 3,600 Miscellaneous - - - Office Expense 500 500 700 Office Supplies 1,000 1,000 1,000 Outside Services - - - Payroll Expenses Salaries & Wages - - - Payroll Taxes - - - Benefits - - - Professional Fees 2,000 9,000 13,200 Property Taxes - - - Rent - - - Repairs & Maintenance - - - Shipping & Delivery - - - Telephone 2,000 2,000 2,000 Training & Development - - - Travel - - - Utilities - - - Vehicle 6,000 9,000 10,800 Other Supplies 500 500 600 Other General Expenses 500 1,100 1,500 Other Administrative 2,000 3,200 3,600 Total Operating Expenses $ 45,000 $ 82,300 $ 122,000

Operating Income $ 151,875 $ 311,450 $ 403,000

Interest Expense 81,667 141,533 218,520 Other Income (interest, royalties, etc.) - - -

Income Before Taxes $ 70,208 $ 169,917 $ 184,480

Income Taxes (if C Corp) - - -

Net Income $ 70,208 $ 169,917 $ 184,480

Thomas Custom Builders

Balance Sheet (Projected)Year-End

200C 200D 200E

AssetsCurrent Assets

Cash & Equivalents 20,521 18,463 17,099 Accounts Receivable - - - Inventory 1,052,625 1,052,625 2,456,125 Security Deposits - - - Other Current Assets - - -

Total Current Assets $ 1,073,146 $ 1,071,088 $ 2,473,224

Fixed AssetsProperty, Plant & Equipment - - - Less: Accumulated Depreciation - - - Other Non-Current Assets - - -

Total Non-Current Assets $ - $ - $ -

Total Assets $ 1,073,146 $ 1,071,088 $ 2,473,224

LiabilitiesCurrent Liabilities Accounts Payable - - -

Line of Credit 1,010,000 925,000 2,234,000 Other Current Liabilities - - -

Total Current Liabilities $ 1,010,000 $ 925,000 $ 2,234,000

Long-term LiabilitiesLoans - - - Mortgages - - - Other Non-Current Liabilities - - -

Total Non-Current Liabilities $ - $ - $ -

Total Liabilities $ 1,010,000 $ 925,000 $ 2,234,000

EquityEquity Investments 50,000 50,000 50,000 Retained Earnings 70,208 240,125 424,605 Less: Owner's & Investor's Draws (57,063) (144,038) (235,382) Total Equity $ 63,146 $ 146,088 $ 239,224

Total Liabilities and Equity $ 1,073,146 $ 1,071,088 $ 2,473,224

Thomas Custom BuildersFinancial Ratios

200C 200D 200E

Profitability Ratios

Gross Margin 15.00% 15.00% 15.00%

Operating Margin 11.57% 11.86% 11.51%

Net Margin 5.35% 6.47% 5.27%

Return on Assets (ROA) 6.54% 15.86% 7.46%

Return on Equity (ROE) 111.18% 116.31% 77.12%

Liquidity Ratios

Current Ratio 1.06 1.16 1.11

Quick Ratio 0.02 0.02 0.01

Risk Ratios

Debt Ratio 0.94 0.86 0.90

Debt to Equity 15.99 6.33 9.34

Efficiency Ratios

Inventory Turnover 1.06 2.12 1.21

Days Sales Outstanding (DSO) 0.00 0.00 0.00

Investment Turnover Ratio 1.22 2.45 1.42

Gross Income

Total Current Liabilities

Current Assets - Inventory

Net SalesOperating Income

Total AssetsNet Income

Accounts Receivable

Net Sales

Total Assets

InventoryCost of Goods Sold

Total LiabilitiesShareholders' Equity

Net Sales/365

Net Sales

Total Assets

Net IncomeNet Sales

Total Liabilities

Shareholders' EquityNet Income

Total Current Assets

Current Liabilities

47


Supporting Documents

Appendix

SALES PROJECTIONSThomas Custom BuildersYear 1 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALSales BudgetDeposits - - 17,500 17,500 17,500 17,500 17,500 17,500 - - - - 105,000 House Sales - - - - - - - - - 315,000 315,000 315,000 945,000 Lot Sales - - - - - - - - - 87,500 87,500 87,500 262,500 Product/Service Category D - - - - - - - - - - - - - Product/Service Category E - - - - - - - - - - - - - Product/Service Category F - - - - - - - - - - - - - Product/Service Category G - - - - - - - - - - - - - Gross Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500 Less: Returns & Allowances - - - - - - - - - - - - - Net Sales - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500 Other Income - - - - - - - - - - - - - Total Income - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500 Credit Management Sales (cash) - - 17,500 17,500 17,500 17,500 17,500 17,500 - 402,500 402,500 402,500 1,312,500 Sales (credit) - - - - - - - - - - - - - Received on Account - - - - - - - - - - - - - Bad Debt Expense - - - - - - - - - - - - -

Year 1 AssumptionsDepositsHouse SalesLot SalesProduct/Service Category DProduct/Service Category EProduct/Service Category FProduct/Service Category GLess: Returns & AllowancesOther Income Sales (cash) Sales (credit) Received on Account Bad Debt Expense

staged deposists on 3 houses YE

AR

1 YE

AR

1 YE

AR

1

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

YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1

Appendix

SALES PROJECTIONSThomas Custom BuildersYear 2 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALSales BudgetDeposits - - 35,000 35,000 35,000 35,000 35,000 35,000 - - - - 210,000 House Sales - - - - - 315,000 315,000 315,000 315,000 315,000 315,000 1,890,000 Lot Sales - - - - - 87,500 87,500 87,500 87,500 87,500 87,500 525,000 Product/Service Category D - - - - - - - - - - - - - Product/Service Category E - - - - - - - - - - - - - Product/Service Category F - - - - - - - - - - - - - Product/Service Category G - - - - - - - - - - - - - Gross Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000 Less: Returns & Allowances - - - - - - - - - - - - - Net Sales - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000 Other Income - - - - - - - - - - - - - Total Income - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000 Credit ManagementSales (cash) - - 35,000 35,000 35,000 35,000 437,500 437,500 402,500 402,500 402,500 402,500 2,625,000 Sales (credit) - - - - - - - - - - - - - Received on Account - - - - - - - - - - - - - Bad Debt Expense - - - - - - - - - - - - -



staged deposists on 6 houses

YE

AR

2 YE

AR

2 YE

AR

2 YE

AR

2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2

Appendix

SALES PROJECTIONSThomas Custom BuildersYear 3 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALSales BudgetDeposits - - 35,000 35,000 - 35,000 70,000 35,000 - 35,000 35,000 - 280,000 House Sales - - - - - 315,000 630,000 315,000 315,000 315,000 315,000 315,000 2,520,000 Lot Sales - - - - - 87,500 175,000 87,500 87,500 87,500 87,500 87,500 700,000 Product/Service Category D - - - - - - - - - - - - - Product/Service Category E - - - - - - - - - - - - - Product/Service Category F - - - - - - - - - - - - - Product/Service Category G - - - - - - - - - - - - - Gross Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000 Less: Returns & Allowances - - - - - - - - - - - - - Net Sales - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000 Other Income - - - - - - - - - - - - - Total Income - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000 Credit ManagementSales (cash) - - 35,000 35,000 - 437,500 875,000 437,500 402,500 437,500 437,500 402,500 3,500,000 Sales (credit) - - - - - - - - - - - - - Received on Account - - - - - - - - - - - - - Bad Debt Expense - - - - - - - - - - - - -



YE

AR

3 YE

AR

3 YE

AR

3

staged deposists on 8 houses

YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3

Appendix

INVENTORY PROJECTIONSThomas Custom Builders

Year 1 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALInventory ManagementInventory Purchases - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250 Inventory/ Raw Material Purchases (Cash) - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250 Inventory/ Raw Material Purchases (Credit) - - - - - - - - - - - - - Payment on Account - - - - - - - - - - - - -

Production ExpensesFreight-in & Trucking - - - - - - - - - - - - - Insurance - 8,925 8,925 8,925 8,925 8,925 8,925 - - - - - 53,550 Payroll Expenses - production Salaries & Wages - - - - - - - - - - - - - Employee Benefits - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Rework - - - - - - - - - - - - - Subcontracting - 34,679 69,358 104,038 138,717 173,396 208,075 173,396 138,717 104,038 69,358 34,679 1,248,450 Utilities - - - - - - - - - - - - - Other Production Expenses - - - - - - - - - 21,000 21,000 21,000 63,000 Inventory Production Expenses - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000

Inventory BalanceBeginning Inventory Balance - - 177,479 374,763 606,725 873,367 1,174,688 1,510,688 1,669,208 1,807,925 1,590,838 1,339,071 - Inventory Purchased - 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - 803,250 Inventory Production - 43,604 78,283 112,963 147,642 182,321 217,000 173,396 138,717 125,038 90,358 55,679 1,365,000 (Cost of Goods Sold) - - (14,875) (14,875) (14,875) (14,875) (14,875) (14,875) - (342,125) (342,125) (342,125) (1,115,625) Ending Inventory Balance - 177,479 374,763 606,725 873,367 1,174,688 1,510,688 1,669,208 1,807,925 1,590,838 1,339,071 1,052,625 1,052,625

Year 1 AssumptionsInventory/ Raw Material Purchases Freight-in & TruckingInsurancePayroll Expenses - production Salaries & Wages Employee Benefits Payroll TaxesRentRepairs & MaintenanceReworkSubcontractingUtilitiesOther Production Expenses real estate commission at 6% of sale price - $21,000 per sale - 3 houses sold

subcontracted construction and design labor estimated at 71% of house cost

YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1Y

EA

R 1 Y

EA

R 1 Y

EA

R 1 Y

EA

R 1

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

Appendix


Year 2 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALInventory ManagementInventory Purchases 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250 Inventory/ Raw Material Purchases (Cash) 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250 Inventory/ Raw Material Purchases (Credit) - - - - - - - - - - - - - Payment on Account - - - - - - - - - - - - -

Production ExpensesFreight-in & Trucking - - - - - - - - - - - - - Insurance 8,925 8,925 8,925 8,925 8,925 8,925 - - - - - - 53,550 Payroll Expenses - production Salaries & Wages - - - - - - - - - - - - - Employee Benefits - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Rework - - - - - - - - - - - - - Subcontracting 34,679 69,358 104,038 138,717 173,396 208,075 173,396 138,717 104,038 69,358 34,679 - 1,248,450 Utilities - - - - - - - - - - - - - Other Production Expenses - - - - - - 21,000 21,000 21,000 21,000 21,000 21,000 126,000 Inventory Production Expenses 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000

Inventory BalanceBeginning Inventory Balance 1,052,625 1,230,104 1,442,263 1,659,350 1,911,117 2,197,563 2,518,688 2,341,208 2,129,050 1,911,963 1,660,196 1,373,750 1,052,625 Inventory Purchased 133,875 133,875 133,875 133,875 133,875 133,875 - - - - - - 803,250 Inventory Production 43,604 78,283 112,963 147,642 182,321 217,000 194,396 159,717 125,038 90,358 55,679 21,000 1,428,000 (Cost of Goods Sold) - - (29,750) (29,750) (29,750) (29,750) (371,875) (371,875) (342,125) (342,125) (342,125) (342,125) (2,231,250) Ending Inventory Balance 1,230,104 1,442,263 1,659,350 1,911,117 2,197,563 2,518,688 2,341,208 2,129,050 1,911,963 1,660,196 1,373,750 1,052,625 1,052,625



YE

AR

2 YE

AR

2 YE

AR

2 YE

AR

2Y

EA

R 2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2



Appendix


Year 3 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALInventory ManagementInventory Purchases 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500 Inventory/ Raw Material Purchases (Cash) 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500 Inventory/ Raw Material Purchases (Credit) - - - - - - - - - - - - - Payment on Account - - - - - - - - - - - - -

Production ExpensesFreight-in & Trucking - - - - - - - - - - - - - Insurance 17,850 17,850 17,850 17,850 17,850 17,850 - - - - - - 107,100 Payroll Expenses - production Salaries & Wages - - - - - - - - - - - - - Employee Benefits - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Rework - - - - - - - - - - - - - Subcontracting 69,358 138,717 208,075 277,433 346,792 416,150 346,792 277,433 208,075 138,717 69,358 - 2,496,900 Utilities - - - - - - - - - - - - - Other Production Expenses - - - - - 21,000 42,000 21,000 21,000 21,000 21,000 21,000 168,000 Inventory Production Expenses 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000

Inventory BalanceBeginning Inventory Balance 1,052,625 1,407,583 1,831,900 2,295,825 2,829,108 3,461,500 3,812,375 3,457,417 3,383,975 3,270,925 3,058,767 2,777,250 1,052,625 Inventory Purchased 267,750 267,750 267,750 267,750 267,750 267,750 - - - - - - 1,606,500 Inventory Production 87,208 156,567 225,925 295,283 364,642 455,000 388,792 298,433 229,075 159,717 90,358 21,000 2,772,000 (Cost of Goods Sold) - - (29,750) (29,750) - (371,875) (743,750) (371,875) (342,125) (371,875) (371,875) (342,125) (2,975,000) Ending Inventory Balance 1,407,583 1,831,900 2,295,825 2,829,108 3,461,500 3,812,375 3,457,417 3,383,975 3,270,925 3,058,767 2,777,250 2,456,125 2,456,125



YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3Y

EA

R 3 Y

EA

R 3 Y

EA

R 3 Y

EA

R 3



Appendix

OPERATING EXPENSE PROJECTIONSThomas Custom Builders

Year 1 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL Operating Expenses

Advertising - - 3,300 500 500 500 500 500 1,300 300 300 300 8,000 Bank Charges - - - - - - - - - - - - - Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000 Insurance 833 833 834 833 833 834 833 833 834 833 833 834 10,000 Licenses & Fees 200 - - 100 - - 100 - - 100 - 500 Marketing & Promotion - 1,000 4,000 - - 1,000 1,000 1,000 1,000 - - 1,000 10,000 Meals & Entertainment - - 100 100 100 100 100 100 100 100 100 100 1,000 Miscellaneous - - - - - - - - - - - - - Office Expense (postage) 20 20 20 150 20 20 20 20 20 150 20 20 500 Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - Professional Fees 750 - - 250 - 250 500 - 250 - - - 2,000 Property Taxes - - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - Travel - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - Vehicle 500 500 500 500 500 500 500 500 500 500 500 500 6,000 Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500 Other General Expenses 42 41 42 42 41 42 42 41 42 41 42 42 500 Other Administrative 167 167 167 167 167 167 167 167 167 167 167 163 2,000

Total Operating Expenses 2,586 3,311 9,263 2,817 2,811 3,714 3,936 3,811 4,513 2,366 2,612 3,260 45,000

Assumptions - Year 1AdvertisingBank ChargesDues & SubscriptionsInsuranceLicenses & FeesMarketing & PromotionMeals & EntertainmentMiscellaneousOffice Expense (postage)Office SuppliesOutside ServicesPayroll Expenses Salaries & Wages Payroll Taxes BenefitsProfessional FeesProperty TaxesRentRepairs & MaintenanceShipping & DeliveryTelephoneTraining & DevelopmentTravelUtilitiesVehicleOther SuppliesOther General ExpensesOther Administrative

YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1

postage budgetdrafting supplies and general office suppliesbudget

YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1 YE

AR

1

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 Associationgeneral business liability (builder's risk is part of COGs)city taxes and business licensesweb site development and maintenance, brochures, trade shows, graphic designlittle time is required for entertaining--budgeted amount covers special events with lenders, vendors & real estate professionals

outside accounting assistance, architectural licensing fees

cell phone and one office line with cable modem access

truck lease payments, insurance, maintenance and fuelcontingencycontingencycontingency fund for unplanned expense

Appendix



Advertising - - 6,600 1,000 1,000 1,000 1,000 1,000 2,600 600 600 600 16,000 Bank Charges - - - - - - - - - - - - - Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000 Insurance 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000 Licenses & Fees - 400 - - 200 - - 200 - - 200 - 1,000 Marketing & Promotion - 2,000 8,000 - - 2,000 2,000 2,000 2,000 - - 2,000 20,000 Meals & Entertainment 250 250 250 250 250 250 250 250 250 250 250 250 3,000 Miscellaneous - - - - - - - - - - - - - Office Expense (postage) 20 20 20 150 20 20 20 20 20 150 20 20 500 Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - Professional Fees 750 750 750 750 750 750 750 750 750 750 750 750 9,000 Property Taxes - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - Travel - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - Vehicle 750 750 750 750 750 750 750 750 750 750 750 750 9,000 Other Supplies 25 50 50 25 50 50 25 50 50 25 50 50 500 Other General Expenses 92 91 92 92 91 92 92 91 92 91 92 92 1,100 Other Administrative 267 267 267 267 267 267 267 267 267 267 267 263 3,200



YE

AR

2 YE

AR

2 YE

AR

2 YE

AR

2 YE

AR

2 YE

AR

2Y

EA

R 2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2






truck lease payments, insurance, maintenance and fuelcontingencycontingencycontingency fund for unplanned expense

Appendix



Advertising - - 9,900 1,500 1,500 1,500 1,500 1,500 3,900 900 900 900 24,000 Bank Charges - - - - - - - - - - - - - Dues & Subscriptions - 250 - - 250 - - 250 - - 250 - 1,000 Insurance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 Licenses & Fees - 800 - - 400 - - 400 - - 400 - 2,000 Marketing & Promotion - 4,000 16,000 - - 4,000 4,000 4,000 4,000 - - 4,000 40,000 Meals & Entertainment 300 300 300 300 300 300 300 300 300 300 300 300 3,600 Miscellaneous - - - - - - - - - - - - - Office Expense (postage) 30 30 30 200 30 30 30 30 30 200 30 30 700 Office Supplies 83 83 84 83 83 84 83 83 84 83 83 84 1,000 Outside Services - - - - - - - - - - - - - Payroll Expenses Salaries & Wages - - - - - - - - - - - - - Payroll Taxes - - - - - - - - - - - - - Benefits - - - - - - - - - - - - - Professional Fees 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 13,200 Property Taxes - - - - - - - - - - - - Rent - - - - - - - - - - - - - Repairs & Maintenance - - - - - - - - - - - - - Shipping & Delivery - - - - - - - - - - - - - Telephone 166 167 166 167 167 167 166 167 166 167 167 167 2,000 Training & Development - - - - - - - - - - - - - Travel - - - - - - - - - - - - - Utilities - - - - - - - - - - - - - Vehicle 900 900 900 900 900 900 900 900 900 900 900 900 10,800 Other Supplies 30 60 60 30 60 60 30 60 60 30 60 60 600 Other General Expenses 125 125 125 125 125 125 125 125 125 125 125 125 1,500 Other Administrative 300 300 300 300 300 300 300 300 300 300 300 300 3,600



YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3Y

EA

R 3 Y

EA

R 3 Y

EA

R 3 Y

EA

R 3 Y

EA

R 3 Y

EA

R 3




contingency fund for unplanned expense


contingencycontingencytruck lease payments, insurance, maintenance and fuel


Appendix

CAPITAL BUDGET PROJECTIONSYear 1 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALCapital BudgetOwner's Draw 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 36,000 Investor's Draw - - - - - - - - - - - - - Dividends Paid - - - - - - - - - - - - - Security Deposits - - - - - - - - - - - - - Amortization - - - - - - - - - - - - - Depreciation (existing assets) - - - - - - - - - - - - - Capital Asset Purchases - - - - - - - - - - - - - Depreciation (new purchases) - - - - - - - - - - - - - Land - - - - - - - - - - - - -

Year 1 Total Depreciation - Assumptions - Year 1Owner's DrawInvestor's DrawDividends PaidSecurity DepositsAmortizationEquipmentEquipment DepreciationFurnitureFurniture DepreciationLeasehold ImprovementsLeasehold DepreciationVehiclesVehicle DepreciationBuildingBuilding DepreciationLand

YE

AR

1 YE

AR

1 YE

AR

1Y

EA

R 1 Y

EA

R 1 Y

EA

R 1 Y

EA

R 1

Appendix



YE

AR

2 YE

AR

2 YE

AR

2Y

EA

R 2 Y

EA

R 2 Y

EA

R 2 Y

EA

R 2

Appendix



YE

AR

3 YE

AR

3 YE

AR

3 YE

AR

3Y

EA

R 3 Y

EA

R 3 Y

EA

R 3

Appendix

Equity InvestmentThomas Custom Builders JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL

Year 1 50,000 - - - - - - - - - - - 50,000 Year 2 - - - - - - - - - - - - - Year 3 - - - - - - - - - - - - -

Real Estate LoansThomas Custom Builders

Existing Balance - New Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 2 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 3 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - -

Repayment JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - principal - - - - - - - - - - - - - Year 1 - interest - - - - - - - - - - - - - Year 2 - principal - - - - - - - - - - - - - Year 2 - interest - - - - - - - - - - - - - Year 3 - principal - - - - - - - - - - - - - Year 3 - interest - - - - - - - - - - - - -

Traditional Business Loan and/or other Long-term LoansThomas Custom Builders

Loan 1 Existing Balance - New Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 2 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 3 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - -


Loan 2 Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 2 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - - Year 3 - - - - - - - - - - - - - Outstanding balance - - - - - - - - - - - -


Line of CreditThomas Custom Builders

Existing Balance -

Borrowing JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - 150,000 210,000 240,000 275,000 315,000 350,000 175,000 160,000 - - 25,000 1,900,000 Outstanding balance - 150,000 360,000 600,000 875,000 1,190,000 1,540,000 1,715,000 1,875,000 1,615,000 1,320,000 1,010,000 Year 2 190,000 230,000 245,000 270,000 310,000 330,000 - - - - - 30,000 1,605,000 Outstanding balance 1,200,000 1,430,000 1,675,000 1,945,000 2,255,000 2,585,000 2,375,000 2,125,000 1,875,000 1,585,000 1,255,000 925,000 Year 3 370,000 455,000 505,000 560,000 660,000 325,000 - - - - - - 2,875,000 Outstanding balance 1,295,000 1,750,000 2,255,000 2,815,000 3,475,000 3,800,000 3,350,000 3,245,000 3,125,000 2,880,000 2,554,000 2,234,000

Repayment JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALYear 1 - principal - - - - - - - - - 260,000 295,000 335,000 890,000 Year 1 - interest - 1,000 2,400 4,000 5,833 7,933 10,267 11,433 12,500 10,767 8,800 6,733 81,667 Year 2 - principal - - - - - - 210,000 250,000 250,000 290,000 330,000 360,000 1,690,000 Year 2 - interest 8,000 9,533 11,167 12,967 15,033 17,233 15,833 14,167 12,500 10,567 8,367 6,167 141,533 Year 3 - principal - - - - - - 450,000 105,000 120,000 245,000 326,000 320,000 1,566,000 Year 3 - interest 8,633 11,667 15,033 18,767 23,167 25,333 22,333 21,633 20,833 19,200 17,027 14,893 218,520

Year 1 - total principal paid 890,000 Year 1 - total interest paid 81,667 Year 2 - total principal paid 1,690,000 Year 2 - total interest paid 141,533 Year 3 - total principal paid 1,566,000 Year 3 - total interest paid 218,520

Appendix