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Executive Summary
Hard Hats Construction (HHC) is a medium-sized commercial construction company with offices in Seattle, Portland, San Francisco, and Los Angeles. HHC has been fortunate to be awarded some initial sizable contracts for several projects among its four locations. Local contacts and competitive pricing have propelled rapid growth of this new company.
1.1 Mission
Hard Hats Construction aims to provide high quality craftsmanship in the commercial construction industry at a very competitive cost. It is the goal of the company to achieve a greater reputation for quality and on-time delivery than the current competitors in the Pacific Northwest region. HHC is committed to delivering on-time completion. HHC maintains high integrity on all promised timelines and quality assurances.
Company Summary
Hard Hats Construction is a start-up managed by two partners who have 30 years of combined experience in the commercial construction business. With the extensive contacts that the two partners have in the commercial real estate business, it is estimated that the company will have a significant number of contracts within the first three years. These two partners represent sales/management, and finance/administration areas, respectively. The company will be seeking a $4.2 million Small Business Association (SBA) loan to cover the purchase of long-term assets, office setup, and cash requirements.
Start-up Requirements
Start-up Expenses Legal Office Setup Rent Insurance Utilities Other Total Start-up Expenses Start-up Assets Cash Required Other Current Assets Long-term Assets Total Assets Total Requirements $5,000 $500,000 $12,000 $5,000 $1,200 $1,000 $524,200 $1,500,000 $100,000 $2,500,000 $4,100,000 $4,624,200
Start-up Funding
Start-up Expenses to Fund Start-up Assets to Fund Total Funding Required Assets Non-cash Assets from Start-up Cash Requirements from Start-up Additional Cash Raised Cash Balance on Starting Date Total Assets Liabilities and Capital Liabilities Current Borrowing Long-term Liabilities Accounts Payable (Outstanding Bills) Other Current Liabilities (interest-free) Total Liabilities Capital Planned Investment Investor 1 Investor 2 Other Additional Investment Requirement Total Planned Investment Loss at Start-up (Start-up Expenses) Total Capital Total Capital and Liabilities Total Funding
Services
HHC provides commercial construction services, with a primary focus on large urban structure development. This includes the following types of construction:
Office buildings Strip malls Commercial parking lots and garages Apartment complexes Restaurants Schools Government contracts
HHC will provide the installation of all required business/operation systems such as electrical, lighting, refrigeration, heating, data information systems, etc. HHC will also provide wrecking services as a part of building re-construction projects. HHC has been awarded a few government contracts since its inception and hopes to increase this market segment.
Market Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Potential Customers Growth CAGR Commercial Buildings 9% 12,000 13,080 14,257 15,540 16,939 9.00% Government Contracts 5% 5,500 5,775 6,064 6,367 6,685 5.00% Other 0% 0 0 0 0 0 0.00% Total 7.79% 17,500 18,855 20,321 21,907 23,624 7.79%
Due to such large number of companies and the intense competition, margins are relatively low for the construction business as a whole. For the commercial segment, the margins are somewhat higher due to the high cost of construction. Because each building is a unique product, the costs are very high relative to other assets, and the clients need such assets at a specific time, the company's reputation in quality, ontime delivery, and cost are the crucial elements used in assessing a contractor. The construction business is also seasonal, with the largest number of contracts arising in the spring and summer. The number starts to decrease in the early fall, and the drop continues through the winter months of December through February, which are the low point during any year. In the Pacific Northwest, the major competitors in the commercial segment are Cree Construction, Kirtley-Cole, and Wilder Construction. Each of these companies focuses on the same type of clientele as HHC. However, HHC offers more services, such as paving, road/highway construction, and environmental construction. With the exception of KirtleyCole, each of these competitors has such a broad range of customers that a more focused company, such as HHC, will be able to defeat the competition through more attention to client needs.
Design, installation, integration, start-up, operation, and maintenance of distribution systems for electrical power. Lighting systems. Low-voltage systems, such as fire alarm, security, communications and process control systems. Voice and data communications systems. Heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems. Plumbing, process, and high-purity piping systems.
Some competitors also provide services needed to support the operation of customers' facilities. These services include:
Site-based operations and maintenance. Mobile maintenance and service. Mall modification and retrofit projects. Consulting, program development, and management for energy systems and the maintenance of facilities.
Facilities services are being provided to a wide range of commercial, industrial, utility, and institutional facilities, often including those at which construction services have been provided, and others at which construction services were provided by other contractors. Facilities services are frequently combined to provide integrated service packages, which include mechanical and electrical services.
Mechanical and electrical construction services and facilities services are typically offered directly to corporations, municipalities, and other governmental entities, owners/developers and tenants of buildings. Companies are also providing these services indirectly by acting as subcontractors to construction managers, general contractors, systems suppliers and other subcontractors. While the facilities services business is also highly fragmented, a number of large corporations, such as Johnson Controls, Inc. and the Fluor Corporation, are engaged in this field, and there are other companies seeking to consolidate facilities services businesses.
Sales Forecast Year 1 Unit Sales Commercial Buildings Government Contracts Other Total Unit Sales Unit Prices Commercial Buildings Government Contracts Other Sales Commercial Buildings Government Contracts Other Total Sales Direct Unit Costs Commercial Buildings Government Contracts Other Direct Cost of Sales Commercial Buildings Government Contracts Other Subtotal Direct Cost of Sales 19 6 0 25 Year 1 $2,000,000.00 $500,000.00 $0.00 $37,484,763 $3,050,000 $0 $40,534,763 Year 1 $900,000.00 $250,000.00 $0.00 $16,868,143 $1,525,000 $0 $18,393,143 Year 2 22 7 0 29 Year 2 $2,200,000.00 $550,000.00 $0.00 $47,418,225 $3,850,000 $0 $51,268,225 Year 2 $945,000.00 $262,500.00 $0.00 $20,368,283 $1,837,500 $0 $22,205,783 Year 3 25 9 0 34 Year 3 $2,420,000.00 $605,000.00 $0.00 $59,984,054 $5,445,000 $0 $65,429,054 Year 3 $992,250.00 $275,625.00 $0.00 $24,594,702 $2,480,625 $0 $27,075,327
Management Summary
Jack Daniels, president, and Hank Foreman, vice president and CFO have 30 combined years of experience at all levels within the commercial construction industry. Both have extensive experience as Lead Foreman, and have been participants in many major commercial projects of varying types. 6.1 Personnel Plan As the personnel plan shows, HHC expects to make gradual investments in construction crew personnel. We intend to grow gradually, to reduce the chance of becoming too large too quick. The company will expand the crew as contracts require. The crew of Hard Hats Construction is formulated of individuals with a talent for craftsmanship. The company prides itself on only hiring experienced tradespersons for its crews. The quality assurance guarantees are provided, not only by the company, but by each individual working on the project.
Personnel Plan Owners Office personnel Foremen Crew Workers Other Total People Total Payroll Year 1 $120,000 $1,399,800 $240,000 $1,800,000 $0 100 $3,559,800 Year 2 $126,000 $1,469,790 $252,000 $1,890,000 $0 113 $3,737,790 Year 3 $132,300 $1,543,280 $264,600 $1,984,500 $0 127 $3,924,680
Financial Plan
HHC expects to raise $390,000 as its own capital, and to borrow $4.2 million guaranteed by the SBA as a ten-year loan. This provides the bulk of the current financing required for company growth.
Break-even Analysis Monthly Units Break-even Monthly Revenue Break-even Assumptions: Average Per-Unit Revenue Average Per-Unit Variable Cost Estimated Monthly Fixed Cost
Pro Forma Balance Sheet Year 1 Assets Current Assets Cash Other Current Assets Total Current Assets Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets Liabilities and Capital Current Liabilities Accounts Payable Current Borrowing Year 2 Year 3
Other Current Liabilities Subtotal Current Liabilities Long-term Liabilities Total Liabilities Paid-in Capital Retained Earnings Earnings Total Capital Total Liabilities and Capital Net Worth
7.3 Projected Profit and Loss As the Highlights chart shows below, HHC's sales are expected to increase by $10,000,000 each year, with a net gain of $6,000,000 per year. The following Profit and Loss table demonstrates HHC's expectation of continuing steady growth over the next three years of operation.
Pro Forma Profit and Loss Sales Direct Cost of Sales Other Total Cost of Sales Gross Margin Gross Margin % Expenses Payroll Sales and Marketing and Other Expenses Depreciation Utilities Payroll Taxes Other Total Operating Expenses Profit Before Interest and Taxes EBITDA Year 1 $40,534,763 $18,393,143 $0 $18,393,143 $22,141,619 54.62% $3,559,800 $8,489,400 $300,000 $8,400 $533,970 $0 $12,891,570 $9,250,049 $9,550,049 Year 2 $51,268,225 $22,205,783 $0 $22,205,783 $29,062,442 56.69% $3,737,790 $6,215,720 $1,100,000 $8,820 $560,669 $0 $11,622,999 $17,439,443 $18,539,443 Year 3 $65,429,054 $27,075,327 $0 $27,075,327 $38,353,728 58.62% $3,924,680 $6,584,626 $1,600,000 $9,261 $588,702 $0 $12,707,268 $25,646,459 $27,246,459
7.4 Projected Cash Flow The cash flow projection shows that provisions for ongoing expenses are adequate to meet HHC's needs as the business generates sufficient cash flow to support operations. As the construction business is seasonal, the company will build up cash reserves during the busy summer months to cover cash flow decreases during the slower winter months. It is estimated that the company will aggressively seek to pay off it's SBA loan sooner than the required ten-year period. This is reflected in the higher principle payments in year 20022003.
Pro Forma Cash Flow Year 1 Cash Received Cash from Operations Cash Sales Subtotal Cash from Operations Additional Cash Received Sales Tax, VAT, HST/GST Received New Current Borrowing New Other Liabilities (interest-free) New Long-term Liabilities Sales of Other Current Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received Expenditures Expenditures from Operations Cash Spending Bill Payments Subtotal Spent on Operations Additional Cash Spent Sales Tax, VAT, HST/GST Paid Year 2 Year 3
$40,534,763 $40,534,763
$51,268,225 $51,268,225
$65,429,054 $65,429,054
Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent Net Cash Flow Cash Balance
Interest Coverage Additional Ratios Assets to Sales Current Debt/Total Assets Acid Test Sales/Net Worth Dividend Payout