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Home Renovation Contractor

Home Renovation Contractor

EXECUTIVE SUMMARY

BUSINESS OVERVIEW

ORGANIZATION

PRODUCT OVERVIEW

MARKET ANALYSIS

MARKETING & SALES

OPERATIONS

RISK FACTORS

FINANCIAL ANALYSIS

STEPHENS CONTRACTING

1242 Rocky River Rd.
Baltimore, Maryland 21201

Gerald Rekve

Stephens Contracting does home renovations for all types of customers, ranging from refinishing basements to remodeling kitchens to building new additions. They administer the application process for all, choose permits and manage subcontractors, orders and stores building materials, and provide project management.

EXECUTIVE SUMMARY

Originally founded as a sole proprietorship in 1989 and incorporated in 2000, Stephens Contracting primarily does home renovation projects for customers in and around Baltimore, Maryland.

Residential construction is a $6 million market in Baltimore. In recent years, many general contractors have turned their attention to commercial building, and away from Baltimore area residents. Using a combined office and warehouse space and relying heavily on salvage materials, Stephens Contracting combines a long–standing reputation and reasonable pricing to target underserved, aging homeowners, with general contracting services that are marked by a commitment to minimal disruption of everyday life, fair cost, clear pricing, and excellent service.

In December 2006, Robert Richardson joined Stephens Contracting as a co–owner. This business plan establishes a blueprint for growing the business. It also documents the agreement between Matt Stephens and Robert Richardson about how the business will be run and how various contingencies will be handled.

BUSINESS OVERVIEW

Legal/name of business

Stephens Contracting

Business address

1242 Rocky River Rd., Baltimore MD 21201

Phone number

410-555-5555

Business Structure

Incorporated company.

Major shareholders % Ownership
Matt Stephens60%
Robert Richardson40%

Date business established

April 2006; incorporated January 2007

Nature of business

General Contractor

Company History

Stephens Contracting was founded by Matt Stephens in 2006. Since then, the business has grown to over $600,000 in revenues. In winter of 2006, Matt Stephens invited Robert Richardson, a leading area subcontractor, to join Stephens Contracting as a co–owner.

ORGANIZATION

Business Strategy

Stephens Contracting is committed to being honest and upfront with customers, while minimizing the inconvenience that can accompany construction. The business aims for consistently strong financial performance, earned as by growth in referrals and the number of projects completed each year.

Objectives

Matt Stephens: Matt’s motivation is the same as it was when he decided to start Stephens Contracting two years ago: make construction better for customers, and get paid well for it. In two years, he’d like Stephens Contracting to be able to operate without his everyday involvement, so he can take his company to the next step.

Robert Richardson: For Robert, joining Stephens Contracting is about seizing a new level of job security, and taking personal responsibility for his livelihood instead of being at the whim of general contractors and others.

Short–Term Objectives

  1. Buy a pick–up truck by the end of January 2007
  2. Complete 75 projects in 2007
  3. Reach sales of $990,000 in 2007

Long–Term Objectives

  1. Achieve increased profitability in 2007
  2. Establish concrete succession plans within five years

PRODUCT OVERVIEW

Stephens Contracting does home renovations for all types of customers, ranging from refinishing basements to remodeling kitchens to building new additions. They administer the application process for all, choose permits and manage subcontractors, orders and stores building materials, and provide project management.

Competition

Stephens Contracting’s competitive advantage combination is a result of its low overhead and great reputation since they buy the majority of building the materials at salvage yards or recycling depots, and the office and warehousing space is located on Matt’s own premises, Stephens Contracting can get very competitive prices. Plus, its longstanding reputation for quality and integrity in the community makes a preferred it choice for home renovations.

Stephens Contracting’s primary competition is as follows (listed in order of business size):

  1. Group Contractors. With over 40 employees, Group Contractors does a wide range of projects, including residential, commercial, and institutional. It’s known for its low prices. In Robert’s experience, many local sub contractors complain about how hard it is to work with and get paid by the company.
  2. Stone Builders. While its core business has always been resident at building and renovations, seems to be bidding on more and more commercial projects. It has a reputation for doing high quality work on time. The company’s prices are high.
  3. Elm Contracting. The core of Elm Contracting business is renovating old homes for new homeowners. With a slowdown in the housing market, it has been relatively hard hit in recent years. The business continues to have very good relationships with real agents in the area (the owner’s wife is an agent), but now it’s recently been seen around town doing more small commercial projects.
  4. Handel Construction. Handel Construction focuses on building home additions and outdoor decks. While Handel has a long standing tradition for getting the job done at a reasonable price, a former customer complained that the company did not do a satisfactory job.
  5. Wendell Contraction. Is a highly recommended for high–end bathroom and kitchen remodeling jobs. The quality of his work is very high.

Increasingly, many of Stephens Contracting’s competitors are going after residential commercial and institutional projects. While those that continue to focus on home renovation are strong, and most have relatively narrow specialties. Also, Stephens Contracting sees room for improved customer service. That means an opportunity to provide both reasonable pricing and good service.

Because Baltimore is small, all of Stephens’s competitors are well–known in the community. Consequently, reputation is very important. A key part of maintaining a strong reputation is strong relationships with reliable, high–quality subcontractors. This is one reason why Stephens Contracting decided to bring Robert—who brings great subcontracting experience and contacts—on board.

MARKET ANALYSIS

The percentage of the Baltimore population that are of the age 40 and up rose significantly between 1999 and 2007. Compared to other age groups, aging Baby Boomers tend to have more money to spend on services like general contracting.

Driven by the growth of home improvement chain stores, more and more home construction projects have been undertaken as do–it–yourself projects by homeowners themselves. That means less work for general contractors.

Housing construction usually dips before a recession hits and bounces back before the general economy does. While the number and dollar value of Baltimore residential building permits dropped steadily between 2000 and 2004, many think this trend is now reversing because of low interest rates and a strengthening local economy.

The do–it–yourself trend has been declining in the last few years mainly due to the concern home owners have for quality of work and environmental concerns such as global warming. The recent decline in residential building will lead many area general contractors concentrate more than ever on commercial and residential projects. At the same time, Stephens Contracting expects a strengthening economy and increased disposable income among Baby Boomers to cause the local market for residential contracting services—home and renovations in particular—to grow in the near future.

Regulatory factors and trends

A general contracting license is required for a project costing more than $500. To become licensed, one must pass a licensing exam after working for four years as a journeyman, foreman, contractor, or owner–builder. This means that Stephens’s competitors all have a certain level of skill.

Environmental factors and trends

Increasingly homeowners prefer friendly contractors who care about the home needs and use building materials and techniques that meet the highest standards. As a result, general contractors will keep up with new “green” building practices products.

Customers

The average annual market for residential building was $47 million between and 2004 and 2007.

Customers for general contracting services can be broken into residential customers, commercial customers, and institutional customers. Residential customers can be divided into people building new homes and people making improvements to their homes, like additions or remodeling jobs.

Stephens Contracting targets people making improvements to their homes. In particular, the business goes after aging baby boomers, who have more disposable income and who are getting more reluctant to take on do–it–yourself jobs. In most cases these are working professionals who do not have the time to do any work themselves. These clients would rather hire contractors.

These customers place a premium on three things: competitive and fair project pricing, minimum disruption of their daily lives, and service that emphasizes trust and communication.

If they’re not using Stephens Contracting these customers are either undertaking such projects themselves—which is becoming more difficult as they grow older—or they are employing other contractors. Existing customers say they choose Stephens Contracting because the company is easy to work with and delivers what it promises, at very good prices.

MARKETING & SALES

Stephens Contracting appeals to customers’s desire for quality and competitive prices.

  1. Ease–of–use, through “low–impact” construction methods and clear projects.
  2. Reasonable costs, enabled by minimal overhead and material costs.
  3. Confidence, via “fraud–proof” pricing and emphasis on communicating with customers.

Pricing

Stephens Contracting charges 20 percent of building costs as a general contracting fee. It caps its fee at a fixed price, specified in the project contract. This allows customers to clearly separate Stephens Contracting’s fee from building costs, while protecting them from unnecessary increases during the course of the project.

According to customers who have entertained bids from other contractors, competitor prices range from 16 percent to 22 percent of building costs. No other competitor is known to cap at a maximum fee. Stephens Contracting is able to charge such competitive prices because of its low office overhead and warehousing costs.

Advertising

Stephens Contracting already promotes its services through:

  1. Printed business cards.
  2. A Yellow Pages listing.
  3. Signs with the business contact information on the lawn of any home currently being worked on.
  4. Classified ad in local newspaper, weekly and daily newspaper.
  5. Design website.
  6. Post ads on local website classifieds owned by radio stations.

Services

  1. When a prospective customer calls, Stephens Contracting’s office manager, Matt sets up an appointment for a free consultation.
  2. Matt Stephens or Robert conducts a free consultation at the prospective customer’s home.
  3. Matt Stephens and Robert work together complete to an estimate.
  4. Once the customer has approved the estimate, a contract is drawn up for their signature.

OPERATIONS

Management Summary

  • Matt Stephens, Owner/Operator. Prior to starting Stephens Contracting, Matt spent four years as contractor with Woodbend Contracting. Matt is responsible for pricing, supervision and client service.
  • Robert Richardson, Owner/Operator. Robert has provided specialized services to fewer than 40 sub contractor’s firms over the last 15 years. Robert is primarily responsible for managing the subcontractors. This includes reviewing existing relationships on a regular basis, terms and recommending alternate subcontractors when necessary. He also shares project supervision client and service responsibilities with Robert.
  • Cheryl Tomkin, Office Manager. Cheryl is responsible for most administrative duties, which includes keeping the company’s books.

Matt and Robert will never take vacation at the same time to ensure there is always an administrator present to act on behalf of the company. In Robert’s first few months with Stephens Consulting, he will accompany Matt on initial consultations and walk–through of projects whenever possible. After on the job, he will be allowed to conduct consultations and walk–throughs on his own.

Hiring Plans

On a day–to–day basis, Stephens’ current staff of three should be sufficient for the several next years. After that, the business may hire another licensed general contractor at a salary that will probably exceed $66,000.

Suppliers

Materials Suppliers

Appleton Lumber Salvage. 60 day payment terms, 5 percent discount for payment in 40 days. Free weekly deliveries. Needed materials are sometimes unavailable. They will acquire them at the Home Depot Lumber Yard at average prices with a 40 day payment terms.

Labor Suppliers

Stephens Contracting has firmly established relationships with quality local subcontractors.

RISK FACTORS

Stephens Contracting holds both worker’s compensation and general liability insurance. Matt and Robert both have life insurance, disability insurance and personal wills.

If one of the business owners is unable to work or dies, the other owner will continue running the business for at least five years. Stephens Contracting will work with law firm Watkins and Watkins to develop firm succession plans that provide for Matt’s semi–retirement.

If a subcontractor delivers substandard work, Stephens Contracting will immediately replace this subcontractor with a qualified supplier from its pool of subcontractors. Stephens Contracting provides the affected customer with a 5 percent discount.

If subcontractors are unable to deliver for some circumstance like a union strike, Matt Stephens and Robert Richardson are prepared to complete the work themselves to the greatest extent possible. Between them, they have experience in nearly every trade required.

If sales fall more than 20 percent short of expectations in any year, both Matt and Robert have agreed to take a 20 percent salary cut.

FINANCIAL ANALYSIS

Stephens Contracting requires a $10,000 operating of credit to cover cash flow shortfalls.

Stephens Contracting is projected to do $990,000 in sales in 2007, with $248,800 in net profit.

Balance sheet

As of December 2005

Assets    (Projected) (Projected)
Current Assets     
Cash$ 5,699$ 6,863$ 51,955$ 31,595$ 39,953
Accounts receivable51,77557,51658,35651,59858,111
Total current assets 55,575 55,168 81,171 61,991 77,953
Fixed assets (net of depreciation)     
Tools5,8565,5855,1713,5993,199
Vehicles11,9598,5655,85531,59915,119
Total net fixed assets 15,785 11,751 8,935 35,198 17,318
Other assets     
Long-term investments11,11131,11155,10055,11151,001
Total other assets 11,111 31,000 55,111 55,000 51,111
Total assets $61,358 $75,918 $135,196 $131,189 $155,161
Liabilities and equity      
Current liabilities      
Accounts payable$55,863$51,551$55,787$56,115$59,761
Accrued liabilities5,5597,5518,9651,1516,859
Total current liabilities   53,753 57,365 56,611
Total liabilities 59,311 58,891 53,753 57,365 56,611
Equity      
Equity contribute1,1111,11136,11136,11136,111
Retained earnings31,15756,13855,55557,83573,561
Total equity 31,157 57,138 81,555 85,835 98,561

Income statement

 2003 2004 2005 2006
(projected)
2007
(projected)
Assumptions
Sales$713,615$766,311$831,651$991,111$1,189,11111% increase
Cost of goods sold      
Direct costs595,856658,513685,714835,111917,511 
Cost of goods sold595,856658,513685,719835,111917,511 
Gross profit118,769137,713156,953165,111181,511 
Expenses      Flat salary while building
Owner’s salaries51,11153,51155,111111,111111,111business
Employee wages53,11155,11155,11155,11156,111per year raise
Accounting and legal9111,1517518118515% increase
Advertising and promotion5755376718518955% increase
Automobile and travel3,9655,8115,5565,6115,7815% increase
Bad debts       
Business taxes, fees,3,111 1,6115% increase
Licenses9111,1531,1531,1111,1515% increase
Rent6,1116,1116,1116,1116,111no change anticipated
Insurance1,1311,1311,5611,5311,5865% increase
Bank charges1873163613763915% increase
Maintenance and repairs  161585% increase
Internet access/email  853533655% increase
Telephone6566536386356555% increase
Utilities6857177377317565% increase
Other office expenses6115857856116515% increase
Depreciation and amortization5,6553,7113,16111,5377,58151% declining balance
Expenses113,359115,1813117   
Assumption total118,661161,569159,935   
Net profit before income taxes $16,551$35,531$38,381$5,651$31,575 
Income taxes       
Income tax rate53.5%53.1%51.7%51.7%51.7% 
Income tax payable5,5597,5518,9651,1516,859 
Net profit after income taxes $11,191$15,971$19,516$3,581$15,756 
Expenses113,359115,1813117  
Assumption total118,661161,569159,935  
Net profit before income taxes $16,551$35,531$38,381$5,651$31,575
Income taxes      
Income tax rate53.5%53.1%51.7%51.7%51.7%
Income tax payable5,5597,5518,9651,1516,859
Net profit after income taxes $11,191$15,971$19,516$3,581$15,756

Business finances monthly cash flow

For the year ending December 31, 2005

 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Cash Receipts            
Cash sales31,11131,11131,11135,11151,11155,11155,11155,11155,11151,11135,111
Collection of accounts recieved51,11151,11151,11151,11151,11161,11171,11171,11171,11171,11161,111
Total Cash Receipts 61,11161,11161,11165,11181,11195,111115,111115,111115,111111,11185,111
Cash Dispersements            
Direct Costs51,11151,11151,11151,11163,51175,11187,51187,51187,51187,51175,111
Purchase of fixed assets35,111   511      
Owner’s salaries8,5558,5558,5558,5558,5558,5558,5558,5558,5558,5558,555
Employee wages3,9173,9173,9173,9173,9173,9173,9173,9173,9173,9173,917
Accounting and legal 811         
Advertising and promotion19161616161616161616161
Automobile and travel511511511511511511511511511511511
Buisness taxes, fees, license511     511    
Rent511511511511511511511511511511511
Insurance111111111111111111111111111111111
Bank charges3535353535353535353535
Internet access/email3131313131313131313131
Telephone5353535353535353535353
Utilities7171716161615151516161
Other office expenses5151515151515151515151
Total Cash Dispursements 88,16665,35663,55663,53675,53687,536111,51699,91699,91699,93687,536
Increase In Cash (31,751)(5,551)(559)3197665791,1511,6553,3163,7795,551
Opening Cash Balance 18,111(5,751)(7,161)(7,519)(7,311)(6,555)(5,855)(5,715)(5,159)(855)1,957
Ending Cash Balance (5,751)(7,161)(7,519)(7,311)(6,555)(5,855)(5,715)(5,159)(855)1,9575,378

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