COMM 447.3 – Entrepreneurship and Small Business Management

Ecolibrium Homes Business Plan

Prepared by:

Shawn Davison

03 December 2010

Professor Marvin Painter

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Table of ContentsList of Figures...............................................................................................................................................5

1) The Business........................................................................................................................................6

1.1) Vision and Mission.......................................................................................................................6

1.2) Goals and Objectives...................................................................................................................6

1.2.1) Factory.................................................................................................................................6

1.2.2) Website.....................................................................................................................................6

1.2.3) Production Team.......................................................................................................................7

1.2.4) Sales...........................................................................................................................................7

1.3) Industry and Target Markets.......................................................................................................7

1) The Product.........................................................................................................................................8

2.1) Modular Construction......................................................................................................................8

2.2) Competitive Advantages...................................................................................................................8

2.3) Ecofriendly Technologies..................................................................................................................8

2.4) Strategic Pricing Structure................................................................................................................9

Demographics...........................................................................................................................10

2.5) Growth Opportunities....................................................................................................................11

2.5.1) Expand Market Radius.............................................................................................................11

2.5.2) Take Over Sub Trades..............................................................................................................11

2.5.3) Expand Product Line................................................................................................................11

2) Marketing Plan..................................................................................................................................13

3.1) Market Stability..............................................................................................................................13

3.2) Branding.........................................................................................................................................13

3.2.1) Positioning Statement.............................................................................................................13

3.3) Competition....................................................................................................................................13

3.3.1) North Ridge Developments.....................................................................................................13

3.3.2) Sherwood Modular Homes......................................................................................................14

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Note:........................................................................................................................................................14

3.3.3) Vereco Homes.........................................................................................................................14

3.3.4) Living Homes...........................................................................................................................14

3.4) Promotional Plan and Analysis.......................................................................................................15

3.4.1) Advertisements.......................................................................................................................15

3.4.2) Open Houses...........................................................................................................................15

3.4.3) Custom Magazine....................................................................................................................15

3.4.4) Charity Selection......................................................................................................................16

Friends of the Earth (FoE) Canada.....................................................................................................16

3.4.5) Website...................................................................................................................................17

3.5) Market Research and Analysis........................................................................................................18

3.5.1) Survey......................................................................................................................................18

3.5.2) Strategic Tracking Analysis......................................................................................................18

3.6) Marketing Expenses.......................................................................................................................18

4) Operations Plan.....................................................................................................................................19

4.1) Production Scheduling....................................................................................................................20

4.1.1) Production Tasks.....................................................................................................................20

4.2) Factory............................................................................................................................................23

4.2.1) Land.........................................................................................................................................23

4.2.2) Bridge Cranes...........................................................................................................................23

4.3) Building Information Modelling (BIM)............................................................................................24

4.4) Capital Budget................................................................................................................................24

4.5) Operating Expenses........................................................................................................................25

5) Human Resources..................................................................................................................................26

5.1) Corporate Overview.......................................................................................................................26

5.2) Organizational Chart.......................................................................................................................26

5.3) Positions, Roles, Responsibilities and Experience...........................................................................27

5.3.1) Start-up Team..........................................................................................................................27

5.3.2) Operation Positions.................................................................................................................27

5.4) Compensation................................................................................................................................29

5.4.1) Benefits....................................................................................................................................29

5.4.2) Employee Share Ownership Plan (ESOP).................................................................................29

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5.5) Ownership Structure......................................................................................................................30

5.6) Advisory and Support.....................................................................................................................30

6) Legal......................................................................................................................................................30

7) Financial Plan.........................................................................................................................................31

7.1) Financial Highlights.........................................................................................................................31

7.1.1) Revenues.................................................................................................................................31

7.1.2) Capital Investment...................................................................................................................31

7.1.3) Operating Expenses.................................................................................................................31

7.2) Cash Management..........................................................................................................................32

7.3) Investment and Risk Analysis.........................................................................................................32

7.3.1) Scenario and Break Even Analysis............................................................................................33

8) Risks and Contingencies........................................................................................................................34

8.1) Critical Variables.............................................................................................................................34

8.2) Labour Shortages............................................................................................................................34

8.3) Subcontractors...............................................................................................................................34

8.4) Sales Growth..................................................................................................................................34

8.5) Legal Liability..................................................................................................................................35

References.................................................................................................................................................36

Appendix A: CMHC Statistics and Forecasts..............................................................................................37

Appendix B: Financial Statements.............................................................................................................38

Worst Case Scenario (Break Even).........................................................................................................38

Base Case Scenario with ESOP...............................................................................................................40

Appendix C: Bridge Crane Information......................................................................................................43

Appendix D: Industry Canada Statistics.....................................................................................................45

Canadian Construction Averages...........................................................................................................45

Institutional links...........................................................................................................................45

SME Benchmarking Construction (NAICS 23).............................................................45

Revenues.....................................................................................................................................45

Expenses......................................................................................................................................45

Net Profit/Loss..........................................................................................................................47

Important Notes on SME Benchmarking Data........................................................48

Saskatchewan Construction Averages...................................................................................................49

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Appendix E: Employee Share Ownership Plan...........................................................................................51

How to set up an Employee-Sponsored LSVCC fund......................................................53

List of FiguresFigure 1: Estimated Technical Energy Savings Potential and Simple Payback Periods.................................9Figure 2: The Greens on Gardiner Site Map..............................................................................................10Figure 3: Structural Insulated Panel...........................................................................................................12Figure 4: Prefabricated Foundation...........................................................................................................12Figure 5: Factory Layout............................................................................................................................20Figure 6: Logix Insulated Concrete Form...................................................................................................21Figure 7: Potential Manufacturing Site......................................................................................................23Figure 8: Oranizational Chart.....................................................................................................................26Figure 9: Scenario Analysis........................................................................................................................33Figure 10A: Regina CMA Housing Starts Stats and Forecasts....................................................................37Figure 11A: CMHC Forecast Summary.......................................................................................................37

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1) The BusinessEcolibrium Homes is a residential construction company specializing in modular houses. Modular buildings are assembled from prefabricated sections or modules, which are manufactured in a factory and delivered to their destination and placed on their foundation, usually by a crane. Ecolibrium Homes will deal directly with the purchasers of the homes or customers. We will be responsible for the complete construction and delivery of the house, digging and forming the basement and foundation (if requested by the customer), pouring sidewalks, building decks, landscaping and any other exterior finishing requested by the customer. We will not be responsible for developing the land, including grading, drainage, bringing in utilities roads and public sidewalks. The developed land will be purchased from a partner company which specializes in this portion of the construction. We intend to start promoting and selling homes on a large, currently active development called The Greens on Gardiner in Regina Saskatchewan.

1.1) Vision and MissionThe vision I have for this company is to be a successful, high quality, versatile homebuilding presence in the Saskatchewan market. Ecolibrium Homes will provide completely customizable, modern housing designs with a variety of ecofriendly options. We will strive to produce the highest quality homes possible through strict quality control protocols, superior products and materials and a qualified team of skilled builders. We will remain in the forefront of innovation in the market by continually offering our customers new contemporary home designs and the latest in ecofriendly technologies. Our website will contain a home building tool allowing our potential clients to custom build their ideal home with many different alternatives for every aspect of the interior and exterior design, insulation, appliances and systems. We hope to successfully penetrate the home building market in Regina with a high number of homes sold, and establish a long lasting, positive reputation by delivering on our guarantees to our customers.

1.2) Goals and Objectives

1.2.1) FactoryThe first objective for this company is to build or find a manufacturing facility suitable for modular construction. This factory will have a large manufacturing floor as well as some office and warehouse space. A proposed layout for the factory, Figure 5, can be found in the Operations section of the plan. An initial search of commercial/industrial properties for sale in and around Regina has indicated that there is very little chance of finding a suitable property for sale. I am proceeding with this business plan under the assumption that a factory will have to be built, however I will continue to look for a suitable facility for sale.

1.2.2) WebsiteThe company website will be an essential tool in marketing and sales. It will need to be fully operational and open to the public long before production begins. The customization tool incorporated into the website will be one of the important competitive advantages of this company and must be functioning properly and effectively by the time the website is made public. The website will also contain a tool which will be able to produce renderings of the house being customized at every stage. For example a

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person could change the type of exterior siding and then be able to generate a preview of how the house will look by using this tool. The website will also provide important information about many of the custom options, especially the ecofriendly options. Such things as pros and cons of the product, energy savings, grants, extra cost and payback period will provided to name a few. I think this information presented in a simple, easy to understand way will encourage the potential customers to make environmentally conscious choices and should also help increase our sales.

1.2.3) Production TeamI believe a company is only as good as its employees. In order to reach sales goals, produce quality products and reach a high level of productivity a qualified and motivated production team will be needed. The manufacturing facility will be located within 20 minutes of Regina which will provide a large enough population (250,000 including surrounding communities) to obtain many excellent employees. Acquiring skilled trades people can be difficult in a location where there is plenty of construction work but by offering year round, indoor work and paying high wages with benefits will give us a competitive advantage which should allow us to obtain a strong production team. Also, I plan to offer employee share options as soon as possible, hopefully in the second year of production, which will give us another advantage over the competition.

1.2.4) SalesIn order for this business to be successful a high sales volume is required. Looking at the break even analysis found in Appendix B, it can be seen that at least 22 homes must be built and sold in the first year plus one extra each following year. Based on CMHC forecast found in Appendix A, this will only account for less than 2% of the houses being built in 2011, which seems like a fairly reasonable portion of the market. Also, CMHC predicts new home starts to grow by 3.5% in 2011, so we will only be filling a portion of the increased demand in housing in Regina. Even with my base case analysis also found in Appendix B, starting with 25 units sold in first year with an increase of 15 units per year still only represents a portion of the increase in annual new home sales. Reaching or exceeding these projected sales numbers is vital to the success of this business and is the most important goal to achieve.

1.3) Industry and Target MarketsThe residential construction industry in Saskatchewan is very strong right now due to the strength of our economy in light of a global recession. The growing job market is bringing many new people to Saskatchewan looking for work. Based on CMHC (Canada Mortgage and Housing Corporation) statistics and forecasts which can be found in Appendix A, both new house starts and prices are on the rise.

The market being targeted for this business is new home buyers. We plan to build a wide variety of homes ranging from small, low income multifamily units up to large, extravagant single detached homes. These homes will range in price from around $230,000 and up and therefore our target population are people with household incomes of around $50,000 and up who can afford to purchase a new home.

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1) The Product

2.1) Modular ConstructionModern construction techniques are evolving at a rapid pace. Modular construction as part of the prefabricated portion of the residential construction sector is becoming a more popular alternative to ordinary site built construction due to its many competitive advantages. Prefabricated housing began gaining popularity in the early 1900s with Sears Roebuck Co. selling over 500,000 prefabricated homes between 1910 and 1930 (http://www.modulartoday.com/modular-history.html). Prefabricated construction has also grown more popular and complex with introduction of new technologies. For instance the size and height of modular buildings is no longer limited by transportation or crane capacities.

2.2) Competitive AdvantagesThe reason I chose to plan a modular construction business rather than ordinary construction such as on-site building is due to the many competitive advantages of prefabrication. The following is a list of some of the advantages of residential modular construction and a few specific to Ecolibrium Homes:

- Better product cost control

- Quicker manufacturing times, reduces potential financing costs, rapid capital turnover

- Quality control is better and more predictable, even at large volumes

- Productivity is better and more predictable

- Can be built cheaper and therefore more competitive or higher profit margins

- Year-round productive construction

- No delays due to weather

- Customization through website

- Guaranteed pricing and completion times with accurate scheduling and estimating

- Ecofriendly options and designs

- Contemporary models available

2.3) Ecofriendly TechnologiesI plan to offer a wide array of energy saving technologies and design options to potential customers in the hopes that if they are provided with all the important information about the technologies that they will choose to have it incorporated into their home. I am currently completing a class in Thermo Systems Design, which is essentially a class on HVAC (Heating Ventilation and Air Conditioning) systems. One portion of this class was to investigate different energy saving technologies. The following graph is a plot of the different technologies energy savings and payback period as researched by the class.

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Figure 1: Estimated Technical Energy Savings Potential and Simple Payback Periods

As you can see from the graph some of these technologies have very low payback periods, indicating that the potential energy and money savings is huge. Also, some of these technologies have other advantages, for example radiant ceiling cooling/chilled beam systems can cool a room or home almost instantly without the use of forced air. They typically use 100% outdoor displacement air so when the system is activated a slow moving air flow will pass through the cooling coils in the ceiling and drop down into the room while pushing out the warm air. This type of system not only cools a room faster and better than a typical system but also offers better humidity control and indoor air quality. The HVAC system in the Law Building at the University of Saskatchewan incorporates this technology as well as radiant floor heating in winter and operates at about 40% of the energy of a typical HVAC system.

2.4) Strategic Pricing StructureThe homes we build will be priced around the same as our competitors but with significant added value through some of our competitive advantages; specifically, through the ecofriendly options and customization available through the website, the contemporary models available and the quick possession times. We will also promote the high quality of our homes and have excellent customer service. I think this pricing strategy will ensure high sales numbers and customer satisfaction.

For the financial analysis I chose to use an average house price based on CMHC Canadian projections. They forecasted the average new home will sell for about $350,800 in 2011 with a 3.5% increase over 2010. To put this into perspective and relate it to Saskatchewan’s market, I found CMHC statistics and projections for Regina which forecasts the average new single detached home will sell for $440,000 in 2011. Based on the site plan for the subdivision we will be starting on, The Greens on Gardiner seen in Figure 2 below, we will be building single detached homes to start (Stage 2). Since my financial

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Taken From: ME491 Thermo Systems Design, Lecture Notes Power Point Presentation 1: “Introduction” (http://www.tiax.biz/aboutus/pdfs/HVAC3-FinalReport.pdf)

projections are based on average numbers (including multifamily units) my revenue estimates should be somewhat conservative at least for my first year.

From the site demographics reported on the development website: www.greensongardiner.com/concept_plan.html there will be 1360 single detached units (low density) built and 700 multifamily units (medium density). This indicated that about 66% of the homes Ecolibrium will be focused on will be single detached. These numbers match fairly closely with CMHC forecasts for Regina found in Appendix A, which predict that about 61% of new starts will be single detached. This helps confirm the accuracy of the CMHC predictions I used in my financial estimates.

Figure 2: The Greens on Gardiner Site Map

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DemographicsNumber of dwelling units:Single 1360Multi 700

2.5) Growth Opportunities

2.5.1) Expand Market RadiusOne more advantage of modular construction is the ability to transport the sections almost anywhere. Obviously there is a limit to the cost effectiveness of transporting long distances; however it is common for modular companies to sell homes in neighboring provinces and states. I will need to do further research into the cost of transportation and come up with a market radius to which it will be worth advertising and selling homes. Of course we would not refuse to build someone a house if they were willing to cover the extra cost of transportation. To start Ecolibrium Homes will be focused in the Regina market only; however if we aren’t able to reach our sales numbers or are looking to grow we could expand our focus to other large centers. Opening another manufacturing facility is another potential way to expand the market radius.

2.5.2) Take Over Sub TradesIn the financial analysis a company expansion is planned for year 3 (2013). I plan to purchase equipment for excavating basements, transporting and placing the modules and hiring operators for this equipment. This will only take place if our sales numbers are high enough to justify such a purchase to make it profitable for the company. That sales number will have to be high enough to keep the equipment in operation, and will have to be further researched. This is a logical expansion of the company but since this will be a new operation I hope to master building houses before taking over other areas of construction. This expansion has the potential to significantly increase the profit margins of Ecolibrium Homes as contract operators and rented heavy equipment are very expensive.

2.5.3) Expand Product LineAnother common practice in business is expansion of the product line. Other modular products which could be used along with the houses or marketed separately are structural insulated panels (SIPs) and prefabricated foundations. The prefabricated foundations may in fact be a better solution than the Insulated Concrete Forms (ICFs) which I was planning to use for our foundations but will require an economic feasibility analysis to decide.

Structural Insulated Panels (SIPs)SIPs are essentially prefabricated walls made of thick structural foam sandwiched between two sheets OSB (Oriented Strand Board) as seen in Figure 3 below. The panels are fastened together by different methods, but the most common is by using a hook and latch system built into the core of the panels. SIPs usually have channels cut into them in factory for electrical and plumbing as well as holes cut for electrical plugs, etc. Some of the advantages of SIPs are that they are light weight, can provide good insulation, can be assembled easily by unskilled labor and are quick to assemble.

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Figure 3: Structural Insulated Panel

Prefabricated FoundationsTypically if a basement is to be finished, walls are framed up against the concrete and insulation and dry walling as well. Prefabricated foundations consist of all a concrete or fiber reinforced cement board outer shell, insulation and framing all as one piece as seen in Figure 4 below. They are much quicker and easier than on site forming and are ideal if you wish to finish the basement.

Figure 4: Prefabricated Foundation

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2) Marketing PlanA thorough and strategic marketing plan for Ecolibrium Homes is essential if target sales are to be reached. This plan will encompass continued market research, promotional strategies and analysis, company branding and effective customer service and follow up.

3.1) Market StabilityThe housing market is volatile at the best of times. There are so many variables which can have an effect on housing prices and numbers sold. Some of these variables include mortgage rates, job market, rental rates, vacancy rates, lumber prices, GDP (Gross Domestic Product) and generally the strength of the economy. Currently the housing market is strong in Saskatchewan, however no one can predict how long this will last. For this reason, it is vital that Ecolibrium Homes becomes as competitive as possible as, through efficient production methods, strategic marketing and building an excellent reputation to obtain a large portion of the housing market as quickly as possible.

3.2) BrandingThe image I have for Ecolibrium Homes is very modern and environmentally conscious company. To achieve this image we will need to design our advertisements, website and events to portray this to our potential customers. We will not promote ourselves as a modular builder to try and avoid the stigma which used to be associated with this type of construction, specifically of mobile and trailer park homes. We will not hide the fact that we prefabricate the houses but will not promote ourselves as a modular builder.

3.2.1) Positioning Statement “Custom contemporary designs, utilizing technology and modern building practises to achieve sustainable housing solutions.”

3.3) Competition

3.3.1) North Ridge DevelopmentsThere are a large number of residential construction companies operating in Regina some of which are quite large and experienced such as North Ridge Developments. This company has been in operation for around 25 years and is currently building in Saskatoon, Regina and Prince Albert. They are also involved in commercial projects and may be one of our largest competitors. North Ridge is an Energy Star and R-2000 Certified builder which means they build homes to technical specifications involving energy efficiency, indoor air quality, and environmental responsibility; approximately 30% more energy efficient than conventionally built homes. However this fact does not seem to be a major marketing point for North Ridge based on their website and will be a key factor for Ecolibrium. I think we will be able to significantly differentiate ourselves form other builders such as North Ridge by focusing on our competitive advantages.

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3.3.2) Sherwood Modular HomesThere is one modular builder in the Regina area called Sherwood Modular Homes. This builder appears to be more focused towards trailer park type models and in my opinion is not a competitive threat in any way. When I clicked on the ‘New Homes For Sale’ link on their website this is the first thing you see:

Note:

Some of the pictures, especially of the new homes that just have arrived, were taken quickly to give you an idea of the layout.  Some of these homes have not yet been cleaned, or moving damage been repaired.  This in no way would represent the condition of a home someone would take possession of.

Based on this company’s webpage I think their target market is quite different than ours and the image I got of them is of cheap, lower quality products. In general our competition will be the higher end builders.

3.3.3) Vereco HomesThis company is focused on building net zero energy homes which means the home produces as much energy as it consumes. They are currently only located in Saskatoon and currently have only built 1 home; a display for the Western Development Museum. However from their website, it appears, once operational they will offer 4 models; 3 houses and a cottage. This company is focused to more of an extreme towards the ecofriendly concepts. Ecolibrium will offer many ecofriendly options including power generation systems and therefore will eventually offer net zero energy homes, but this will definitely not be the focus of the company. I think unless Vereco changes their marketing strategy and starts building a larger variety of homes, they will not be a significant competitor.

3.3.4) Living HomesThis company is a modular builder based out of California, but has recently expanded operations into Canada. They also focus their company image on green homes and offer some customization options. They are in partnership with two Canadian companies; Conquest based out of Winnipeg, which is one of the most experienced modular builders in Canada and Nexterra Green Homes which is a developer in Toronto. So far, based on the information I have found Living Homes has only produced one major project in Canada, a net zero energy development in Toronto; however they state on their website that they can build almost anywhere in Canada. I think this company could potentially be a serious threat in the future and will be monitored closely, especially with the growing attention Saskatchewan is receiving in North American media.

I recently heard that there will be a shortage of housing in Saskatchewan for the next few years and the CMHC predictions seem to indicate fairly strong growth as well. If these forecasts are true I don’t think competition will be a major barrier to entry for Ecolibrium Homes, there should be plenty of demand to support both current builders and us as new entries to the market place. With the demand increasing,

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may likely bring the attention of larger builders to Saskatchewan, so Ecolibrium will need to establish itself as a competitive presence in the housing market place as quickly as possible.

3.4) Promotional Plan and AnalysisIn order to be successful and obtain the house sales predicted, a strategic promotional plan is necessary. I have started to develop this plan which will utilize many different promotional mediums in order to get the Ecolibrium name out there and bring people to our website and open houses. A promotional blitz will be necessary in the beginning to get our name out there, as well as continued media exposure, to remind people about the company. Since residential construction doesn’t have many repeat customers, a promotional blitz may be necessary more often, at least every spring (the beginning of the busy season).

3.4.1) Advertisements The majority of people looking to buy new Homes in Regina will be local; however there are also a significant number of people immigrating to Regina for work amongst other reasons. The advertising mediums chosen have been selected to target both local and non local buyers. I have chosen to advertise in a variety of locations including, local newspapers, magazines and radio as well as their associated websites. The websites have some interesting tools such as limiting the number of times a person will be allowed to see your ad by tracking the IP addresses accessing the website. This is an important tool since usually you have to pay by the view. These websites will be the source of non local advertising which can also be limited to IP addresses from certain areas if needed.

3.4.2) Open HousesAn open house is an excellent way to introduce a new model of home, showcase some of the ecofriendly options and get the company name out there. We plan to have as many as possible, anytime we build a house before it’s been sold provides a promotional opportunity. Open houses will be advertised through our website as well as all local sources. At least once a year I hope to promote a large show home as an event, promote it through some more interesting mediums such as “live on location” radio broadcasts. Another promotional method I thought would work well is a newspaper “advertorial” which is essentially a promotional advertisement made to look like an article, it would likely contain some content on one of our more innovative ecofriendly technologies contained in the show home. I plan to promote these as charity events and collect donations to support worthy causes. I will have free food offered at these events (possibly catered) for a minimal donation. I hope to have a few people from my staff present giving tours and talking about the technologies and design. I plan to create a promotional magazine to hand out at the open houses which will highlight the show home, some of the technologies and promote the company.

3.4.3) Custom MagazineI will base the format of this magazine on other home and design magazines such as “Saskatoon Home magazine”. It will be full colour, high gloss, thin paper and probably around 20 pages to start. I have located a company in Regina called Western Litho which specializes in this type of thing and will do the graphic design, provide any extra photos we need from an online database and even some content if needed for around$2000 plus $30/page for 1000 copies (approx. $2600). $2.60 per customer is a fairly

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expensive promotional tool but it will hopefully be very effective and I would also like to promote our suppliers and possibly have them pitch in for the advertising space to help pay for the magazine.

I plan to fill the magazine with articles showcasing the show home design, the ecofriendly technologies, the Ecolibrium website, the charities we support and maybe some interior design and other filler. The idea is to have the magazine contain enough interesting content and be appealing enough that the potential customer reads though the whole thing which will hopefully get them onto our website playing around without custom home design tool.

3.4.4) Charity SelectionI heard a speech given by Brett Wilson at the Engineering Excellence Gala about 3 years ago where he was talking about his latest venture. One of his ideas I thought to be particularly interesting was using charity rather than typical advertising to promote your company. He said his company did not have any marketing budget but rather has a massive charity budget and donates millions annually. Brett said they utilize the media attention and ask for recognition from the charities they donate to. I really like this idea and would like to work towards eventually having the same policy for Ecolibrium.

In the beginning we will start by hosting the open house events as charitable fundraisers; offering free food for example with a minimum donation to the charity. I think the charities we choose to work with will also help create the company image and should be chosen carefully. I would like to work with both local and global charities. The global charities I would like to be environmental organizations and I will choose the local charities which are most likely to bring the most media attention. Of course I will have to do my due diligence to make sure the large majority of donations made will actually be going to the end cause and not to the administration, which has been brought to my attention in the media recently. Below are a couple environmental charities I found to be interesting and may work with in the future.

Global Giving GreenSupport the grassroots response to climate change: GlobalGiving is an online marketplace that connects you to the causes and countries you care about. You select the projects you want to support, make a tax-deductible contribution, and get regular progress updates – so you can see your impact. GlobalGiving Green projects are making positive change in their local communities and important contributions to this global challenge.

Some of the projects on the Global Giving Green website are things like feeding and educating African children, supporting silk farmers and helping to restore the Makira Forest in Madagascar or funding tree planting and encouraging watershed conservation in the Philippines. From my fundraising experience the more specific the cause the more likely people are to give.

Friends of the Earth (FoE) Canada

Protecting the Earth for Tomorrow   Friends of the Earth (FoE) Canada is a charitable, non-profit environmental organization. Our mission is to serve as a national voice for the environment, working with others to inspire the renewal of our communities and the Earth, through research, education and advocacy. It is the Canadian voice for FoE International, the world's largest grassroots environmental network, uniting

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70 national member groups.

http://www.foecanada.org/

3.4.5) Website The website for Ecolibrium Homes will be a continuous project, ever growing and expanding as new models and features are added. I recently had a consultation with Stealth Web Design regarding my ideas for this company and its website. They informed me about several marketing tools and concepts I found to be very interesting.

Search Engine OptimizationPersonally when I am looking for any kind of information about anything the first place I go is directly to the internet and do a Google search and the majority of the time I find what I’m looking for with in the first couple links I check. Search Engine Optimization refers to the method which Stealth uses to get their clients websites to the top of the search results. They essentially look at the way Google and other major search engines operate and utilize that information to design websites which meet the required criteria to be at the top of that list. Some of the key things that major search engines are looking for are content and structure of the website, the amount of activity it sees and the quality of the links to other sites. A few other strategies can be used to have your website be one of the top picks when certain words or phrases are searched. Your website address or URL is important; for example I will not likely have Ecolibrium in my web address, but rather put key words in it such as home builder, modular or ecofriendly which will help people find my website by description rather than by name. Having these descriptive words in the content, as links on web pages and even embedded into the structure of the website on the coding level will help bring Ecolibrium’s website to the top of the list when certain words are searched.

TwitterSocial media is a growing marketing resource and I plan to utilize Twitter as a customer feedback and service tool. “Twitter is a social networking and microblogging service that enables its users to send and read messages known as tweets. Tweets are text-based posts of up to 140 characters displayed on the author's profile page and delivered to the author's subscribers who are known as followers.” (Wikipedia) We will create a profile page for Ecolibrium Homes and put a link on our website directing people there if they have any questions, comments or concerns about the company. I was also informed by the people at Stealth that there are many tools available online for manipulating the information in tweets, such as an application that tracks every time a word is mentioned in a tweet and allows you to instantly respond to it. This tool could be useful to track what people are saying about Ecolibrium and respond to their tweets if appropriate.

Banner BlindnessWhen I do web searches I always skip past the sponsored links at the top of the list and pick the first non-sponsored link; this is referred to as banner blindness. The way it was explained to me by the people at Stealth was that people have been scammed enough times by sponsored links, banners and advertisements that they now subconsciously avoid them. They told me about another web tool which tracks mouse pointer movements on website and that it can be used to pin point the most valuable

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internet advertising sites. Specifically Facebook was mentioned as a quality advertising prospect as it is cheaper than Google Adwords and receives more user views as confirmed by the moue tracking tool.

3.5) Market Research and Analysis

3.5.1) SurveyOne method to gain customer feedback is to survey clients after they take possession of their homes. Also I think it would be valuable to survey the people who come to the open houses. Particularly useful information to find out would be how they heard about the company or the open house, demographics and any feedback they can provide about our their experience with our company. In order to get people to actually fill out the surveys at the open houses we could hold a draw for a prize or something like that. I think this feedback would be extremely valuable to improve our show home experience, our products and to find out which of our advertising sources is actually working.

3.5.2) Strategic Tracking AnalysisIn order to ensure that advertising dollars are being spent as efficiently as possible it is important to track which strategies and media are effective. In the book Builder’s Guide to Modular Construction by Jonathan Hutchings, he recommends setting up a tracking chart in a spreadsheet to track the number of prospects or potential customers that each media source brought in. He says to use the spreadsheet to calculate the percentage of the total prospects that each advertising source brought in and the amount of money spent on each one per month. Then use the number of sales attributed to each source to calculate the percent of sales each source brought in. Finally plug in the total dollar amount of sales brought in by each advertising activity and how much was spent on each ad campaign to calculate the ratio of sales to prospects for each advertising activity. Over time a clear picture of which advertising methods are bringing in prospects and the type of prospects (ie. the ones that buy) will be very useful in utilizing marketing dollars to their full potential. In the book Jonathan mentions that on the US west coast, in the mid 90’s that builders were spending around $300 for every prospect that walks into the sales office.

3.6) Marketing ExpensesI have estimated a marketing budget of $60,000 annually to cover advertising expenses as summarized in the table below.

Type of Promotion Details Cost Per

WeekDuratio

n (weeks)

Total Cost

Newspaper (Leader Post)

Full page, full colour Advertorial in "Homes"

section $5,135.55 1 $5,135.55

Newspaper (Leader Post)

4''x4'' colour advertisement in business/news/homes $1,830.86 4 $7,323.44

Online (LeaderPost.com)

Top Layer Animation on "Homes" page $1,200 4 $4,800.00

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Online (LeaderPost.com)

Big Box Advertisement on right hand side $525 16 $8,400.00

Newspaper (Sunday Sun)

Full Page, full colour advertisement $1,740.86 2 $3,481.72

Newspaper (Sunday Sun) 3''x3'' colour advertisement $302.97 16 $4,847.52

Compass Magazine Full page, gloss colour, back outside cover $1,201.00 2 $2,402.00

Compass Magazine 1/4 page, full colour advertisement $150.00 26 $3,900.00

Regina Realestate Review

Large Colour Listing (also posted online) $170.00 4 $680.00

Rawlco Radio (Z99, News Talk, Jack

FM)

Live on Location broadcast (4hrs, 20 commercials, 12 live

60 sec. Cut-ins)$5,877.90 1 $5,877.90

Open HouseFull weekend showing (free

food with charitable donation)

$2,000 2 $4,000.00

Custom Magazine

Show home and other model info, supplier’s ads, articles

on charaties and ecofriendly tech.

$2600/1000 copies N/A $2,600.00

Free Classifieds Kijiji.com,UsedRegina.com,etc Free Continuous $0.00

Business Cards For management and administrative staff

8x250x$25.29 N/A $202.32

Search Engine Optimization

Make website top result when key words are used in

search engines

Included in Webpage

CostContinuous $0.00

Total Cost: $53,650.45Table 1: Marketing Budget

Further research into which sources of advertising would be most effective is necessary before any is purchased. This is only a preliminary budget and advertising source list and will likely change.

4) Operations PlanEcolibrium Homes will sell residential properties directly to customers. We will specialize in the construction of modular houses but will also pour the footings, form the basements, connect the plumbing and electrical, pour sidewalks and driveways, install sprinkler systems and landscaping. The portions of the residential development we will subcontract are the land development, digging of the basements and transportation and placing of the modular sections; although we will still oversee all subcontracted activities.

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4.1) Production Scheduling In order to maximize efficiency in the manufacturing facility a thorough scheduling program will be necessary. There are also many other benefits to accurate scheduling including, precise customer delivery times, inventories and cost control and organization of subcontractors and all other aspects of the company operations. I took a class a couple years ago Comm 205 Introduction to Production Management which covered concepts of decision-making techniques used in the design, planning, execution, control, and improvement of operations in manufacturing and service companies. This class covered many topics which could be utilized in the business to make it more competitive and profitable such as process design, facility layout, quality management and inventory management.

The manufacturing operations will be run like an assembly line with 5 stations as seen in Figure 5 below. Each station will contain all the required tools, equipment and materials required for the tasks being done there to maximize efficiency.

Figure 5: Factory Layout

4.1.1) Production TasksSince modular homes are transported they have to be built more robust than typical on-site construction. Often sections are built structurally sound individually where as if build on-site this would not be necessary. Also screws are typically used almost everywhere instead of nails and joints are glued.

Land DevelopmentThe developed land will be purchased from Yagar Developments at about $2750 per foot wide of lot. They will take care of installing storm drains, grading, bringing utilities to the lots as well as public sidewalks and roads. This work will be done in advance and should not be a concern for scheduling unless we have another rainy season like last summer.

SurveyingThe lots will need to be surveyed and marked for borders as well as for the location of the basements. We plan to employ a Civil Engineer Technician with surveying experience and purchase the appropriate equipment for this task. This task will only a few minutes for an experienced surveyor.

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Digging BasementsThe basements are usually dug by a large track hoe and the dirt hauled away in dump trucks. This work will be subcontracted out until such a time that it becomes economically viable to do it ourselves. This task can typically be completed in a few hours.

FoundationsRegina happens to be located on an ancient lake bed; this means the soil is soft and unstable and will shift quite a bit so piles will be required to be poured around 20 feet down into the bed rock. Then footings will be poured and attached to the piles. Next the concrete basement walls will be formed using Insulated Concrete Forms (ICFs) as seen in Figure 6 below. ICFs go together like Lego, very quickly and simply and do not require skilled labour to assemble, they also provide good insulation. This task has to be done in stages due to the time it takes for the concrete to cure. It will take at least 3 days to finish but only require a few hours of each day, so several foundations can be completed simultaneously.

Figure 6: Logix Insulated Concrete Form

Exterior Electrical and PlumbingBefore the basement is backfilled, the electrical and plumbing is “roughed in” to the basement. Also weeping tiles is placed around foundation and connected to a sump pump installed beneath the basement floor which removes any flood water. The electrical will take 2 people about 10 hours to complete (New West Electric). The plumbing will take 2 people about 12 hours to complete (M&R Plumbing).

Station 1: Framing, Windows and DoorsFirst the floor is framed and subfloor laid down, followed by the walls then the ceiling or roof. OSB (Oriented Strand Board) is screwed to the exterior. This task will take 3 people about 3 or 4 days to complete. The exterior windows and doors can easily be installed in 1 day by an experienced team of 2. The interior doors are included with interior finishing.

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Station 2: Interior Plumbing and ElectricalThe interior plumbing and electrical can be done simultaneously and includes running wires and copper piping, and installing the breaker box, furnace, water heater and air conditioning (or ecofriendly options such as an energy exchanger). These tasks will take 4 people (2 plumb/2 elec) about 1 week to complete.

Station 3: Insulation and DrywallRight now I plan to start with a typical insulating material, fibreglass batts but may switch to or offer alternatives later on. The batts are placed between the framing and a thin sheet of poly is used as a vapour barrier. Next drywall sheets are screwed to the interior walls and ceilings. Finally the joints are mudded and taped and let to dry. Some fast drying products are available and fans and heaters can be used to speed up this process. Mud is applied several times and sanded smooth. There will be room for at least 2 modules at each station so the drywallers can work on multiple sections at one time. The insulation, poly and drywall installation can be completed in about 1 day by an experienced team of 2. The mudding is usually done in 3 stages and will take a few hours a day for at least 3 days for 2 people.

Station 4: Painting, Exterior Finishing and CabinetsPainting is usually done in 3 coats; 1 primer and 2 finishing coats. Usually the primer is sprayed on both the walls and the ceiling. Then the corners, around holes and where baseboard, casing and cabinets will be are ‘cut in’ to prepare for the future installation of these items. It is good practise to leave the final coats of paint until last in order to prevent having to do touch-ups and rework due to nicks and scratched. Once everything else is completed the first finishing coat is rolled on, let to dry and then the final coat is applied (fans and heaters can speed up this process). Some paints provide good enough coverage to allow for one finishing coat. The ceiling is usually finished with either paint or some type of texture, a popular style is a knocked down spackle. The ceiling finish can be applied either just after the cut in stage or just before the final paint and requires the walls to be taped and poly’d off. All the painting and texturing tasks can be completed in 1 week with 2 people but will require some special scheduling consideration. The exterior finishing will depend on which style the customer chooses but a popular option is vinyl siding which comes in many colours and textures and is quick to install, around 2 days for 2 people. Some of the exterior finishing including decks will be left to be finished on site, especially where the sections join together. Cabinets will also be installed at this station; they will be purchased from a local supplier and should take less than 1 day for 2 people to install.

Station 5: Flooring and Interior FinishingThere are many types of flooring that can vary in time and skill level to install. For more typical flooring such as carpet, linoleum and laminate the install process is pretty quick and simple, and can be done usually in a day with 2 people. Carpet needs a nail strip and underlay and is required to be stretched and the placement of any seams takes some thought. The interior finishing involves almost everyone and will also require some extra scheduling consideration. Some of these tasks include; installing interior doors and bifolds, railings, base and case boards, light fixtures and electrical covers, installing permanent appliances like dishwashers and ranges, door stops, mirrors, etc. This task should take 2 people less than a week but will also require electricians and plumbers for some tasks. One more small station will likely be incorporated into the floor plan for building garages.

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Sprinklers, Landscaping, Sidewalks and DrivewaysI plan to hire summer students to do the landscaping, sprinkler installation and to help pour the sidewalks and driveways. I will still however need to have at least 2 people on staff to supervise these crews, which will have knowledge of sprinkler layout planning and concrete work. The landscaping and sprinklers will be options based on what the customer wants and may include an underground sprinkler system, sod, trees, shrubs, flower beds, retaining walls and paving stones. The number of people needed and time it will take will have to be determined on a case by case basis but I would guess 2 crews of 3 people would be sufficient for the first year.

4.2) FactoryIdeally a factory will be purchased in or near Regina which will suit our applications, but an initial search has not turned up any descent prospects. Therefore, I will assume a factory will have to be built to manufacture these houses. My initial estimates for dimensions are 150x350x35 feet, based on the maximum dimensions of the modules. As can be seen in Figure 6, I plan to have office space and a large warehouse in the factory as well. I have contacted Allied Steel Buildings for a quote on the structure itself but am still waiting to hear back from them.

4.2.1) LandI found 19 acres of suitable land 19 kms north east of Regina in the RM of Edenwold, with excellent roads, 5 miles off pavement coming from Pilot Butte. It is currently zoned R1 residential so I will have to get approval to change the zoning designation. They are asking $139,000 and a picture of the land can be seen below in Figure 7.

Figure 7: Potential Manufacturing Site

4.2.2) Bridge CranesThe modules will be moved from station to station by 2-50 ton bridge cranes. In order to size these cranes first I needed to figure out how large of modules we could build and transport. First I checked the Saskatchewan Vehicle Weight and Dimension Regulations which state that if transporting a building over the width of 6.0 meters (19.7 feet) a $72 permit is required, but did not state any maximum width.

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In a meeting with a project manager for the development company we will be working with he indicated that the maximum width for transportation is 26 feet and that the maximum lot width for the Greens on Gardiner Project is 60 feet. So I estimated the largest module size to be 26x50 feet. To find a maximum weight for these section I checked out several web forums and confirmed that the rule of thumb for house weight is about 60 lb/ft2 for the main floor and 40 lb/ft2 for the 2nd/3rd floors. So for a maximum 1300 ft2 main floor module I am looking at a weight of about 78000 lbs or 39 tons. I want each crane to be capable of lifting a module alone and rounded up to 50 tons to be safe. I have received a quote of over $500,000 for the purchase and installation of the bridge cranes from North American Industries Inc which can be seen in Appendix C along with a working drawing of the cranes in the factory.

4.3) Building Information Modelling (BIM)Building Information Modelling is a type of integrated digital drafting software which creates physical and functional 3D models prior to construction. Innovative projects can be designed, visualized, analyzed and changed from the earliest stages with real-world appearance, performance and cost. The model encompasses all stages of the design process; civil, structural, architectural, mechanical and electrical. The data built into the model can be retrieved, organized and documented at any phase and if any changes are made all documentation is updated. The software also includes material and building specifications as well as scheduling and analysis programs. For example it can check for interferences in the model such some ducting running through a beam which can then be fixed at the design stage rather than at the construction stage which will save money. The software can also calculate lighting, heating, cooling and ventilation loads, duct and pipe sizes and pressures and perform a dynamic thermal analysis. These tools will be very useful when considering the different ecofriendly options for a house. The BIM software I am considering is Revit by Autodesk and costs around $7000 plus subscription, training and consultations.

4.4) Capital BudgetThe majority of the capital budget comes from the cost to build the factory and initial inventory. The total capital cost can be seen below at 4 million dollars.

Schedule 5: Capital Budget 2011 2012 2013 2014 2015 Initial Inventory 323,000

Land 140,000

Buildings 3,000,000

Land Development 250,000

Trade Tools and Equipment 50,000

5,000

10,000

5,000

5,000

Moving/Excavating Equipment 40,000

500,000

Plumb/Elec Utility Trucks 55,000

Company Vehicles

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20,000 25,000 30,000

Forklift 10,000

Website 50,000

Computers 12,000

12,000

Warehouse Shelving 7,500

Furniture and Office Equipment 15,000

Software 20,000

Misc. 5,000

Fridges, etc (break rooms) 2,500

Total 4,000,000

30,000

552,000

5,000

5,000

4.5) Operating ExpensesThe largest contributor to the operating expenses is employee wages at $1.3 million in the first year based on my employee estimates. Some of the numbers such Professional and Business Fees, Insurance, Repairs and Maintenance and Other Variable Costs came from 2006 Industry Canada Statistics, which can be found in Appendix D. Some of the expenses included in Professional and Business Fees are legal, accounting and consulting fees. Repairs and Maintenance will include both the cost to maintain our property and equipment but also any warranty work on houses sold. Other variable costs will include such things as employee training, rental fees, safety equipment and anything else I may have overlooked. Although Other Variable Costs came from Canadian Industry statistics I hope to eventually reduce the percentage by accounting for as many expenses as possible individually or at least in more specific categories.

Schedule 4: Operating Expenses 2011 2012 2013 2014 2015

Professional and Business Fees 2.4% 210,480 432,208 615,086 810,236 1,018,293

Property Taxes 2,500

2,550

2,601

2,653

2,706

Insurance 1.0% 87,700

180,087

256,286

337,598

424,289

Utilities 20,000

20,400

20,808

21,224

21,649

Wages 1,300,000

1,685,000

2,330,000

2,965,455

3,600,909

Employee Benefits 20.14%

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261,820 339,359 469,262 597,243 725,223

Advertising and Promotion 60,000

60,000

60,000

60,000

60,000

Repair and Maintenance 1.4% 122,780

252,121

358,800

472,638

594,004

Other Variable Costs 10% 877,000 1,800,867 2,562,859 3,375,984 4,242,888

Capital Cost Allowance 126,500

121,250

117,316

113,416

109,074

Debt Interest 70,000

64,934

59,512

53,712

47,505

Total operating Expenses 3,138,780

4,958,776

6,852,530

8,810,158

10,846,541

5) Human Resources

5.1) Corporate OverviewA strong management structure with clear roles and responsibilities and everyone working together in a team environment is the goal I have for Ecolibrium Homes. To achieve this I plan to be as open and honest with every employee and partner as possible about expectations and the direction of the company.

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5.2) Organizational Chart

Figure 8: Organizational Chart

5.3) Positions, Roles, Responsibilities and Experience

5.3.1) Start-up TeamTo start any venture of this scale a qualified, motivated team will be needed to turn this idea into a successful business. There will be 3 key people required to get this project started; a construction manager, a sales/marketing manager and a company Chief Executive Officer (project manager).

Construction Manager: The ideal person for this position will have substantial experience in the residential construction industry. He will be an integral player in the construction of the 52500 ft2 manufacturing facility, in building a strong manufacturing team and in overseeing construction operations once it begins (Construction Supervisor/Foreman). If this person turns out to be qualified for the position he will take on the role of Chief Operating Officer/Plant Manager once manufacturing starts.

Sales/Marketing Manager: The ideal person for this position will have substantial experience in residential marketing and sales and will likely be a real estate agent. He/she will be responsible for developing and implementing our marketing strategy, help establish the company brand and all aspects of the house sales. This will include locating and procuring the most effective advertising possible. Working with Stealth Web Design to build a very user friendly and attractive company website, coordinate successful show home events and develop a promotional magazine to be distributed to potential customers.

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CEO (Project Manager): This is my position; I will be responsible for planning, scheduling and overseeing every aspect of the creation of this company. Initially I will act as the project manager along with the construction manager to construct the factory, obtain suppliers and put together the manufacturing team. I will also be responsible for establishing an effective management team and operations plan for the business. Once the factory is in operational I will take on the role of Chief Executive Officer and if necessary will also act as the Chief Operating Officer until this position can be filled by an appropriate candidate. As such I will strive to align the company, internally and externally with my company vision, I will be responsible for all business outside of the company while guiding employees and other executive officers towards the company’s central objectives.

To find this team I plan to utilize both my own personal social network as well as that of my partners. It has been indicated to me that the development company I will be partnered with already has people in mind for the Construction Manager and Marketing Manager Positions. I also have some people in mind for these positions and will make sure to choose this team very carefully as it will be integral to the success of this company.

5.3.2) Operation Positions

COO/Project ManagerThe person chosen for this position will be responsible for the daily operations of the company. He will be required to keep the company organized and on schedule and give direction to all other management positions. The successful candidate for this position will have substantial experience in construction, management, leadership and show strong aptitudes towards organization, team work and interpersonal interactions.

Quality Control SupervisorThe person chosen for this position will be responsible for drafting, surveying and document and quality control. He/she will work closely with production team and specifically the Construction Foreman and Journeyman Trades people to ensure the work being done is up to code, matches the blueprints and is as high quality as possible. As BIM is relatively new drafting software, this person will likely need to be trained to use it. The successful candidate for this position will likely be a Civil Engineer or Technologist and will have some experience with drafting and surveying.

Journeyman Trades PeopleEach trade involved with the construction process will have crew leader, with significant training and experience. Hopefully journeyman trades people can be acquired as the experience they can bring to the company will be invaluable to the production of quality homes. Each crew leader will be responsible for the quality and pace of their team’s efforts.

Skilled Labourers and ApprenticesEach construction team will be made up of apprentices and skilled labourers. Their experience, skill and motivation will dictate how well they do and how quickly they advance within the company. As construction slows in the winter months, this will provide the opportunity to send employees to upgrade

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their skills through training. We will have a company training program in place for apprentices as well as management personnel.

Shipper/Receiver/MaintenanceA large volume of materials and supplies will need to be ordered and monitored and will require a qualified and motivated individual to develop and integrate a shipping/receiving and maintenance program. This program will likely involve the use of a software package or possibly just spreadsheets to begin and will include an inventory management system and lifecycle maintenance program. The person in this position will also be trained to use the BIM software as it can be utilized for inventory management as well. He/she need to have experience in shipping/receiving, strong computer skills and be mechanically inclined.

Finance/PayrollThis position will include the development and integration of a financial tracking, analysis and reporting system. This will include payroll, financial statements, taxes, etc. A financial/accounting consulting firm will also be utilized to help develop and implement this program and train the person in this position. A software package will also likely be required to organize and simplify the company accounting and payroll such as ‘AccPac’ or ‘Simply Accounting’. The ideal person for this position will have substantial experience and a degree in Accounting.

Secretary/Site ClerkThe person chosen for this position will be responsible for most of the company’s administrative demands. The qualified candidate will have some experience and training in administrative duties and systems. The role this person will take will likely be created as tasks present themselves.

5.4) Compensation

5.4.1) Benefits

Health, Dental, DisabilityI plan to offer a company benefits package in the first year in order to help gain and keep qualified employees. I have not worked out the details of the package yet but have allocated 5% of wages towards it. I plan to shop around and find the best plan for the money possible. The package will most likely contain basic health and dental coverage and I think disability is important in construction and can be incorporated into a sick day policy.

PensionI think some sort of company retirement savings is important to provide for employees once the company can afford it. There are many options including the Saskatchewan Pension Plan, RRSPs (Registered Retirement Savings Plans), and typical mutual fund based registered pension plans offered by many financial institutions. I would like to eventually offer a company matched plan based on contributions from employees to a maximum of a certain percentage of their salaries. I think a generous pension plan will help retain employees and increase productivity.

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BonusesBonuses will be paid out based on a percentage of the company pre-tax profits (estimate 5% of profits, if acceptable to investors). The amount people will receive will be based on their wage or salary. Bonuses will be paid out just before the annual employee share offering so that employees will not be burdened to come up with the cash to purchase shares.

5.4.2) Employee Share Ownership Plan (ESOP)An Employee Share Ownership Plan is a process which allows employees to purchase shares in their employer’s company. Saskatchewan’s Employee Investment Program (EIP) provides an incentive in the form of a tax credit, to employees participating in an ESOP. The tax incentives area 20% provincial tax credit and 15% federal tax credit on the first $5000 contribution annually. The shares may also be registered as a RRSP or placed in a tax free savings account for further savings. Certain rules and guidelines must be met for a company to be eligible which Ecolibrium Homes appears to satisfy. A summary of these guidelines can be found in Appendix E. Below is a summary of the purpose of the ESOP and some of its benefits taken from the ESOP Builder Inc. website: http://www.esopbuilders.com/media.html

Purpose

Compensation benefit to attract and retain staff.

Productivity improvement.

Source of capital for company.

Capital gain incentive for employees.

Succession plan for family-run companies.

According to a 1986* Toronto Stock Exchange comparison of ESOP and Non-ESOP public companies:

Five year profit growth was 123% higher.

Net Profit Margin was 95% higher.

Productivity was 24% higher.

The stock market favoured ESOP public companies with a 2% to 10% premium.

Return on Average Total Equity was 92.26% higher.

Return on Capital was 65.52% higher.

Debt/Equity Ratio was 31.54% lower.

* This is the most definitive study done to date in Canada. More recent US-figures show comparable results.

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5.5) Ownership StructureI do not have a strong enough knowledge of corporate ownership structure to go into details about how Ecolibrium Homes will be owned. I do know that there are many different ways to divide the ownership of a company so I will discuss generally how I hope to see the structure work. I will sell a certain percentage of the company based on its value to investors as some type of common share and maintain the rest of the shares between myself and start-up team. Once the ESOP is implemented, I hope to have the shares change hands without having to create more. This will be accomplished by offering to buy the shares from the current owners and sell them to the employees at a value which will be decided by the company performance at the time.

5.6) Advisory and SupportA board of directors will be most helpful in the building and operation of Ecolibrium Homes. This board will consist of the major owners/investors in the company and other knowledgeable mentors utilized in the development of the company. I do not have specific people in mind yet, however there will definitely be someone from the land development company on this board.

6) LegalSome of the major legal considerations involved with this business will be to register the company name an incorporate, the details of the shares and company articles will have to be created including company procedures, standards and bylaws. Also there will be several contracts to be negotiated including subcontracts, purchasing and selling land and homes, and dealings with banks. There will also be some tax issues that will have to be dealt with; for example whether the developed land will ever be sold to us or directly to the customer from the development company.

7) Financial Plan

7.1) Financial HighlightsPortions of the Base Case Financial Statements can be found Appendix B.

7.1.1) RevenuesI estimated the number of units sold in the first year to be 25 and increasing by 15 each year for the 5 year projection as Ecolibrium develops a reputation and takes a larger portion of the housing market. This predicted number for first year sales is 3 more than the breakeven number of sales required and just over 2% of the total new homes built in Regina in 2011 as forecasted by CMHC (Appendix A). An average unit price was used to estimate sale price based on CMHC forecasts for Canada. A 3.5% annual increase in sale price was used based on the CMHC reported increase in new home price seen in 2010. The total revenues grow from about $8.7 million in first year to over $42 million in the 5 th year.

7.1.2) Capital InvestmentA total capital investment of about $4 million will be required to get Ecolibrium Homes into production. About $3.4 million of that is for the building of a factory. The rest of the investment will be going

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towards tools, equipment, vehicles and the website. The estimate for the factory came from a similar project I heard about; the construction of a 90’x150’x18’ farm shop. This was a large steel building anchored to piles with a 90’x50’ concrete pad. It is heated and has electrical and plumbing installed. They developed the land themselves but subcontracted most the rest of the construction. They paid under $400,000 for this shop or about $30/ft2. The factory I intend to build will have a complete concrete pad, almost twice as tall walls, higher electrical requirements and will need to be structurally stronger due to wind load and the bridge cranes. So I increased the estimate by 50% to $45/ft2 which brings the 350’x150’x35’ (52500 ft2) cost to about $2,362,500; adding in the cost of the bridge crane brings the cost to about $2.9 million. I rounded up to $3 million and had added the cost of land separately into the capital budget based on actual land found near Regina.

Another capital investment is planned for the 3rd year to purchase some heavy equipment for a planned expansion. Trucks and trailers for moving the modules, a large crane for placing them and a large track hoe and dump truck for digging basements will be purchased. The total capital reinvestment for this equipment is about $500,000 based on used equipment I found online and will come from retained earnings.

7.1.3) Operating ExpensesThe total operating expenses vary from about $3.1 million in the first year to almost $11 in the 5 th year. The major contributor to these expenses is employee wages. Employee wages were based on the estimates I got from trades people for both salaries and number of people required and is summarized below in Table 2 for year 1. Only one journeyman trade person is required for each discipline and will be hired in the first year so the increase in wages in the following years is somewhat marginal compared to the increased number of units produced because the extra wages are for apprentices and labourers. Other positions added in later years is an architect to start developing our own designs rather than subcontract or purchase designs and equipment operators for the planned expansion in the 3 rd year.

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Position Total

CEO 1 80,000 80,000COO 1 80,000 80,000Marketing Manager 1 80,000 80,000Construction Foreman 1 70,000 70,000QC Tech/Supervisor 1 55,000 55,000Journeyman Trades 4 65,000 260,000Aprentice Trades 4 40,000 160,000Shipper/Receiver 1 60,000 60,000Financial/Payroll 1 55,000 55,000Secretary 1 40,000 40,000Skilled Labourers 3 40,000 120,000Labourers 6 30,000 180,000Summer Students 4 12,000 48,000

1,288,000

Number Needed

Annual Salary

Table 2: Employee Wages Year 1

Starting in the second year when the ESOP is implemented I estimated an employee productivity increase of 24% based on a Toronto Stock Exchange comparison of ESOP and Non-ESOP public companies summarized in section 5.4.2. I applied the 24% as an increase to the amount of units built without adjusting the employee wage estimates. After the 3rd year I accounted for the increase in wages to be directly proportional to the increase in units sold.

7.2) Cash ManagementI kept $1 million in retained earnings in the company and paid the rest of the profits out as dividends, except in the 3rd year, I kept an extra $500,000 to reinvest for the planned expansion. This provides enough cash flow to compensate for the large amount of inventory required which I estimated at 2 months or 1/6th of the annual COGS. Depending on how many homes are being sold in advance and how many are being built before being sold, the amount of retained earnings may need to be increased to keep the company’s cash flow in the positive.

7.3) Investment and Risk AnalysisFor a venture of this scale and nature I can expect to receive a maximum of about $1 million in bank debt according to an acquaintance who works as an account manager at the BDC (Business Development Bank of Canada). Which means I will need approximately $3 million in equity investment which I hope to attain from the land development company’s investors.

7.3.1) Scenario and Break Even AnalysisI chose to look at 4 different scenarios; I chose the worst case to be the break even scenario, the base case with and without the increased productivity from the ESOP and the best case assuming I grossly underestimated my employee productivity. The following Figure 9 shows a plot of the 4 scenarios net profit margins over the 5 years compared to the Saskatchewan industry standard profit margins. Also

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included is the External Rate of Return (ERR) and Net Present Value (NPV) of the company based on a required Return On Investment (ROI) of 20%.

Figure 9: Scenario Analysis

The line in black represents the Saskatchewan Industry Standard net profit margins in 2006 for small and medium sized construction businesses at 10.44% (Appendix D). As can be seen in Figure 9, the base case with ESOP exceeds this average which is expected for modular construction. The Best case scenario is if the employee productivity is increased by 100% over the base case without the ESOP and shows profit margins that exceed 14%. This case is not unreasonable since the Saskatchewan Industry Standards average net profit margin for profitable companies in 2006 was 13.7%. As can be seen by the ERR and NVP estimates, this business has the potential to be quite profitable if the critical variables are controlled.

8) Risks and Contingencies

8.1) Critical VariablesThe most critical variables I see for this business is the sales numbers and employee productivity. Achieving the sales numbers is crucial to the survival of the company and in order to achieve them a strategic and well executed marketing campaign is necessary. I think the marketing plan outlined in this business plan is a good start but will need to be continually refined year after year. The employee productivity is easier to control than sales but will still need strategic planning and if profit margins are to be attained. I think the HR plan outlined in this business plan is a good start but will also need to be

34

modified and updated once production beings and we can see if certain ideas are actually working. The employee benefits and management structure should ensure good employee productivity as long as good employees can be obtained.

8.2) Labour ShortagesA labour shortage could harm Ecolibrium Homes by delaying delivery times and therefore customer satisfaction and our reputation. Also this could affect our profit margins due to the having to pay overtime wages. This risk could be minimized by keeping employees happy and establishing loyalty. Also employee share ownership is sometimes referred to as the “golden handcuffs” because if the company is quite profitable, the shares may be achieving high returns and often makes the employee more money than their salary. Of course if someone was to leave the company they would be forced to sell their shares, so often people don’t want to leave. As far as finding new employees in the case of extreme growth or expansion, I think by offering competitive wages and benefits and maintaining a good reputation will minimize any difficulty.

8.3) SubcontractorsIn my experience, some subcontractors can be unreliable and untrustworthy. This can cause serious delays in production and can be detrimental to company reputation. To minimize this risk every effort will have to be made to find reputable companies and contractors to work with. Also, I have found by maintaining good relations with the contractors and keeping them informed by giving them as much notice as possible when things change can drastically affect their willingness to help and compromise when problems arise.

8.4) Sales GrowthIf sales suddenly increase drastically beyond the current manufacturing capacity, this could cause lengthy delays and could cost the company customers and possibly destroy our reputation. The manufacturing facility capacity is very large but depends on the number of people working in it. This is probably one of the most dangerous threats albeit the challenge I would like to see for this company.

With residential construction there is always a slow period in winter. I hope to avoid laying people off, so one strategy is to have regular overtime scheduled in summer months and maintain just enough employees to keep up with demand. Then in the winter months go back to a minimum 40 hour week to minimise or eliminate the need for layoffs. Another possibility is to try and find another product to manufacture in the facility that is in demand in the winter. This would balance the demand and allow for a maximum amount of employees to be retained at all times. Another way to maintain employee numbers and prepare for the busy summer season is to build some houses in advance, store them if possible or put them on lots and try to sell them. This method requires a huge amount of available cash flow and is risky because it relies on next seasons demand being high.

8.5) Legal LiabilityThere are several areas to be aware of potential liabilities or legal threats such as employee issues as outlined in the labour standards act, workers compensation and customer satisfaction and warranty

35

issues. To minimize these risks all one can do is go about their business in as morally correct manner as possible, always deliver on promises and communicate with everyone openly.

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References

Hutchings, J.F., Builder’s Guide to Modular Construction, McGraw-Hill, USA, 1996

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Appendix A: CMHC Statistics and Forecasts

Figure 10A: Regina CMA Housing Starts Stats and Forecasts

Figure 11A: CMHC Forecast Summary

38

Source: Housing Market Outlook, Regina CMA, Canada Mortgage and Housing Corporation, Spring 2010

Appendix B: Financial Statements

Worst Case Scenario (Break Even)Income StatementFor the year ended 2011 2012 2013 2014 2015

Sales 7,717,600

8,350,794

9,018,858

9,723,456

10,466,328

COGS 4,630,560

5,010,476

5,411,315

5,834,073

6,279,797

Gross Profit 3,087,040

3,340,318

3,607,543

3,889,382

4,186,531

Margin 40% 40% 40% 40% 40%

Schedule 4: Operating Expenses 2011 2012 2013 2014 2015

Professional and Business Fees 2.4% 185,222.4

200,419.1

216,452.6

233,362.9

251,191.9

Property Taxes 2,500

2,550

2,601

2,653

2,706

Insurance 1.0% 77,176

83,508

90,189

97,235

104,663

Utilities 20,000

20,400

20,808

21,224

21,649

Wages 1,300,000

1,326,000

1,352,520

1,379,570

1,407,162

Employee Benefits 20.14

% 261,820

267,056

272,398

277,845

283,402

Subcontracted Labour

Advertising and Promotion 60,000

60,000

60,000

60,000

60,000

Repair and Maintenance 1.4% 108,046

116,911

126,264

136,128

146,529

Other Variable Costs 10% 771,760

835,079

901,886

972,346

1,046,633

Capital Cost Allowance 126,500

121,250

116,816

112,516

108,354

Debt Interest 70,000

64,934

59,512

53,712

47,505

Total operating Expenses 2,983,025

3,098,107

3,219,446

3,346,593

3,479,795

Schedule 5: Capital Budget 2011 2012 2013 2014 2015

Land 140,000

Buildings 3,000,000

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Land Development 250,000

Trade Tools and Equipment 50,000

5,000

5,000

5,000

5,000

Moving/Excavating Equipment 40,000

Plumb/Elec Utility Trucks 55,000

Company Vehicles 20,000

Forklift 10,000

Website 50,000

Computers 12,000

Warehouse Shelving 7,500

Furniture and Office Equipment 15,000

Software 20,000

Misc. 5,000

Fridges, etc (break rooms) 2,500

Total 3,677,000

5,000

5,000

5,000

5,000

Schedule 2: Revenues 2011 2012 2013 2014 2015

Number of Units Sold Annually 22 23 24 25 26 Average unit price 3.5% 350,800 363,078 375,786 388,938 402,551

Total Revenues 7,717,6

00 8,350,79

4 9,018,85

8 9,723,45

6 10,466,32

8

40

Schedule 10: Investment Analysis 2011 2012 2013 2014 2015Required ROI 20.0%

Net Cash Flow 54,122

487

2,145

3,391

(806)

Dividends 87,893

179,668

287,942

399,592

512,552

Terminal Value 2,558,734

Total Cash Flow to Equity Investors

142,015

180,154

290,087

402,983

3,070,481

Equity Investment 3,448,760

Payback Gross 4,085,720

Net 636,960

Net Present Value (1,609,135)

Total Cash Flow to Equity (3,448,760) 142,015

180,154

290,087

402,983

3,070,481

IRR 3.9%External Cash Flow 1 2 3 4 5

Dividends 87,893

179,668

287,942

399,592

512,552

Terminal Value 2,558,734

Total External cash flow (3,448,760) 87,893

179,668

287,942

399,592

3,071,287

ERR 3.5%

Base Case Scenario with ESOPIncome StatementFor the year ended 2011 2012 2013 2014 2015

Sales 8,770,000

18,008,669

25,628,587

33,759,838

42,428,883

COGS 5,262,000

10,805,201

15,377,152

20,255,903

25,457,330

Gross Profit 3,508,000

7,203,468

10,251,435

13,503,935

16,971,553

Margins 40% 40% 40% 40% 40%

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Schedule 2: Revenues 2011 2012 2013 2014 2015Number of Units Sold Annually ESOP Case 25 49.6 68.2 86.8 105.4Number of Units Sold Annually 25 40 55 70 85 Average unit price 3.5% 350,800 363,078 375,786 388,938 402,551

Total Revenues 8,770,0

00 18,008,66

9 25,628,58

7 33,759,83

8 42,428,8

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Schedule 4: Operating Expenses 2011 2012 2013 2014 2015Professional and Business Fees 2.4% 210,480 432,208 615,086 810,236 1,018,293

Property Taxes 2,500

2,550

2,601

2,653

2,706

Insurance 1.0% 87,700

180,087

256,286

337,598

424,289

Utilities 20,000

20,400

20,808

21,224

21,649

Wages 1,300,000

1,685,000

2,330,000

2,965,455

3,600,909

Employee Benefits 20.14% 261,820

339,359

469,262

597,243

725,223

Subcontracted Labour

Advertising and Promotion 60,000

60,000

60,000

60,000

60,000

Repair and Maintenance 1.4% 122,780

252,121

358,800

472,638

594,004

Other Variable Costs 10% 877,000

1,800,867

2,562,859

3,375,984

4,242,888

Capital Cost Allowance 126,500

121,250

117,316

113,416

109,074

Debt Interest 70,000

64,934

59,512

53,712

47,505

Total operating Expenses 3,138,780

4,958,776

6,852,530

8,810,158

10,846,541

Schedule 5: Capital Budget 2011 2012 2013 2014 2015

Buildings 3,000,000

Land Developement 250,000

Trade Tools and Equipment 50,000

5,000

10,000

5,000

5,000

Moving/Excavating

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Equipment 40,000 500,000

Plumb/Elec Utility Trucks 55,000

Company Vehicles 20,000

25,000

30,000

Forklift 10,000

Website 50,000

Computers

12,000

12,000

Warehouse Shelving 7,500

Furniture and Office Equipment 15,000

Software 20,000

Misc. 5,000

Fridges, etc (breakrooms) 2,500

Total 3,677,000

30,000

552,000

5,000

5,000

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Schedule 10: Investment Analysis 2011 2012 2013 2014 2015Required ROI 20.0%

Net Cash Flow 366,113

89,939

220,459

206,625

142,297

Dividends -

704,849

1,096,678

2,567,833

3,641,259

Terminal Value 18,917,782

Total Cash Flow to Equity Investors 366,113

794,788

1,317,137

2,774,458

22,701,339

Equity Investment 3,554,000

Payback Gross 27,953,836

Net 24,399,836

Net Present Value 8,526,413

Total Cash Flow to Equity (3,554,000) 366,113

794,788

1,317,137

2,774,458

22,701,339

IRR 58.9%

External Cash Flow 2011 2012 2013 2014 2015

Dividends -

704,849

1,096,678

2,567,833

3,641,259

Terminal Value 18,917,782

Total External cash flow (3,554,000) -

704,849

1,096,678

2,567,833

22,559,042

ERR 55.0%

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Appendix C: Bridge Crane Information

45

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Appendix D: Industry Canada Statistics

Canadian Construction AveragesTaken from: http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic23bece.html

Nov. 26, 2010

Industry Canada > Economic and Market Research/Statistics > Canadian Industry Statistics > Canadian Economy > Goods > NAICS — 23 - Construction > SME Benchmarking Institutional links

SME BenchmarkingConstruction (NAICS 23)Under this topic you will find information on average revenues, expenses and profits for small and medium-sized businesses in Canada's Construction (NAICS 23) sector. The data used for this topic were obtained through the SME Benchmarking Tool . You can use this information to see how your business measures up to the competition.

Revenues

Total revenues include revenues from the sale of goods and services, interest, dividends, commissions, rent and other sources of revenues. They exclude capital gains or losses, extraordinary gains or losses and equity in net income of related parties.

The average total annual revenues for small and medium-sized businesses in the Construction sector were $466.7 thousand in 2006.

For profitable firms, average revenues were $479.1 thousand and for non-profitable firms, average revenues were $423.1 thousand.

Profitable vs. Non-profitable businesses: 2006 Construction (NAICS 23)

Industry Average Profitable Non-profitable TotalSource: Statistics Canada, special tabulation, unpublished data, Small Business Profiles.Percent of businesses 77.9% 22.1% 100.0%Total Revenues ($ thousands) 479.1 423.1 466.7Total Expenses ($ thousands) 418.0 469.7 429.4Net Profit/Loss ($ thousands) 61.1 -46.5 37.3

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Expenses47

Average total expenses for small and medium-sized businesses in the Construction sector were $429.4 thousand in 2006. For profitable firms, average total expenses were $418.0 thousand and for non-profitable firms, average total expenses were $469.7 thousand.

Expenses can be divided into two main types: cost of sales (or direct expenses) and operating expenses (or indirect expenses).

Breakdown of Total Expenses: 2006Percentage of Total RevenuesConstruction (NAICS 23)

Source: Statistics Canada, special tabulation, unpublished data, Small Business Profiles.

Cost of sales refers to costs related to the principal activity of the business. Examples of these direct expenses include the materials used to manufacture a product or deliver a service and the labour costs associated with the production of the product or delivery of a service.

The average value of cost of sales items for the Construction sector are outlined in the table below. The cost of sales itself is calculated by adding wages and benefits, purchases, materials and sub-contracts, and opening inventory and then subtracting closing inventory.

Cost of Sales: 2006 Construction (NAICS 23)

Expense Item Value in $ thousands % of Total RevenuesSource: Statistics Canada, special tabulation, unpublished data, Small Business Profiles.Wages and benefits 56.5 12.1

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Cost of Sales: 2006 Construction (NAICS 23)

Expense Item Value in $ thousands % of Total RevenuesPurchases, materials and sub-contracts 221.1 47.4Opening inventory 41.0 8.8Closing inventory 51.4 11.0 Cost of sales (direct expenses) 267.2 57.2

Operating expenses refer to all expenses not directly related to the principal activity of the business. Examples of these indirect expenses include labour charges for support staff, rent expenses, and charges for advertising and promotion activities.

The average value of operating expense items for the Construction sector are outlined in the table below.

Operating Expenses: 2006 Construction (NAICS 23)

Expense Item Value in $ thousands % of Total RevenuesSource: Statistics Canada, special tabulation, unpublished data, Small Business Profiles.Labour and commissions 60.6 13.0Amortization and depletion 12.1 2.6Repairs and maintenance 6.5 1.4Utilities and telephone/telecommunication 6.4 1.4Rent 6.7 1.4Interest and bank charges 6.1 1.3Professional and business fees 10.8 2.3Advertising and promotion 2.4 0.5Delivery, shipping and warehouse expenses 0.4 0.1Insurance 4.8 1.0Other expenses 45.5 9.7 Operating Expenses (indirect expenses) 162.2 34.8

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Net Profit/Loss

Net profit/loss is the profit or loss resulting from normal business operations, recorded before income taxes, extraordinary items and other income not related to normal operations. For unincorporated firms, the owners' or partners' salaries and withdrawals are included.

The percentage of small and medium-sized businesses that were profitable in the Construction sector in 2006 was 77.9%, with 22.1% of firms failing to turn a profit.

Percentage of Profitable Firms: 2006Construction (NAICS 23)

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Source: Statistics Canada, special tabulation, unpublished data, Small Business Profiles.

The average annual net profit/loss for small and medium-sized businesses in the Construction sector was $37.3 thousand in 2006, which represented 8.0% of total revenues for small and medium-sized businesses in the sector.

For profitable firms, the average annual net profit was $61.1 thousand and for non-profitable firms, average net loss was $-46.5 thousand.

The gross margin for the Construction sector was 42.8% in 2006.

Gross margin is calculated as (total revenue - cost of sales) / (total revenue) * 100. This percentage provides a relative measure of profitability or profit margin.

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Important Notes on SME Benchmarking Data

The data in this section come from Statistics Canada’s Small Business Profiles which are produced using a sample of tax returns filed by incorporated and unincorporated businesses with the Canada Revenue Agency. The data appearing in this section are based on tax data from 2006. The data were obtained through Industry Canada's SME Benchmarking Tool .

In this section, small and medium-sized businesses are defined as those having annual revenues between $30,000 and $5,000,000.

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The SME Benchmarking Tool provides more in-depth data for small and medium-sized businesses than what is offered here. Included among its features are options to:

view statistics by province, view statistics by business type (incorporated, unincorporated or

all businesses), segment the industry based upon revenue levels (which allows

you to compare the performance of your business to averages for firms of a comparable revenue level),

view balance sheet data, and view up to 12 financial ratios.

Saskatchewan Construction AveragesTaken From: http://www.ic.gc.ca/app/sbp/prfpls/prfl/rprtStp/sv.do;jsessionid=0000Dt5TeGINzHUqzhqFitvL4ZS:1247mpv0c

Nov. 26/2010

Report Criteria: 2006 Saskatchewan All Businesses % of Total Revenue 23

STATISTICS CANADA2006  SMALL BUSINESS PROFILES - Saskatchewan NAICS Number:     23   -   Construction 

       

Average of all Businesses WholeIndustry

(Reliability)

LowerHalf

(50%)

UpperHalf

(50%)

BottomQuartile(25%)

LowerMiddle(25%)

UpperMiddle(25%)

TopQuartile(25%)

Percent ofBusinessesReporting

Number of Businesses 4665

Revenue Range:   Low Value ($ 000) 30 30 147 30 69 147 397    High Value ($ 000) 5000 147 5000 69 147 397 5000

  (percent of total revenue)    Total revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0    Cost of sales (direct expenses) 46.2 23.9 48.4 18.4 26.3 36.7 50.6 70.8       Wages and benefits 7.8 2.3 8.3 1.4 2.7 5.3 8.9 22.4       Purchases, materials and

sub-contracts 40.4 22.6 42.2 19.2 24.2 32.8 44.0 71.5       Opening Inventory 5.1 3.1 5.3 4.3 2.6 4.3 5.5 29.0       Closing inventory 7.1 4.2 7.4 6.4 3.1 5.7 7.8 31.5Operating expenses (indirect expenses) 43.4 50.2 42.7 49.2 50.6 49.3 41.4 99.6       Labour and commissions 17.5 12.6 18.0 8.0 14.6 18.4 17.9 66.9       Amortization and depletion 3.5 5.2 3.4 5.6 5.0 4.4 3.2 88.7       Repairs and maintenance 2.4 2.3 2.4 1.9 2.5 2.6 2.3 57.7       Utilities and

telephone/telecommunication 2.1 4.1 1.9 4.3 4.0 2.8 1.7 88.3

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eng

Add/Modify User Data New Profile

       Rent 1.6 1.6 1.6 1.8 1.6 1.6 1.6 47.6       Interest and bank charges 1.1 1.6 1.1 1.8 1.6 1.5 1.0 76.8       Professional and business

fees 1.6 2.0 1.6 2.3 1.8 1.8 1.5 86.5       Advertising and promotion 0.5 0.6 0.4 0.6 0.6 0.5 0.4 67.5       Delivery, shipping and

warehouse expenses 0.1 0.1 0.1 0.1 0.2 0.2 0.1 21.7       Insurance 1.0 1.3 1.0 1.3 1.3 1.3 0.9 73.6       Other expenses 11.9 18.7 11.2 21.4 17.4 14.2 10.6 98.6Total expenses 89.6 74.0 91.1 67.7 76.9 86.0 92.1 99.9Net profit/loss 10.4 26.0 8.9 32.3 23.1 14.0 7.9 99.6

FINANCIAL RATIOS     Interest coverage ratio 10.2 16.8 9.2 18.7 15.8 10.4 8.8Gross margin (%) 53.8 76.1 51.6 81.6 73.7 63.3 49.4

PROFITABLE vs NON-PROFITABLE BUSINESSES (thousands of dollars)   Profitable         Percent of businesses (%) 83.0                                              Total revenue 429.0 75.0 791.0 47.9 103.0 241.6 1325.6       Total expenses 370.2 48.6 699.2 26.9 70.9 194.3 1190.4       Net profit 58.8 26.4 91.9 20.9 32.1 47.3 135.3Non-Profitable          Total revenue 359.1 78.4 610.4 46.3 106.0 246.8 1022.9       Total expenses 390.0 94.3 654.8 62.7 121.5 270.1 1091.2       Net loss -30.9 -15.9 -44.4 -16.4 -15.5 -23.3 -68.3

Total Overall Revenues: 417.12

Total Net Profits: 43.55

Net Overall Profit Margin: 10.44%

Net Profit Margin (Profitable Businesses): 13.7%

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Appendix E: Employee Share Ownership PlanSource: http://www.seda.sk.ca/employeeshareownership/eip-facts.html

EMPLOYEE INVESTMENT PROGRAM FACT SHEET

Purpose : - Encourages employees to invest in the company they work for and receive a      substantial tax credit in return.- Helps employers create a more engaged and productive workforce by allowing- employees to have a feeling of ownership.- Can effectively be used for recruitment and retention and even succession planning. - Can also provide equity capital for business expansion. 

Process : - Employees set up and invest in a labour-sponsored venture capital fund, an      employee controlled investment fund, incorporated by an employee association,     established to manage the fund investments.- The fund, in turn, is invested into their employer’s company. - Employees receive 15% federal and 20% provincial tax credits on the first $5,000     they contribute each year. 

Benefits : - Increased employee motivation- Reduction in high cost equipment breakdowns and mistakes- Boosted customer satisfaction- Increase in shareholder value - Higher retention of your best employees- Increased ability to attract qualified recruits 

Strengths : - Happier work place- More accountable management- Closer alignment of risk and reward- Fairer distribution of profit- Greater culture of responsibility and trust in the workplace and beyond 

Requirements : - Must be a group of employees willing to invest.

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- The employer must agree to establishment of the fund- Company must be a corporation or cooperative- Company must have between 5 and 500 employees- Employees must reside in Saskatchewan- At least 25% of the salaries must be paid out in Saskatchewan 

Fund Guidelines :

- May not issue equity shares for a total value in excess of $5 million.- Must provide for equal opportunity for all employees to purchase shares, participate,- vote, and share in proceeds upon dissolution.- Is required to invest in the employer company within six months.- Tax credits are available only to the first purchaser of shares.- Unused tax credits cannot be refunded.- Investments may be RRSP eligible.- Investments must be held for eight years or tax credits must be repaid (unless the     employee leaves the company before eight years)- If shares are purchased in the first 60 days of the calendar year, the tax credit may     be claimed for that calendar year or the previous calendar year, or a combination     of those two years.

SASKATCHEWAN EMPLOYEE INVESTMENT PROGRAM

SOURCE: HTTP://WWW.ENTERPRISESASKATCHEWAN.CA/EMPLOYEEINVESTMENT

The employee investment program encourages employees to invest in the company they work for and receive a substantial tax credit in return. Under this program, employees can set up and invest in an LSVCC fund, which in turn is invested into their employer’s company. Employees who invest receive a 20% provincial tax credit and a 15% federal tax credit on the first $5,000 they contribute each year.

For employers, the program helps create a more engaged and productive workforce by allowing employees to have a feeling of ownership. The program can be effectively used for recruitment and retention and even succession planning. The fund can provide equity capital for business expansion.

In addition to the tax credits, the employees have the opportunity to share in the success of the company they work for and to own a piece of it. Tax credits are available only to the first purchaser of shares. If shares of the LSVCC are purchased in the first 60 days of the calendar year, the tax credit may be claimed for that calendar year or the previous calendar year, or a combination of those two years. Unused tax credits cannot be refunded. Investments may be RRSP-eligible. Investments must be held for eight years or tax credits must be repaid (unless the employee leaves the company before eight years).

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In order to create an LSVCC fund under this program, there must be a group of employees willing to invest. As well, the employer must agree to the establishment of the fund. Eligible companies must be corporations or co-operatives, with between five and 500 employees who reside in Saskatchewan and at least 25% of salaries paid out in Saskatchewan.

An employee-controlled investment fund, incorporated by an employee association, must be established to manage the investments. The fund may not issue equity shares for a total value in excess of $5 million. The fund must provide for equal opportunity for all employees to purchase shares – which are participating and voting – and share in the proceeds upon dissolution. The fund is required to invest in the employer company within six months.

How to set up an Employee-Sponsored LSVCC fund

Select a project co-ordinator (may be any individual or organization agreed to by employees, including professionals contracted to perform the function; other professionals such as lawyers and accountants may be requested by the co-ordinator to assist with certain specialized requirements).

Contact the Saskatchewan Economic Development Agency (SEDA) at www.seda.sk.ca or phone 306-384-5817 for information on how to set up a program in your company, as well as a copy of the procedures kit. (SEDA is partnering with ES to assist companies in implementing the program.)

Develop a proposal, which you can send to ES for a preliminary eligibility ruling. Follow requirements of Saskatchewan Financial Services Commission (GRO 45-902). Present the proposal to employees (do not raise any funds at this time.) SEDA can assist you

with the presentation. If employees wish to proceed, follow the steps outlined in your procedures kit. Establish an employee investment fund and raise money through the sale of shares to

employees. Apply to ES for registration. If the fund is approved, a formal letter of approval and certificate of registration will be

provided.

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