JENSEN ROOFING INC
Prepared For: Robert Jensen
Prepared by: Mike MacKinnon
Kevin Lee
Evan Conrad
Ryan Kehrig
Olajumoke Oni
Aeisha Caracciolo
Jensen Roofing Inc
Robert Jensen
TABLE OF CONTENTS
1.0
Executive Summary
1.1
Introduction
1.1.1 Industry Overview
1.1.2 Company Overview
1.1.3 Value Proposition
1.1.4 Mission Statement
1.1.5 Goals
2.0
The Operations Plan
2.1
Business Structure
2.2
Management of the Business
2.3
Location of the Business
2.4
Services to be provided
2.5
Materials
2.6
Cost of Sales and Operating Expense
2.7
Typical day of Business at Jensen’s Roofing
3.0
The Human Resource Plan
3.1
Jensen Roofing Organizational Structure
3.2
Job Descriptions
3.2.1 Foreman
3.2.2 Roofer-Helper
3.2.3 Accountant/Financial Advisor
3.3
Wages and Training Costs
4.0
Market Plan
4.1
SWOT Analysis
4.2
Market Analysis Residential Roofing- New Homes under Construction
4.2.1 Potential Customers and Market Share
4.2.2 Pricing
4.2.3 Marketing Strategy
4.3
Market Analysis- Residential Roofing- Major Roofing Repairs
4.3.1 Potential Customers
4.3.2 Target Market
4.3.3 Pricing
4.3.4 The Opportunity
4.3.5 Marketing Strategy
4.4
Combined Market Analysis
4.4.1 Sales and Project Objectives
4.4.2 Select Markets and Service Mix
4.4.3 Service Features
4.4.4 Marketing Plan budget
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5.0
The Financial Plan
5.1
Economic Forecast
5.2
Five Year Financial Statements
5.3
Year One Monthly Cash Flow Statements
5.4
Revenue
5.5
Payroll
5.6
Working Capital
5.7
Capital And Financing Budget
5.8
Debt Amortization Schedule
5.9
Depreciation (CCA) Schedule)
5.10
Corporate Income Tax
5.11
Ratio Analysis
5.12
Investment Analysis
5.13
Risk Analysis
6.0
7.0
Conclusion
Index to Exhibits
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Robert Jensen
1.0 Executive Summary
As a result of the current economic environment in Southern Alberta, Robert Jensen has come forward with a
desire to establish his own roofing and repair business in the City of Lethbridge. This plan is driven by
Robert’s desire to capitalize financially on his roofing skill set and his previous experience in the roofing
industry. Currently these skills are in high demand in Lethbridge area making now the ideal time to establish
this business.
Operations Plan:
Jensen Roofing will operate as a corporation out of Robert’s personal home. The company will be managed
extensively by Robert as he has several years experience in the roofing industry. All necessary financial and
management advice will be obtained from a consultant who will be paid on a needs basis. Jensen will focus
on building new roofs as this is where the demand is highest, in addition, some roof repairs and replacement
work will be done in the summer. Materials will be purchased on a job estimate basis thus eliminating the
need to carry inventory.
Human Resources Plan:
The organization structure at Jensen Roofing is simplistic in nature. The entire organization will consist of a
two person team: Robert Jensen as president and foreman, and a roofing helper to assist Robert in the day to
day operations. Robert will have complete control of all aspects of running and managing the business while
the roofing helper will primarily be engaged in performing routine physical labour. A secondary member of
the Jensen Roofing team will be the business advisor/accountant hired by Robert. The wage rates used in the
financial model projections are taken from the Alberta Building Trades Council of Unions in 2006 grown at
4% to arrive at the 2008 wage levels. The seasonal nature of the repairs business will require Jensen Roofing
to lay off the helper in the winter months as Jensen Roofing does not have enough of the new home market
share to keep both Robert and the helper busy in these months.
Marketing Plan:
The marketing mix of Jensen Roofing will consist of new home installations and existing home roof repairs.
In order for Jensen Roofing to differentiate itself from all existing competitors in the marketplace Jensen will
position itself as a premium quality installation company with a focus on timely service with minimal
customer hassle. Initially the sales pricing of Jensen will be slightly above the market average as a pricing
discount of 5% in year one is required for Jensen to attract initial jobs away from existing competitors. By
year four Jensen’s sales pricing will be in the upper echelon of the market as the company’s reputation in the
market will be second to none.
The strength of the company’s marketing plan will lie in the ability of Robert to establish himself amongst the
Lethbridge construction industry as a reputable man who performs quality work.
It is through the
establishment of this referral network and word of mouth from satisfied customers that Robert intends to
solidify and grow the reputation and market share of Jensen Roofing in the Lethbridge market.
Financial Plan:
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Jensen Roofing is going to implement a cost-plus pricing strategy for materials and labour in its business
operations. The effect of doing this is that Jensen’s is insulated from any potential losses resulting from any
material and labour cost overruns. This basically provides Jensen’s with a built in price floor that ensures the
business maintains profitability. The financial model projections for the business highlight a growing net
income figure from $43,280 in Year 1 to $181,645 in Year 5. This net income is in addition to Robert already
drawing a wage from the business for the actual work he is performing. Capacity requirements are the
primary constraint on revenue growth. By year five Jensen has minimal excess capacity hours which
indicates that revenues have been maximized under the current business structure
The business plan for Jensen Roofing demonstrates strong revenue and growth potential for this business idea.
The original desire of Robert Jensen to increase his annual after-tax profits will be realized as well as
providing Robert with the ability to run his own roofing business.
1.1 Introduction
1.1.1 Industry Overview
The roofing market in Lethbridge consists of essentially every building with a roof. This includes residential,
commercial, and industrial buildings. Roofs vary greatly in shape and design differentiating on pitch, slope
and angles. Roofing in Lethbridge is going through a boom as part of the housing boom occurring throughout
Alberta due in part to the thriving oil and gas economy. Demand for skilled labour is enormous in Alberta as
well
1.1.2 Company Overview
With the roaring Alberta and Lethbridge economies as a back drop, Robert Jensen’s extensive roofing
experience at Charles Hill Roofing, the largest roofer in the Lethbridge area; and his Journeyman Roofing
license present the opportunity to incorporate Jensen Roofing Inc. Jensen Roofing will in essence be a
personal service business, enabling Robert to perform the same work he did as an employee while allowing
him to reap the rewards that normally accrue to ownership.
1.1.3 Value Proposition
The opportunity comes as a function of the aforementioned skilled labour shortage and the low start-up costs
required for a roofing business. With a minimal capital investment and increasing demand for his services,
the risks normally associated with ownership (ie. that of loss) are mitigated while the rewards thereof can be
captured with focused effort. Production capacity will be met early and fixed costs are low. Even in the
event of a down turn, the low capital intensity allow for easy exit from the business via liquidation.
1.1.4 Mission Statement
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Jensen Roofing aims to provide the customer with a quality constructed attractive roof at a fair cost and in a
timely manner. It is Jensen’s desire that customers will have a positive experience and speak highly of Jensen
Roofing towards their friends and neighbors.
1.1.5 Goals
1. Increase personal after tax income to a level not attainable by employment, by ensuring a
target gross margin of 40%.
2. Maintain simple one roofing team business model
3. Earn and maintain the best reputation for quality workmanship in the market
4. Reach capacity quickly, but do not materially exceed sole operator capacity
2.0 The Operations Plan
2.1 Business Structure
From inception, Jensen Roofing will be operated as a corporation. Robert Jensen will be the sole shareholder
and will be responsible for all the business transactions and decision making, thus the decision making
process will be quick and prompt action can be taken on any issues that might arise.
The business will be incorporated for the following reasons:

When a company is incorporated it acquires an independent existence, therefore it is separate and
distinct from its shareholders and has an unlimited life expectancy.

The corporation provides its shareholders with limited liability meaning shareholders cannot be held
personally liable for the debts and liabilities of the company.

Ownership interests in the company can be easily transferred through the sale or transfer of stock
without affecting the corporation’s existence or continued operation.

Additional capital can be raised through the sale of stock in the business.
The major drawbacks of incorporation include the possibility of a second level of taxation and the additional
administrative expenses of incorporation. The profits of the corporation are first taxed as income to the
corporation, then as income in the hands of the shareholder as dividends are paid. Some of the effects of the
second level of taxation will be mitigated as Jensen Roofing will be eligible for the small business deduction.
Although the costs of incorporation are significant higher than the sole proprietorship form of business,
Jensen Roofing is better incorporating because of the nature of the industry in which it operates as there is a
high risk of injury and litigation.
2.2 Management of the Business
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The business will be managed by Robert as he has several years of experience in the roofing industry working
for Charles Hill Roofing. In addition, he will be using the services of a consultant to obtain the necessary
financial/accounting and business management advice; the consultant will be Robert’s adviser and will be
paid on an hourly and as needed basis.
2.3 Location of the Business
For the first five years the business will be operating out of Robert’s personal home. The business space will
consist of a home office where he can choose to meet clients and his garage which will be used as storage
space for all the necessary equipment, supplies and left over materials. This space will be adequate as the
services are provided at the client’s location. Jensen’s will be focusing its services in the Lethbridge and
surrounding areas.
2.4 Services to be provided
Jensen Roofing will be focused on building new roofs as this is where the greatest demand and growth is
within the Lethbridge market. The company will however perform some roof repairs and replacements as well
during the year and will employ a labourer in the summer months to assist with these repairs and
replacements. Robert is able to put on a new roof by himself in ten hours which is approximately one full day
of work, a roof replacement will take Jensen and a labourer approximately two and a half days to strip and
replace.
Jensen’s will focus its business on residential or small commercial roofs. Due to labour capacity restraints,
large industrial contracts will likely not be taken on in the first few years of the company operations. We
expect there to be more than enough demand for residential and small commercial roofs to keep Jensen’s
busy.
2.5 Materials
Materials will be purchased on a job estimate basis. Robert will sit down with customers (home and business
owners, or general contractors) and have them pick out their preferred materials based on samples and
pictures that will be provided. These materials will then be purchased from big building supply stores such as
Home Depot and Rona. To ensure lower material costs the company will set up a contractor account at these
stores. Jensen’s will obtain a Home Depot or Rona credit card for no fee which will allow it to easily make
large purchases at any time without consideration for cash constraints. Home Depot and Rona both deliver
materials to job sites and will hoist the materials onto the roof with their boom trucks.
2.6 Cost of Sales and Operating Expense
Costs of sales include direct labour and direct materials costs. All of the materials necessary to put on a new
roof or replace an old roof can be found in schedule 3 of Exhibit 11. The cost per square foot ranges from
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approximately $0.89 using an asphalt shingle to approximately $10.34 per square foot when putting on a slate
roof.
Operating expenses can be seen in schedule 5 of Exhibit 11. The most significant operating expense for
Jensen’s will be fuel costs. Robert will be using his half ton truck to get to and from the job sites. He will also
use the truck for his sales meetings and trips to and from Home Depot/Rona to order supplies or pick up small
tools or supplies. His three ton truck will also cost him several thousand dollars a year to run. In projecting
out fuel costs we included an increase in fuel cost of 15% per year.
2.7 Typical day of business at Jensen’s roofing
Robert Jensen will essentially do everything in the business. Aside from a labourer hired to do menial tasks
and having a business consultant/accountant provide services on an as needed basis he will be the only full
time staff person at Jensen’s roofing.
Robert will spend most of his day actually building and repairing roofs as this is what will drive the revenues
of the company. Robert’s day will begin between six and eight a.m. He will likely spend some of his time in
the first few weeks of the business meeting with general contractors to get their business. Some time will also
be spend initially setting up accounts at Rona and/or Home Depot but eventually Robert will just order
materials over the phone and have them dropped off on the job site the day the job begins. Banking, paying of
bills, collections calls and sorting of paperwork for the consultant will be done on in the evenings and
weekends. Robert will also spend time in the evenings trying to find new business. He will drive around older
neighborhoods looking for houses with older roofs. He will try making cold calls in peoples doorways asking
them if they would be interested in a quote and either sit down with them then or make an appointment. This
will be his way of breaking into the roof repairs market. He will also spend time in the evenings meeting with
general contractors as he is vying for their business.
3.0 The Human Resource Plan
The human resources required for operating Jensen Roofing follows a basic and simplified structure. During
the first five years of operations Jensen’s will operate with a basic two person structure and a business
consultant/accountant on the side to provide business advice (see below). Robert Jensen will operate as
president and on-site foreman and will require one roofer-helper to assist him in the day to day duties of roof
construction and repair of the summer repair season. This model will not require extensive human resource
efforts on behalf of Robert Jensen which then allows him to dedicate additional time and effort to the
marketing and daily operations. The accounting and bookkeeping duties required for Jensen Roofing will be
handled by an outside accountant who will also prepare the personal tax return for Robert Jensen.
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3.1 Jensen Roofing Organizational Structure
Robert Jensen
President Foreman
Accountant /
Financial Advisor
Roofing Helper
3.2 Job Descriptions
The position of foreman will be occupied by Robert Jensen. Below is the formal job description and duties
for contractors and roofers as taken from the Human Resources and Social Development Canada website:
3.2.1 Foreman:


Supervise, co-ordinate and schedule the activities of construction workers engaged in roofing who
install and service prefabricated products in residential and commercial properties, as well as
workers who repair a wide variety of products
Establish methods to meet work schedules and co-ordinate work activities with other
subcontractors

Resolve work problems and recommend measures to improve productivity and product quality

Requisition materials and supplies

Train workers in job duties, safety procedures and company policies

Recommend personnel actions such as hirings and promotions

Prepare work progress reports

Manage the operations of own company

May also supervise, co-ordinate and schedule the activities of related apprentices, helpers and
labourers.
These job duties will solely be the responsibility of Robert Jensen as at startup he is the only person who will
have the technical knowledge and experience to coordinate these activities. Additionally, since Jensen
Roofing is a startup business a significant part of Robert’s time will need to be dedicated to marketing
activities during the evening hours as the vast majority of the daytime hours will be dedicated to performing
the actual roofing construction and repair duties.
3.2.2 Roofer-Helper:
The role of roofer-helper is a labour intensive position which will require an individual that is able to perform
routine physical tasks on a daily basis. Physical stamina and efficiency are the key characteristics need in this
role. The roofer-helper will only assist the foreman on repair jobs as they require more physical labour than
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installing roofs on new homes. Typically repairs cannot be performed during the winter months (NovemberMarch) so the helper will be a seasonal position as the helper role will be eliminated during these months.
The projected years 1-5 roofer helper hours required are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
900 hrs.
1,025 hrs.
1,175 hrs.
1,350 hrs.
1,550 hrs.
The increase in the estimated hours requirement is tied to Jensen Roofing projections of increasing their
overall market share in the repairs market over the five year period. The requirement to lay off the helper in
the winter months is unavoidable as Jensen’s will initially not have a large enough market share of new
homes to provide constant employment for a two person team. Robert alone will be able to perform the work
requirements during the winter months making the lay-off a necessary action.
Since there are labour
shortages in Southern Alberta, Jensen Roofing may have major difficulty in hiring a roofer-helper. However,
the University of Lethbridge and Lethbridge Community College have a student population of approximately
15,000 providing Jensen Roofing with a target for annual unskilled labour needs.
3.2.3 Accountant / Financial Advisor:
The day to day administrative tasks will be handled by Robert Jensen as it is his responsibility to ensure that
payables and receivables are being dealt with in a timely manner. Robert will prepare his own bank deposits.
Most purchase will be done via credit card, however, a small number of cheques (payroll et al) will be written
directly by Robert.
In order to facilitate the bookkeeping duties Robert will hire the services of an accounting/bookkeeping firm
to enter the monthly transactions into an accounting program which can then be used to provide Robert with
reports about the overall profitability and day to day operations of his business. The year-end financial
statements and corporate tax return preparation will be prepared by the same chartered accountant firm to
provide Robert with an independent analysis of the overall health of Jensen Roofing as a whole. Having a
chartered accountant prepare the tax return will increase Jensen’s awareness and ability to utilize tax planning
strategies intended to minimize overall taxes being paid by Robert. Additionally, the professional fees paid
for the accounting duties are fully deductible against business revenues so the relative cost of this function is
further reduced even without the value being added by a qualified accountant.
3.3 Wages and training costs
The five year wage projections for Jensen Roofing are attached in the financial schedules. These figures
include the applicable CPP, EI, and WCB deductions based on projected hours and wages for the business.
The starting wage figures are based on the Alberta Building Trades Council of Unions 2006 wages for a
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journeyman and roofing helper grown at 4% annual inflation to reach the 2008 beginning hourly wage
figures. Wages grow at a yearly growth rate of 3% which is equal to the projected inflation over the five year
timeframe.
The annual wage rates (before deductions) and hours worked based on the projections in the
financial schedules are summarized in this table:
Year 1
Year 2
Year 3
Year 4
Year 5
Foreman hr. rate
$31.63
$32.58
$33.56
$34.57
$35.61
(# hours worked)
2,500
2,500
2,500
2,500
2,500
Roofer helper hr. rate
$16.87
$17.38
$17.90
$18.44
$18.99
(# hours worked)
900
1,025
1,175
1,350
1,550
The original 2006 wage figures taken from the Alberta Building Trades Council of Unions (ABTCU) include
benefits and wellness programs for the foreman position. The roofer helper position will not receive any
health or pension benefits but will receive paid vacation leave in accordance with the ABTCU wage figures.
These figures are then grown at 4% inflation to arrive at the 2008 wage figures used. A 4% inflation rate was
used because of the rapid growth in the Lethbridge economy during this period.
2008
Total
Health
&
Training
Breakdown
Wage
Wage
Vacation
Wellness
Pension
Costs
Foreman
$31.63 / h
$27.18
$2.71
$1.19
$0.54
$0.01
Roofer -helper
$16.87 / h
$13.76
$1.37
$1.19
$0.54
$0.01
The full cost wage figures are used in costing out the operations plan so these costs have already been
incorporated in Jensen’s business model.
Jensen Roofing will not be training roofer apprentices because under the current organizational structure it is
not financially feasible and does not meet Jensen’s goal of remaining an independent operator with no
partners and a single team. In order for the business to reach maximum profitability, the roofer-helper role
needs to be staffed with cheap unskilled labour.
Potential helpers wishing to pursue their roofing
apprenticeship will require additional on the job training and higher wages after their first year on the job
which will increase the costs under Jensen’s staffing model. As mentioned earlier Jensen’s will be laying off
the roofing helper during the winter months which is not conducive to potential apprentices who are looking
to fulfill their hours requirements faster through full time employment. Additionally, the on the job training
that apprentices require will take away from Robert’s productivity and efficiency, potentially undermining the
profitability projections of the proposed business model.
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4.0 Marketing Plan
4.1 SWOT Analysis
Strengths: Robert Jensen has spent years working as a roofer for one of the largest roofing companies in
Alberta. During that time he obtained his Journeyman Roofer license and made numerous contacts in the
construction industry. These contacts will be the key asset for him as he attempts to enter the new home
market. Lethbridge and all of Alberta is in the midst of a construction boom. Lethbridge economy continues
to grow and the demand for skilled labour increases every day. Currently Lethbridge draws its skilled
labourers in from as far away as Calgary and British Columbia. For the past few years the City of Lethbridge
has initiated a “You Belong Here” Labour Force Initiative, in an effort to attract workers (City of Lethbridge,
2007). With the skilled labour shortage now is a prime opportunity for Jensen Roofing to enter the roofing
market. Robert lives in Lethbridge so the company’s local roots will be used as an added selling feature when
pitching to customers.
Weaknesses: The labour shortage is also a threat. It may be difficult to attract unskilled labour as workers are
in demand in all sectors of the Alberta economy. While Robert developed a strong reputation within the
industry Jensen roofing is not yet a household name. This could make the initial push into the market for
major repairs difficult as the company will have to build its credibility over time. Currently there are three to
four large major competitors (total of seven) in the Lethbridge roofing market. If any of these major players
see Jensen Roofing as a threat they may attempt to push Jensen out of the market. However due to the
construction boom, and the labour shortage it is unlikely that this will happen. There is more roofing work in
Lethbridge than roofing companies available to do it so there is no need to compete fiercely over customers.
Opportunity: The roofing industry has very low barriers to entry. There are little start up costs required with
the exception of a few fixed costs such as the purchase of trucks, marketing and small equipments. The
majority of the costs are variable and are pushed onto the customer with a markup.
Threats: There are seven main competitors based in Lethbridge (See Exhibit 10). An unexpected economic
downturn before Robert has an opportunity to establish his reputation would impact both price and demand
for his services. Due to Robert Jensen’s prior experience at Charles Hill Roofing, Jensen Roofing should
focus on dwellings with low-slope roofs in Lethbridge and surrounding areas. The remainder of this section
is split into two main parts: New Homes Under Construction, and major repairs.
4.2 Market Analysis Residential Roofing – New Homes under Construction
The construction industry in Alberta has been booming for several years.
In 2006, 700 single-family
dwellings were constructed (Economic Basis, 2006). Although the breakneck pace of economic growth in the
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region has slowed due to the rising dollar, and oil prices, growth does remain and is expected to continue to
be strong. New home construction is expected to continue to grow as a result.
4.2.1 Potential Customers and Market Share
There are three main general contractors that build new homes in Lethbridge: Hunter Construction, Nyhoff
Construction, and Silver Ridge Construction. These general contractors want quality workmanship and
reliable service. As Robert Jensen has experience in the roofing industry, he will be able to offer these
services. Due to the construction boom in Alberta, finding skilled labour is extremely difficult; currently
Lethbridge has been attracting employees from a radius of over 100 km.
By hiring a locally based
subcontractor, the general contractors are able to lower their costs. This factor gives Jensen Roofing a
competitive advantage, it is expected that this will enable the company obtain 11% of market share in the first
year (approximately 1/3 of one of the general contractors work).
4.2.2 Pricing
In this market segment, most general contractors will have already purchased the materials. The only markup
will be labour for these contractors. For Robert’s own labour the markup will be 70% of wages, and for the
roofer-helper the markup will be 50% of wages.
4.2.3 Marketing Strategy
There will be no additional marketing needed in this segment, as there is more demand than the current labour
market can supply. Jensen Roofing will focus on providing reliable service, and quality workmanship, in
order to create a favorable reputation in the market and find it easy with obtaining jobs in the future.
4.3 Market Analysis - Residential Roofing – Major Roofing Repairs
Per Statistics Canada in 2006 there were 30,700 dwellings, of which approximately 23,000 were dwellings
with low-sloped roofs exhibit 3 for more detail (2006 Community Profiles, 2007). In 2006, 700 single-family
dwellings were constructed. Assuming this continued in 2007, the total dwellings in 2008 would be
approximately 32,100, using the same ratio of low sloped roofs to totally roofs, approximately 24,400
are dwellings with low-sloped roofs.
Residential roofs are mainly made up of two types of material, asphalt shingles, which account for
approximately 95% of roofs, and wood shingles, which accounts for the remainder of roofs. Asphalt shingles
have a durable life of approximately 20-25 years; wood shingles have a durable life of at least twice that of
asphalt shingles. This results in approximately 1,000 asphalt roofs and a handful of wood roofs needing
major repairs each year, see Exhibit 4 for details.
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4.3.1 Potential Customers
The residential market is divided into owners that live in their own house (72%), and owners that rent the
property to tenants (28%). Most roofers in Lethbridge promise to provide quality workmanship, however in
addition to this, Jensen Roofing will also provide fast reliable service with the least amount of hassle to the
consumer’s life. Thus, Jensen Roofing will target ‘Home Owners’ that live in their own homes, see Exhibit 5
for analysis of market segments.
4.3.2 Target Market
The market segment ‘Owners that live in home’, can be broken down further into four categories: Couples
with children (25%), Couples without children (31%), 1 person households (27%) and Other (17%). See
exhibit 6 for detailed analysis of market segments. Jensen Roofing’s strategy of charging more for proving
fast reliable service with least hassle to consumer’s life targets ‘Couples without children’ and ‘one person
households’. Within the couples without children, because 45% of Lethbridge residents are under the age of
25, it is believed the ‘Young Couple’ category makes up the bulk of this segment (City of Lethbridge, 2007).
In general, major roofing repairs occur during Mid-march to early November. The target market will require
Jensen’s services when they realize their roofs needs to be repaired (may notice a leak of some kind), or a few
years before a major repair is needed (it is brought to their attention that a major repair is needed).
4.3.3 Pricing
In this market segment, there will be a markup for labour and materials purchased. For Robert’s own labour
the markup will be 70% of wages, and for the roofer-helper the markup will be 50% of wages. Materials
purchased for the customer will be marked up by 20%. Jobs will be bid for using these standard mark-ups
and quoted on a per square foot basis (Estimated costs plus mark-up/Square feet). To remain competitive for
the first three years there will be a general discount applied to each quotation. As Jensen’s reputation grows
the discount will be reduced. The discount is forecasted to be 5, 4 and 2% in the first, second and third years
respectively and the program is expected to be discontinued in the fourth year.
4.3.4 The Opportunity
In first few years, Jensen Roofing will not have higher pricing in order to stay competitive and build its
reputation. The market share will be a mix between all four segments. After the company has established a
reputation, then it can start increasing its prices to incorporate high quality, timely repair and low hassle
roofing. It is assumed that will occur in Year 3. (See Exhibit 7 for details).
In the initial year, sales will be a mix of all four customer groups, in both owned and rented dwellings, and a
mix of composite and wood shingles. It is assumed that Jensen will be able to obtain 1.65% of the market.
Because charging a lower price, with good quality, combined with the information sessions initially will
attract cost sensitive consumers including ‘Couples with children’ and dwellings which are rented out.
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In Year 2 Jensen Roofing will continue to charge competitive prices, but will reduce the discount from 5% to
4%. As prices start increasing Jensen’s will begin to lose price sensitive consumers. However, Jensen
Roofing’s reputation and brand image in the community will be growing (hassle free roofing, dependable
service, and quality workmanship) in target market areas (Couples without children, and one person
households). The growing reputation throughout Lethbridge will lead to increased demand thereby negating
the loss of the price sensitive market.
In Year 3 Jensen Roofing will continue to charge competitive prices, but will decrease discount from 4% to
2%. It will continue to lose price sensitive consumers but as in Year 2 Jensen’s Roofing’s reputation and
brand will continue to grow and attract more of the target market.
In Years 4 & 5 Jensen Roofing will discontinue the discounts thereby losing all of the price sensitive
customers.
At this point Jensen Roofing’s reputation and brand will be firmly established throughout
Lethbridge making Jensen Roofing the premier quality roofer in the Lethbridge market.
4.3.5 Marketing Strategy
Jensen Roofing’s brand will focus on incorporating quality workmanship, timeliness, and low hassle. When
current and potential customers think of Jensen Roofing, they should think:
‘Enhancing the quality of homes for our neighbours in our community’
‘Jensen Roofing installs piece of mind over our heads, in a timely and hassle free manner’
This will be incorporated on signage, brochures and yellow pages advertisements.
Information Sessions: As Jensen Roofing is a new company it will be important for Robert to talk directly to
the people requiring roof repairs. For the first year, Robert will set up free information sessions on ‘How to
take care of your roof’. Two weeks before the session he will post newspaper ad, and post flyers in the
location the session will be held in. He can hold these seminars at the public library, community centres, and
other public venues. During these sessions Robert will provide friendly tips on how to repair minor problems
on a roof, and give tips on when a roof needs major repair. After the session people will be able to talk
directly with Robert one-on-one about any roofing questions they may have. These forums will be an
excellent way to connect Robert with home owners in a friendly and inviting environment. These seminars
will most likely attract cost-sensitive consumers which will coincide with Jensen Roofing’s pricing strategy
during the first few years.
Drive-bys: In the evening hours Robert can drive through areas of town where houses were built more than 20
years ago. This will allow him to see when a roof needs a major repair. Robert can approach the residents of
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the house to notify them about the current state of their roof and provide them with a brochure and offer to
provide an estimate if they appear genuinely interested. This will provide Robert with a medium to identify
and communicate with potential customers.
Advertising on Trucks:
Two magnetic signs will be purchased for each truck. The signs will have the company name, logo, and
phone number. As employees are working on houses those passing by will be able to identify and take note
of who is performing the roof repairs.
Yellow Pages & Yellow Pages.com
Jensen Roofing’s target market relies heavily on looking in a phone book, or looking online for a roofer. It
will be important to have half page print add in Lethbridge and surrounding areas phonebook, as well as an ad
on yellow pages.com Of the competitors only a few have company websites, at this time it is not recommend
for Jensen Roofing to have a company website.
Real Estate Agent - Referrals
In this industry when consumers do not know which roofing company to choose, they frequently ask their real
estate agent. It is essential for Robert to meet real estate agents and set up some type of referral program
where Robert pays the agent $100 for each referral that leads to a sale.
4.4 Combined Market Analysis
The remaining analysis pertains to both New Homes under Construction, and major repairs.
4.4.1 Sales and Profit Objectives
Jensen Roofing’s objective is to obtain financial stability by obtaining 10% market share of Residential
Roofing – new homes under construction and 7% of market share of Residential Roofing – major repairs, by
the fifth year of business.
4.4.2 Select Markets and Service Mix
As it is easier to obtain jobs in the Residential Roofing Industry for new homes under construction, the first
few years will have a heavy emphasis on this area. See Exhibit 8. Also as the construction boom begins to
slow down and the number of homes being built each year decreases, the number of homes requiring major
roofing repairs will be approximately the same each year. It is essential for Jensen Roofing to plan for this,
and to have established itself in the major repairs market. To reflect this possibility Jensen Roofing will strive
to increase the percentage of the service mix consisting of repairs.
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In year one the Residential Roofing Industry for new homes under construction is 11%. This is expected to
grow with inflation. It is estimated that Jensen Roofing will be able to enter the Residential Roofing Industry,
for major repairs at 1.65%. This is expected to grow to 7.50% at end of fifth year of operations. By the 5th
year Jensen Roofing would like to be one of the major competitors in major roofing repairs, in its two selected
target markets.
Jensen Roofing’s service can be easily copied, however as the roofing market in Lethbridge for industrial,
commercial, and residential has more capacity then skilled roofers, it is unlikely that competitors would copy
Jensen Roofing’s strategy in the short term. However when the construction boom ends competitors may
decide to copy Jensen Roofing’s strategy.
4.4.3 Service Features
It’s a well known fact that consumers always complain about contractors. Jensen Roofing can be a company
that offers customers what they need with the least amount of hassle.
Quality Workmanship – Giving customers quality workmanship is a feature that essential every roofing
company in Lethbridge provides. Jensen Roofing will need to also provide this to consumers.
Reliable Service (Timeliness) – The target market wants reliable service, they want the roofer to come as soon
as possible, and to come on the date the appointment is made for. As Jensen Roofing is a small business,
when Robert goes to give an estimate he will know his work schedule for the next few weeks, and have an
idea of the weather. On the bottom of each estimate he can say “if you call and book your appointment by
XXX, I will guarantee the work will be done by XXX”. It is essential that Robert shows up to the job when
he has said he would.
Hassle free – The target market wants the work done with the least disruption to their lives. When Robert
gives an estimate he can provide the potential customer with a list of shingles and their price. When the
customer is ready, the customer can call Robert with the selection of shingles and Robert can call Rona and
have the shingles delivered to the customer’s house. Per the Strategy Map, see Exhibit 12 there is one
competitor, GR8 Roof Corporation, which has a similar strategy to Jensen Roofing; the only difference
between Jensen Roofing is the timeliness factor. In order to differentiate Jensen Roofing from other roofing
corporations it is essential for Jensen to provide no hassle, reliable service, but not at the expense of quality
workmanship.
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Survey – It is important that Robert knows if he is meeting his customers needs. At the end of every job a
quick 5-10 question survey can be given to the customer. The customer would rate the service, and provide
Jensen Roofing with any negative feedback. Robert will have to adapt to the results.
4.4.4 Marketing Plan budget
See Exhibit 9 for marking costs.
5.0 The Financial Plan
5.1 Economic Forecast
The economy of the Lethbridge region should continue to be robust for the next five years for a number of
reasons. First, Lethbridge participates in the Alberta Oil Economy, where labour is short and immigration
continues to keep housing demand high. The price of oil is predicted to rise over our five year period.
Further, the Lethbridge economy is also heavily invested in agriculture and commodity prices continue to
rise.
Due to the price of oil and other commodities inflation is expected to be at the high end of the Bank of
Canada CPI range (1 – 3%) for core inflation of 3%. We expect the growth of new homes to grow at this rate.
We also expect most costs and sales prices to grow at this rate. We expect demand for Jensen Roofing skills
to remain far above supply.
As a response to inflation at the high end of their targeted range, it is expected the Bank of Canada will begin
raising rates in mid 2009 but then to level out for the remaining three years.
5.2 Five Year Financial Statements
Please refer to Exhibits 11 – Financial Statements and supporting schedules for projected Balance Sheets,
Income and Retained Earnings, and Cash flow.
5.3 Year 1 Monthly Cash Flow Statements
Please refer to Exhibit 11 – Financial Statements and supporting schedules.
5.4 Revenue
Bids and prices are quoted to the customer on the basis of dollars per square feet. Bids will be estimated
using estimated labour hours and materials marked-up with standard rates.
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The number of units sold is constrained by the number of hours Jensen will have available and the product
mix (ie. 10 hours for a new house, 25 for a replacement). Please refer to the financial schedules for detailed
projections.
5.5 Payroll
Direct wages are included in cost of sales. Workers compensation expense is a proportion of direct wages
(7.86/hundred). Payroll deductions will consist of employer contributions to CPP (Jensen and Helper) and EI
(Helper).
5.6 Working Capital
To avoid risk Jensen will not be carrying inventory. The majority of sales will be to large general contractors
building new homes. These customers will take longer to pay and accounts receivable days are estimated to
be 45 for this customer. Repair customers will be individuals and will pay by credit card or cash (cheque) we
estimate accounts receivable days to be up to 10 for these clients (this will depend on how often credit card
receipts are deposited).
The majority of materials and non-wage operating expenses will be purchased via credit card and thus
payment will be delayed to 30 days. Wages will be paid every two weeks. Overall, the slow paying general
contractors will require Jensen to maintain a large cash balance.
5.7 Capital and Financing Budget
Major capital assets include a half ton and a three ton truck. Minor assets include ladders, cherry picker and
computer. Capital outlays are estimated to cost 45,200 and working capital will require 15,000 to 20,000 in
the first few months. The vast majority of the financing will be with debt (75,000), while only 2,000 of equity
will be invested by Jensen.
5.8 Debt Amortization Schedule
The debt will be obtained by way of line of credit from a major bank secured against Jensen’s personal
residence. The recent up-swing in Lethbridge housing prices over the past several years has provided enough
un-leveraged equity for this. With the line of credit secured by the personal residence, Jensen will be able to
obtain the Prime lending rate of interest (4.75%).
Jensen anticipates the replacement rate on the major assets purchased will be approximately 5 years.
Therefore, Jensen will repay the line of credit at 20% of the original principal each year. The line of credit
gives Jensen the flexibility to make interest only payments if cash becomes scarce.
5.9 Depreciation (Capital Cost Allowance) Schedules
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Capital assets will depreciated at a rate equal to the Canada Revenue agency capital cost allowance (CCA)
pool rates. Please refer to Exhibit 11, Schedule 8.
5.10 Corporate and Personal Income Tax
As a Canadian Controlled Private Corporation with 100% of its assets employed in Canada and 100%
Canadian ownership, Jensen’s net income will always be below the small business limit. Please refer to
Exhibit 11, schedule 10 for detailed breakdown of the component parts of the tax rate.
5.11 Ratio Analysis
One of the most notable strengths of Jensen Roofing is its ability to generate large amounts of cash from its
operation very early. Even though according to Schedule 12 the current ratio will gradually decline from 2008
to 2012, it is does not indicate that the company is having liquidity issues. In fact, this decline is largely due to
Jensen’s ability to generate more than enough cash to make debt repayments. The cash generating ability of
the company can also be depicted by the interest coverage, and cash flow to debt ratio in schedule 12. Another
point to note is the significant decline in financial leverage over the course of the 5 year projection. Initially,
the company will need to finance its capital budget with a mix of bank debt and equity. But as soon as the
company is able to generate positive cash flows, it will be able to reduce the amount of debt, and thus
financial risk, in the company.
Please see schedule 12 for a comprehensive analysis of metrics and analysis to evaluate the profitability and
sustainability of the business.
5.12 Investment Analysis (Sensitivity)
According to Schedule 11 in Exhibit 11, the Net Present Value (NPV) of the equity investment for Jensen
Roofing is $250,890, with an IRR of 66%. This means the investment will be able to generate positive
economic profits, and should be pursued given the level risk currently expected from the project. The
required rate of return on equity is assumed to be approximately 30%, accounting for risk factors that are
unique to the roofing and construction industries, and the required return on similar private businesses. The
terminal value at the end of year 5 assumes the company will grow at the rate of inflation, which is currently
expected at the rate of 3%. The NPV analysis in schedule 11 is a rather conservative estimate of the equity
value in the company, as it takes into account the opportunity cost of Jensen’s salary as a highly skilled
employee in a relatively large roofing company. This opportunity cost is accounted for by assuming that
Jensen could have earned $50,000 (inflation adjusted) for the next year 30 years.
Please see schedule 11 for the detailed sensitivity analysis of the equity investment at different growth rates
and risk levels.
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5.13 Risk Analysis
The critical risk variables for Jensen Roofing consist of the following:

cost of labour

availability of labour

economic downturn in Lethbridge

injury to Robert or his helper

lawsuit liability stemming from poor construction work
The underlying theme is that labour is the primary risk factor for the viability of the business. The nature of
contract work and the cost plus pricing strategy employed assures that the business will always operate at a
profit. In year one, the cost of labour being paid to the roofing helper would have to rise to $78.91/hr. to put
Jensen Roofing in a loss position. The reality is that this is not going to happen and even if it somehow did,
the increased costs would be transferred on to the customer protecting Jensen’s overall profitability. The real
risk associated with labour is the availability of seasonal employees for the business. The fact that the U of L
and LCC are situated in Jensen’s home market helps alleviate some of the availability risks, but all businesses
in the region are experiencing the same labour shortage risks consequently increasing the competition for
these seasonal workers
The risk of a downturn in the Lethbridge economy poses a modest risk to Jensen Roofing. Because of the fact
that skilled tradesman are in peak demand in Alberta, even a significant pullback in economic spending will
have little effect on the ability of Jensen Roofing to secure work during this time. The likely consequence of
a downturn is that the time delays encountered for construction projects will shrink as the demand for skilled
tradesman will temporarily pull back allowing thereby reducing the backlog of construction projects on hold
due to labour shortages. In any economic environment there will be work for Jensen Roofing.
Even though Jensen Roofing pays Worker’s Compensation Premiums to the Alberta government, the
corporation is still potentially liable if the roofer helper were to suffer a serious injury on a job site. If it can
be proven that the operating environment at Jensen’s was not conducive to sound safety procedures and
working conditions, it is possible that the roofing helper could allege that Jensen Roofing was negligent in its
practices and subsequently file a statement of claim against the business. Notwithstanding the potentially
high settlement amount if found negligent, the associated legal costs alone would provide huge financial
strain on the resources and reputation of the business in the community. While it is not possible to guarantee
a 100% safe working environment due to the nature of the roofing business, the probability of an injury
occurring on the job can be significantly reduced if Jensen Roofing ensures that proper safety and workplace
procedures are communicated and enforced on site.
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The most significant business risk for Jensen Roofing is reputation and quality risk. The cornerstone of
Jensen’s business and marketing strategy is the assurance that a Jensen installed roof will be a superior quality
roof, notwithstanding material limitations. If a Jensen installed roof fails, a customer and the cause can be
traced back to the installation process; this could lead to a liability lawsuit being filed against Jensen.
Notwithstanding the potential damages awarded, this would be a massive blow to Jensen’s reputation in the
Lethbridge market.
Through word of mouth this would spread throughout the construction industry,
subsequently undermining the ability of Jensen’s to charge a premium price in exchange for a superior
finished product. The entire pricing and differentiation strategy of the business would be in jeopardy.
However the good news is that this risk can be mitigated so long as Robert remains committed to performing
quality work as opposed to shifting the focus of Jensen Roofing towards quantity over quality.
6.0 Conclusion
We conclude that Robert incorporates and begin operations as Jensen’s Roofing Inc. We recommend he
focus on new homes and slowly increase roofing repairs over time. We recommend he stay simple and have
only one team, consisting of himself and one part time employee. The business will attain the goals set out,
increasing his personal after tax income.
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7.0 Index to Exhibits
Exhibits Number:
1
2
3
4
5)
6
7
8
9
10
11
12
COGS – Direct Materials (see Exhibit 11-Schedule 3)
Operating expenses (see Exhibit 11-Schedule 5)
Break down of dwellings in Lethbridge
Number of residential roofs needing repairing
Overall market segments – Residential homes
Detailed breakdown of market segment
Market share potential
Service Mix
Marketing plan budget
Competitor Analysis
Financial statements and supporting schedules
External Analysis and Strategy Map
Index for Supporting Financial Schedules for Exhibit 11:
1
2
3
4
5
6
7
8
9
10
11
12
Prepared by Group 3
Cash flow projections
Revenues
COGS
Capacity Utilization
Major Operating expenses
Capital and financing budget
Wages and benefits forecast
Capital cost allowance
Debt Amortization schedule
Income tax rate
Valuation
Ratio analysis
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