Seeking strategic partner to allow us to continue to grow and build our new ADU (additional dwelling unit) business unit.
Red Door Carpentry, Inc.
Agenda
• The Model
• Traction
• Competition
• Financial Snapshot
• Issues
• Solutions
• Risks & Challenges
• Success Moving Forward
The Model
Skilled tradesmen are becoming a limited but necessary commodity. There are 6 professionals retiring for every new 1 entering the field. As the labor market becomes tighter, we feel those that control the labor pool will have increased pricing power.
Red Door Carpentry, Inc. was established in 2020 and is a licensed residential contractor with a mission to provide outstanding craftsmanship to our clients and offer our carpenters benefits and conditions that are often ignored in the trades.
For example, employees are offered paid time off, health benefits, and a 401k. This helps RDC control the labor market.
Traction
Red Door receives more calls and inquiries than could be handled. We average approximately 10 inquiries per week. This helps validate our hypothesis of strong demand and weak supply. In twelve months RDC built from a two-person crew to five.
Competition
There are barriers to entry that are somewhat unique in the state of Florida. To become a licensed contractor the licensee must spend about $3000 on the required textbooks and review courses, then pass three separate exams. The first exam is 8 hours and the final two exams are 6 hours each. The applicant must also prove they have the requisite experience on the job site before applying for licensure.
Financial Snapshot
• Red Door revenues in the past 12 months= $668,000
• Total expenses $735,500
• Net loss of $67,500
• Marketing expenses have been near $0. Nearly all our work has come from referrals, web presence, and positive reviews.
• Current team includes; 5 person field team
• Owner's draw is $0.
Issues
Reaching profitability has taken longer than anticipated for the following reasons:
- Too much variety in the jobs accepted makes the estimating process difficult and unreliable. We said yes to too many types of jobs.
- A reliable network of sub-contractors took longer to develop than anticipated
- Insurance costs are higher than anticipated
Solutions
- Accepting jobs only in our niche and saying no to those outside of our core focus.
- The core focus will now be kitchens, bathrooms, built-ins, trim, modular builds
- A reliable network of subs has been largely built at this point. Plumbers, electricians, and tile and flooring contractors are all now part of our daily workflow.
- RDC has increased its prices with a goal to close 20% of the jobs we bid. Currently closing 60%.
- To reduce insurance costs, we will be moving to a sub-contractor model for all current employees. We have created a way to continue to offer them PTO and benefits.
- Paid time off is now added to their hourly rate
- The health benefits RDC offers are fully portable and those that have signed up can take it with them as sub-contractors.
- Building a new business line with repetitive processes and opportunities for scale with limited labor. This will allow for higher margins and decreased risk.
- To start, RDC will pursue the ADU (Accessory Dwelling Unit) market in the Tampa Bay area. An ADU is a small outbuilding, typically a large shed-type structure, with finished space inside. These spaces can act as workout rooms, home offices, kid’s play spaces, etc. They have full electrical power and air conditioning.
- These are permitted jobs that eliminate the unlicensed handyman competition.
- These structures can be built as modular units allowing them to be constructed off-site. This improves efficiency and quality allowing RDC to drive down costs and improve margins.
Risks & Challenges
- The updated pricing strategies have already been implemented and paying dividends.
- The sub-contractor model may not work for all current employees. It could create some attrition.
- Economy: The housing market is slowing for new construction, but history shows the renovation market typically heats up when new sales decline. Current interest rates could damper homeowners' ability to tap into their current equity, but we have not seen any slowdowns to date.
Success Moving Forward
RDC is seeking an investment in the amount of $150,000 to help ensure long-term growth and financial security.
How the Funds Will be Used
The funds will be used in a variety of ways designed to improve financial stability and continue innovating for future growth.
- Paying down high-interest debt.
- Investing in a marketing plan to help launch the ADU segment.
- Improve cash balance to help smooth cash flow variability.
- Give the cash-on-hand necessary to sustain a possible slowdown in work volume as RDC transitions into doing fewer projects but improving profitability on those that are accepted.
Proposals (A or B)
A. Equity Ownership
Seeking an equity partner
1) Become a partner in the business and own a portion of future profits.
2) Can choose to be an active member of management if desired.
B. Loan
Seeking a loan of $150,000
1) Payback with interest
2) Interest-only payments for the initial 12 months
3) Balance paid in 48 months (interest and principal)
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