An Example Business Plan For Mighty Fine Millwork, Inc., a Manufacturer Focusing On Under Utilized Minor Eastern Hardwood Species

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1 Department of Wood and Paper Science Wood Products Extension An Example Business Plan For Mighty Fine Millwork, Inc., a Manufacturer Focusing On Under Utilized Minor Eastern Hardwood Species By Harry W. Watt Business Improvement Specialist Wood Products Extension North Carolina State University Raleigh, North Carolina For the Under Utilized Species Marketing Project Wood Education and Resource Center USDA US Forest Service Princeton, West Virginia New Business Ideas Workshop June 3, 2010 Discrimination Policy Statement The work upon which this project is based was funded in whole or in part through a grant awarded by the Wood Education and Resource Center, Northeastern Area State and Private Forestry, U.S. Forest Service. In accordance with Federal Law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, sex, age, or disability. (Not all prohibited bases apply to all programs.) To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326- W, Whitten Building, 1400 Independence Avenue, SW, Washington, DC or call (202) (voice and TDD). USDA is an equal opportunity provider and employer.

Watt Business Improvement Specialist Wood Products Extension North Carolina State University Raleigh, North Carolina 27695 For the Under Utilized Species Marketing Project Wood Education and Resource

2 TABLE OF CONTENTS Topic Page Executive Summary 2 Business Description 2 Products/Services 3 Management and Personnel 3 Business Strategy Elements Marketing Sales Goals 4 Product Lines 4 Target Markets 4 Main Marketing Strategies 4 Competitive Strategy 4 Promotional Strategy 4 Pricing Strategy 4 Market Budget 4 Financial Plan 4 Equipment 5 Facilities 5 Executive Summary The residential home millwork offerings are typically limited to a small number of hardwood species at most building center outlets. Most contractors use building centers near their projects and few purchase millwork for their projects outside of their local building supply centers. Mighty Fine Millwork, Inc. (MFM) operates a millwork shop using a contrarian business strategy where it offers different wood species at attractive prices combined with quick delivery. This example business plan outlines a successful regional millwork shop that focuses on using lower priced under utilized Eastern hardwood species to support a line of standard mouldings in the under utilized minor Eastern hardwood species. In this example, MFM, Inc., has been in business for ten years as a manufacturer of premium hardwoods millwork products, but in the last three years has converted to offering minor species hardwoods using a value based business contrarian business strategy. Business Description The company is a manufacturer of residential and commercial millwork mouldings and millwork accessories. MFM, Inc. found that builders wanted a wood species cheaper than poplar for stain and paint grade interior trim and millwork projects but did not want to use MDF. The company operates three modern moulding machines and purchases moulding blanks from AAA Dimension Products, or AAADP, Inc. The company operates out of a 10,000 square foot metal building in a location that serves three major metro areas. The company markets its products directly to builders who buy on a project basis. The company s sales department seeks out projects to bid by checking on new building permits for new construction and remodeling. MFM, Inc. operates on a limited inventory $ investment program because AAADP can deliver most moulder blanks and glued panels in a short time period. The company also produces millwork for stair systems, raised wall paneling and wainscoting. 2

millwork offerings are typically limited to a small number of hardwood species at most building center outlets.

3 Products/Services The company manufacturers the following millwork related products: Standard stock residential mouldings Interior trim products Stairs systems products-treads, risers, balusters, posts Raised wall paneling systems Wainscoting Since MFM, Inc. focuses on residential and commercial projects on a bid basis, the company enjoys the benefits of volume production on most orders. Customers can rely on MFM, Inc. to deliver all the millwork and trim products needed to complete the job in one delivery in a reasonable time period. Most orders are delivered in a two week delivery period from placing an order. The company operates on a regional basis by focusing on three nearby metro areas where there is a high population and lots of opportunity to bid on projects. Each metro area is within a three hour drive and the company offers standard delivery to each metro area on a weekly basis. Management and Personnel The company is single family owned business with two brothers having whole ownership of the company. Brent and Greg Parsons are the legal owners of the business that operates as a corporation. Brent handles the role of company manager and sales while Greg acts as the shop superintendent and purchasing manager. Seven direct labor employees perform all the manufacturing and delivery tasks and are assigned to these areas for the majority of their weekly tasks: Direct Labor Manning Chart Location # Employees Shop 6 Truck driver 1 Total Direct Labor 7 Two employees are assigned administration, sales and management tasks, as listed below: Overhead Employees Sales/Management 1 Superintendent 1 Total Overhead Emp. 2 3

Customers can rely on MFM, Inc. to deliver all the millwork and trim products needed to complete the job in one delivery in a reasonable time period.

4 Business Strategy Elements Marketing Sales Goals-the company s annual sales goal is $1.2 million a year at a profit margin on sales at 7-1/2%. The company actively works to sell whole projects to achieve a high $ value per sale. Product Lines-the company offers standard profiles that are commonly used and are less expensive that what contractors pay at their typical home building center. The product lines include profiles for crown mouldings, base mouldings, window and door mouldings and flooring. The company does have a manual end matcher to support its offerings of flooring. MFM, Inc. uses solid lumber for the cabinet doors, drawer fronts and cabinet ends. A raised panel door machine performs all the required machining and the company does not purchase wood components from outside vendors. Target Markets-the company s target markets are builders of residential and commercial projects. MFM, Inc. identifies prospects by reviewing new building permits and tracking projects as they are built. Main Marketing Strategy-by using under utilized minor Eastern US hardwoods the company is able to offer a product/service package that is cost competitive to imports and premium US hardwoods for the millwork portions of residential and commercial building projects. The company runs the millwork on a make-to-order basis and offers weekly delivery trips to the three metro areas served. Builders value whole project pricing combined with weekly deliveries. Competitive Strategy-the company s competitive strategy is to offer millwork with superior finishing and appearance properties at the price of poplar to builders. The minor species hardwoods all finish better than poplar. Promotional Strategy-the company promotes itself by knowing the builders of projects and by being a member of all the home builder associations in the three targeted metro areas. The company focuses on meeting builders face-to-face and building long term relationships. Pricing Strategy-the company prices its products at competitive prices to poplar millwork products and given the improved design and finishing properties of the minor species hardwoods, to poplar, many builders do give the company s products a project before signing up for additional products. Marketing Budget-MFM, Inc. budgets $30,000 annual for marketing and focusing on attending the local home builder association meeting and local home builder shows. Financial Plan-shown below is the budgeted annual Profit and Loss Statement that shows the company s sales, expenses and profitability on a monthly and annual basis. The company pays about 50% of sales for materials, 18% for direct labor and has an overhead cost of 35%. The profitability level of sales is running 7-1/2%. The company s nine employees perform at a productivity annual rate of $133,333 of sales per employee. 4

Product Lines-the company offers standard profiles that are commonly used and are less expensive that what contractors pay at their typical home building center.

5 Profit and Loss Statement-Mighty Fine Millwork Fraction Month Year Sales $100,000 $1,200,000 Expenses Materials 0.50 $50,000 $600,000 Direct Labor 0.18 $17,500 $210,000 # Employees 7 Annual $/Emp $30,000 Overhead # Employees $25,000 $300,000 Profit $7,500 $90,000 MFM, Inc. has typically reinvests $10,000 to $15,000 annually to keep the company s asset base up to date and its labor productivity growing. Most of the company s equipment is either fully depreciated or in the later stages of being written off as the company does use the accelerated depreciated schedules. The company does have approximately $25,000 of raw materials inventory and approximately $75,000 of inventory as work-in-process and finished goods. Equipment-the company has the following equipment: Equipment List Forklift Moulders-3 Trim saw Straight line rip saw End matcher Table shaper Raised panel door machine Pin Router Band saw Pocket boring machine Wide belt sander Assembly clamp Packing strap machine Delivery truck Current book value = $300,000 Facilities-the company has a single 10,000 sf building that has 1,000 sf in offices and support uses, and the balance for manufacturing. The business rents the building on a five year contract basis. 5

has typically reinvests $10,000 to $15,000 annually to keep the company s asset base up to date and its labor productivity growing.

An Example Business Plan Model For Urban Metro Cabinet Shop, Inc., a Manufacturer Focusing On Under Utilized Minor Eastern Hardwood Species

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