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Durango Automotive, Inc. Business Plan February 2003 Business Plan Copy Number _____ This document is confidential. It is not for re-distribution. Copyright 2003 Durango Automotive, Inc. Mary E. Jenkins General Partner XXXX W Avenue N47 Palmdale, CA 93551-4000 661-XXX-XXX home 818-XXX-XXXX cell maryjenkins@xxxxxx.com This is a business plan. It does not imply an offering of Securities. Plan Prepared By Doug Williams and Associates, LLC 1.0 Table of Contents 1.0 TABLE OF CONTENTS ............................................................................................................... 2 2.0 EXECUTIVE SUMMARY ............................................................................................................ 3 3.0 COMPANY OVERVIEW.............................................................................................................. 5 4.0 SERVICES ...................................................................................................................................... 6 6.0 MARKETING PLAN................................................................................................................... 14 7.0 RISK/OPPORTUNITY................................................................................................................ 16 9.0 MANAGEMENT TEAM ............................................................................................................. 18 10.0 CAPITAL REQUIREMENTS .................................................................................................... 19 11.0 FINANCIAL PLAN AND ANALYSIS....................................................................................... 20 INCOME STATEMENT 2003........................................................................................................................ 22 INCOME STATEMENT 2004........................................................................................................................ 23 INCOME STATEMENTS QUARTERLY .......................................................................................................... 24 BALANCE SHEET 2003 .............................................................................................................................. 25 BALANCE SHEET 2004 .............................................................................................................................. 26 BALANCE SHEET QUARTERLY .................................................................................................................. 27 STARTUP COSTS SCHEDULE ...................................................................................................................... 28 STATEMENT OF CASH FLOWS 2003 .......................................................................................................... 29 STATEMENT OF CASH FLOWS 2004 .......................................................................................................... 30 STATEMENT OF CASH FLOWS QUARTERLY .............................................................................................. 31 DEPRECIATION SCHEDULE ........................................................................................................................ 32 LOAN SCHEDULE ...................................................................................................................................... 33 12.0 APPENDICES .............................................................................................................................. 34 A-1 LAND AND BUILDING PURCHASE AGREEMENT ................................................................................. 35 A-2 SUPPLIER LETTER OF INTENT ............................................................................................................ 36 Copyright 2003 Durango Automotive, Inc Page 2 of 36 2.0 Executive Summary Durango Automotive, Inc. (DA) is a start-up general automotive service and repair business that will be located on Durango Street in Lancaster, California. Lancaster, California is a high growth community and the proposed business is located on a high traffic street that will give the business high visibility to our new customer base. The principals in the business have extensive experience in operating an auto repair businesses and hold many state certifications and licenses for doing repair work. Initial capitalization will require $250,000 to purchase building, land, make improvements and purchase equipment. This will also cover the initial startup costs. We are looking for an SBA loan for $225,000 with the principals contributing $25,000 in cash. The principals have extensive tools, work benches and other equipment for startup. The proposed building is a 4 bay repair shop with an office on approximately ½ acre of land. This building has housed successful and profitable automotive repair businesses for the past 25 years. The current business repairs VW cars only and is being sold because owner has severe health problems. The property is zoned M-1 and all permits are current and up to date. This building is a converted gas station that has had all underground tanks removed. The building is located on the corner of Durango Street and J-5. Durango is a busy major street. The corner location gives easy access for customers. Durango Automotive will be a full service general automotive repair shop offering services on domestic cars, light-medium duty trucks, and Asian import cars. Services will include (1) factory maintenance services (30,000; 60,000 and 90,000 miles); (2) drivability, diagnosis and repair; (3)brake service (4) heating / AC repairs and (5) many other general auto repair services. Durango Automotive is incorporated as an S corporation. The automotive repair market is growing in the Lancaster / Palmdale area. In general people want to repair their vehicles near where they live or work. Both the population and employment of the Lancaster and Palmdale Population Palmdale Lancaster areas are undergoing high growth. The 600,000 direction of population 500,000 growth for the Los 400,000 Angeles area is into 300,000 northern Los Angeles 200,000 County. This is where 100,000 Lancaster is located. 0 1994 2000 Copyright 2003 Durango Automotive, Inc 2005* 2010* 2015* 2020* Page 3 of 36 Our survey results for the Lancaster area show that auto repair customers are looking for: (in this order) 1. Outstanding customer service 2. Competitive pricing. 3. Reputation for honesty. 4. Reputation for quality service. 5. Knowledgeable licensed technicians. 6. Convenient shop location. Employment Palmdale Lancaster 250,000 200,000 150,000 100,000 50,000 0 1994 2000 2005* 2010* 2015* 2020* Durango Automotive has formed their approach to customers around this survey. The principals in this business have extensive automotive repair shop experience. Mary, Dave and Robert owned and operated Certified Auto Repair in Newhall, California for 10 years. • Mary Jenkins, 54, owns 51% of DA and has 34 years of accounting and office management experience; 18 years of these are in the automotive repair industry. • Dave Jenkins, 54, owns 39% of DA and has 35 years of automotive repair and automotive repair shop management experience. Holds ASE master technician certification. This requires 8 separate California State certification exams. • Robert Jenkins, 23, owns 10% of DA and has 7 years experience as an automotive technician. Robert holds 6 state certifications for automotive repair. $1000 Per Month DA will show a positive cash flow and positive pre-tax income in the first year. All auto repair labor will be done by the principals Dave Jenkins and Robert Jenkins. David and Robert will take their compensation in the Net Income Projections form of draws. Shop Pre-Tax/ Pre-Draw Income Pre-Tax Income (Post Draw) capacity is estimated at $30,000 per month before 60 additional mechanics will 50 have to be added. Full 40 capacity for the shop is 30 estimated at $50,000 per 20 month with the addition of 10 one mechanic and one 0 helper. -10 -20 2003Q2 2003Q3 2003Q4 2004- 2004Q1 Q2 Copyright 2003 Durango Automotive, Inc 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2005Q1 2005Q2 2005Q3 Page 4 of 36 2005Q4 After the first month, the cash flow remains positive. The principals will adjust their draws as required to maintain a positive cash flow. Cash Position Plan EOM Cash Pre-Tax / Pre Draw Monthly Income 140 120 100 $ 80 60 40 The startup costs for 20 Durango Automotive 0 are primarily to Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 purchase the Real Estate and building. The purchase price appears to be well below market and is on a heavily traveled street. The principals have significant experience in operating an automotive repair business. The cash flow and income projections appear very healthy. All this together makes for a low risk venture with high returns. 3.0 Company Overview Durango Automotive, Inc (DA) is a startup automotive repair and service business. DA will differentiate itself from its competition by being strongly customer focused; provide high quality service at competitive prices. DA will offer a variety of customer services to make sure that we are easy and convenient to do business with. 1. Free customer pick up and drop-off within 5 miles. 2. Free rental cars on major repairs and discount car rental on minor repairs through Enterprise Car Rental. 3. Build a reputation for Honesty, do only what is necessary for your car, and advising what repairs can wait until a later visit. 4. Provide courteous and friendly service to earn customers trust for repeat business. 5. Develop a reputation for providing customer with high quality repairs that they can rely on when commuting to and from work. 6. Protect customer vehicles by using protective floor mats and seat covers. 7. Provide free exterior car wash on larger repair or service jobs. 8. Continually looking for customer requested services. DA will insure high quality work. 1. Technicians are fully trained and have state certifications for the work being performed. 2. A.S.E. State Certified technician/ A.S.E. master technician Manager to provide customers with clear & precise explanations of repairs and recommendations. 3. Setup quality control procedures to insure original customer concern was taken care of and prevent new or related issues from leaving the shop undetected. 4. All work backed by 12 month or 12,000 mile limited warranty. Copyright 2003 Durango Automotive, Inc Page 5 of 36 5. Use the latest computer references and factory technical bulletins to assist technicians in drivability diagnosis and repairs. 6. Technicians have latest Delco training in electrical and drivability repairs to provide the customer first time accurate diagnosis with no guessing. DA will provide competitive pricing to its customers. Prices will be based on a shop rate of $62.50. Shop rates in the local area range from $58-$70/Hr. Labor time estimates are based on standard flat rate times. Durango Automotive, Inc is a startup General automotive repair and service that will be located on Durango Street and J-5 in Lancaster, California. The current building is approximately an 1800SF 4 bay repair shop located on ½ acre of land. Durango Automotive is in the process of incorporation with the State of California. DA will operate with a subchapter S election. Ownership will be with Dave Jenkins (39% ownership) and Mary Jenkins (51% ownership) (husband and wife) and Robert Jenkins (10% ownership) (son). All have extensive experience in successful automotive repair businesses. Sales and profit projections: $x1000 Net sales Net Income Before Net Income After Owner Draws Owner Draws 2003 138 55 1 2004 238 121 23 2005 274 150 30 2006 309 178 41 4.0 Services Durango Automotive, Inc (DA) is a startup general automotive repair and service business. DA will provide general automobile repair services for mechanical and electrical car repairs. DA will focus on domestic and Asian import cars and trucks (light to medium duty). (1) Factory maintenance services: These are the 30-60-90K servicing on cars as specified by the factory. DA offers a quality alternative to dealership service departments at a lower cost. (2) Timing belt replacements: Newer vehicles use timing belts rather than timing chains. These must be replaced periodically. Typically 90K on newer vehicles and 60K on older cars. (3) Fuel injection service & repairs: Required every 15K miles. (4) Drivability diagnosis and repair: Check engine light comes on usually as a result of computer / sensor errors. This causes the car to run poorly. We retrieve diagnostic codes and then troubleshoot the system. Repairs are then made. Copyright 2003 Durango Automotive, Inc Page 6 of 36 (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) Heating and air conditioning service and repairs: Routine and general maintenance is needed every 2 years. System failures are repaired and fixed including compressor, condenser and evaporators. Starting and charging system diagnosis and repairs: Usually come in as a repair item and includes replacing alternators, voltage regulators, computer failures, starters and batteries. Brake service work: Complete brake service on drum, disc, ABS, master cylinders, etc. Suspension repairs Typically Mac Pherson type struts & shocks need to be replaced when tires show unusual wear or the car ride becomes uneven. Axle boots/axles & drive train repairs. Service, grease or replace axles. Manual transmission service, U-Joints, drive axle service. Engine tune up: Spark plugs, wires, (set timing and idle), computer trouble code analysis. Cooling system maintenance and repairs: Drain and refill, hoses, radiator (service or replace), water pumps, freeze plugs, heater control valves, head gasket, etc. Automatic Transmission services. Routine maintenance, replacements (rebuilt or new). Clutch replacement: On manual transmissions, mill fly wheel, replace pilot or throw out bearings, replace clutch disk, pressure plate, etc. Complete engine repairs: Any type of engine repair or replacement. Mechanical repairs: All other miscellaneous repairs. Electrical trouble shooting and diagnostic and repairs: Able to repair most types of electrical problems. Barriers to entry for competitors include technical skills required to diagnose and repair today’s vehicles. Cars today have one to seven computers that operate and control the various systems. Highly skilled technicians with proper training and certifications are at a premium. DA’s approach is to use the best talented repair technicians to give high quality repairs. Highly skilled technicians are able to do repairs much more quickly with very good workmanship. This actually reduces the cost to do a repair. 5.0 Market Analysis Automobile repair and service market has been a changing and evolving market. It used to be that every car owner could service and repair their own car. Today’s “typical” cars are high technology marvels with one to seven computers controlling the engine systems and subsystems. Computer modules control and coordinate ignition systems, fuel injection, suspension, air conditioning and heating, automatic transmission, cruise control, braking systems, air bags, sun roofs, power windows and more. There are computers whose sole function is to coordinate intercomputer communications. The Lexus GS430 has 17 computers, the least expensive of which costs $3500 to replace. These high tech vehicles use control systems that are almost as sophisticated as military stealth fighters. Copyright 2003 Durango Automotive, Inc Page 7 of 36 The cars of today no longer have carburetors or distributors. The new hybrid cars have dual electric-gasoline technology for high fuel efficiency. Qualified repair technicians require many years of training classes coupled with on the job supervised experience to be able to repair the newer cars. Many mechanics today have not kept up with this technology growth. Many car owners of today are not aware of how high tech their cars really are. 10-15% of the cars that come in to a typical shop today for repair are a result of owners trying to service and repair their own cars. People look for repair shops that are conveniently located near where they work or where they live. The Lancaster-Palmdale, which is located in northern Los Angeles County, is undergoing high growth. Because of the high cost of living and housing in Los Angeles and the San Fernando Valley, northern LA County is now becoming a desirable place to live and work. Population Annual Growth Year Palmdale Lancaster Total 1994 94,601 115,486 210,087 6% 2000 123,515 145,674 269,189 5% 2005* 151,242 179,285 330,527 5% 2010* 180,880 212,830 393,710 4% 2015* 212,433 252,239 464,672 4% 2020* 249,683 293,929 543,612 3% *Estimates source: Southern California Association of Governments Population Palmdale Lancaster 600,000 500,000 400,000 300,000 200,000 100,000 0 1994 2000 2005* 2010* Copyright 2003 Durango Automotive, Inc 2015* 2020* Page 8 of 36 Employment Annual Growth Year Palmdale Lancaster Total 1994 35,414 38,968 74,382 6% 2000 47,754 48,403 96,157 5% 2005* 57,119 59,325 116,444 4% 2010* 69,046 70,246 139,292 4% 2015* 84,055 86,048 170,103 4% 2020* 98,843 101,857 200,700 4% *Estimates source: Southern California Association of Governments Employment Palmdale Lancaster 250,000 200,000 150,000 100,000 50,000 0 1994 2000 2005* 2010* 2015* 2020* The automotive repair and service market based on 1992 State of California data is $190.60 per capita. This was based on total auto repair and services expenditures in the state of California divided by the population for the state in 1992. This correlates with other estimates in other parts of the nation found doing internet research on the market. By using the per capita expenditures and applying this against the projected population trends, the market size can be calculated. The local market is approximately $58 million today and growing at about 5% per annum. There are 108 repair shops listed in the phone directory for all of LancasterPalmdale. This equates to an average annual revenue of $537K per shop. Durango Automotive is expected to capture 0.4% of the Lancaster-Palmdale market by the end of their first year and 0.5% by 2005. Realistically the sales market area will be within 5 miles of the shop. Revenue projections in this plan may be conservative and actual sales should exceed the revenue projections Presented here. Copyright 2003 Durango Automotive, Inc Page 9 of 36 Year 1994 2000 2005 2010 2015 2020 Local Car Repair and Service Market Per Capita Spending Palmdale Lancaster Total * $millions $millions $millions $191.60 18 22 40 $191.60 24 28 52 $191.60 29 34 63 $191.60 35 41 75 $191.60 41 48 89 $191.60 48 56 104 Annual Growth 6% 5% 5% 4% 4% 3% Local Auto Repair Market Palmdale $millions Lancaster $millions 120 100 80 60 40 20 0 1994 2000 2005 2010 2015 2020 Competition Analysis 1. Blue Streak Automotive 321 W Nugent Distance from DA: 0.65 miles # of repair bays: 12 # of repair technicians: 5 Flat rate charge: $66.75/hour Estimated Annual Revenue: $1100K Strengths: Good size building, good reputation, employ ASE technicians, offer full service general repair. Weaknesses: Not located on a major street, limited parking, prices high, but not profitable. 2. Wayne & Dave's Automotive, 43937 Durango Distance from DA: 0.27 # of repair bays: 11 # of repair technicians: 5 Flat rate charge: $64.85/ hour Estimated Annual Revenue: $900K Strengths: Offer complete services, employ ASE certified technicians, located on busy street (but have low visibility from street), advertise in newspaper and direct mail. Weaknesses: Poor visibility from street, limited parking Copyright 2003 Durango Automotive, Inc Page 10 of 36