1. business and industrial

Feasibility Study for
Commercial Cleaning Cooperative in
Washington, D.C.
Prepared for:
National Cooperative Business Association and the
Urban Cooperative Development Task Force
Washington, D.C.
Prepared by:
The ICA Group
Brookline, Massachusetts
November 2003
Table of Contents
1.0 Executive Summary ................................................................................................................ 1
2.0 Introduction............................................................................................................................. 4
3.0 Commercial Cleaning Industry ............................................................................................. 5
3.1 National Market .................................................................................................................. 5
3.2 DC Metro Area Market....................................................................................................... 7
4.0 Assessment of Local Market Demand................................................................................... 9
4.1 Commercial Office Cleaning Demand Model .................................................................... 9
4.2 Required Market Capture.................................................................................................. 11
4.3 Local Market Sectors ........................................................................................................ 11
4.4 Customer Survey Results.................................................................................................. 14
5.0 Competition Analysis............................................................................................................ 18
5.1 Description of Firms ......................................................................................................... 18
5.2 Survey Results .................................................................................................................. 22
6.0 Analysis of Market Niche Opportunities ............................................................................ 24
6.1 Customer Niche Markets .................................................................................................. 24
6.2 Service Niche Markets...................................................................................................... 25
7.0 Assessment of Local Labor Supply ..................................................................................... 26
7.1 Demographic Profile......................................................................................................... 26
7.2 Unemployment and Workforce Mobility.......................................................................... 27
7.3 Union Representation........................................................................................................ 28
8.0 Operations ............................................................................................................................. 29
8.1 Management...................................................................................................................... 29
8.2 Worker/Owners................................................................................................................. 29
8.3 Services and Work Flow................................................................................................... 30
8.4 Equipment and Materials .................................................................................................. 31
8.5 Job Quality and Worker Compensation............................................................................ 31
9.0 Financial Plan........................................................................................................................ 32
9.1 Billing Rate and Revenue Forecast................................................................................... 32
9.2 Breakeven Analysis .......................................................................................................... 32
9.3 Capital Expenditures......................................................................................................... 32
9.4 Financial Projections......................................................................................................... 33
9.5 Capitalization .................................................................................................................... 33
9.6 Assumptions...................................................................................................................... 33
10.0 Methodology for Future Replication of Cooperative Business....................................... 35
10.1 Partner-Based Replication Strategy ................................................................................ 35
10.2 Market-Based Replication Strategy ................................................................................ 36
11.0 Conclusions and Next Steps ............................................................................................... 38
Appendix A: Customer Survey List
Appendix B: Financial Projections
1.0 Executive Summary
The ICA Group and the National Cooperative Business Association have undertaken this
feasibility study on behalf of the Urban Cooperative Development Task Force to explore the
prospects for a commercial cleaning cooperative that would create quality employment
opportunities for low-income residents in Washington, DC. The study indicates that developing
such an enterprise would be a difficult endeavor, and the ability of this venture to generate
reasonable financial returns and fulfill its promise as a model for urban economic development is
doubtful. Key findings are as follows:
§
Nationally, janitorial service revenues are continuing to grow, fueled in part by increased
outsourcing for commercial cleaning services. The industry is also experiencing continued
diversification and consolidation by large firms, and more market specialization by smaller
firms.
§
DC metro area janitorial service companies generated nearly a billion dollars in total revenue
in 2001. Between 1998 and 2001, revenues grew at a compound annual growth rate (CAGR)
of 6.8%, slightly slower than the national CAGR of 7.3% for the same period.
§
The DC metro janitorial service industry is highly penetrated, with a strong mix of
competitors including large, national multi-service firms, well-established family-owned
cleaning companies, over two dozen 8(a) minority-owned businesses and several large, nonprofit rehabilitation programs that employ workers with disabilities to fulfill federal
government contracts.
§
The DC metro area janitorial services industry employs some 37,000 people. Based on
projected new office construction and occupancy rates, the metro area will add about 2,750
new cleaning positions during 2004 through 2007. Most of these will be in northern Virginia
and the District of Columbia.
§
Demand for cleaning services from a new company is weak. Across various sectors and areas
within the metro DC market, customers who outsource for commercial cleaning services
express high satisfaction and strong loyalty to their existing vendors, and are disinclined to
consider new contractors, so long as service standards are met and pricing is reasonable. This
holds true even among large co-op organizations and other customers surveyed who are
considered friendly to the goals of the proposed company. Among property managers who
bid out cleaning contracts, experience is a key selection criterion.
§
One market opportunity for a social purpose cleaning cooperative may be in servicing HUDfinanced public and other affordable rental housing properties. Section 3 of the HUD law
requires housing authorities to contract with companies owned by or employing public
housing residents or other low-income individuals “to the greatest extent possible.” The DC
Housing Authority has recently undertaken efforts to expand its Section 3 compliance and is
eager to work with the task force. The initial scale of business involved is likely to be small,
however.
1
§
The largest local pool of unskilled workers is found in the District of Columbia, which has a
significantly poorer and less educated population than its suburban neighbors, and twice the
level of unemployment. New immigrants attracted to the DC area settle mainly in suburban
counties, and El Salvador is the country of origin for the largest percentage of legal
immigrants settling in the metro region during the last decade.
§
The wage scale for janitors in the DC metro market is low. Some 5,300 SEIU janitors
covered under Master Commercial Agreements in DC and suburban Maryland start at $8.00
per hour, and non-union janitors at $6.15. About 10% of these union janitors receive
employer-paid health insurance. A new contract will increase the union wage to $8.40 in
2004, with annual increases of five percent through 2008. By contrast, hourly wages for
union janitors in Boston and New York currently start in the $10 to $16 range.
§
The financial projections assume year one sales of $262,000, increasing to $1.5 million in
year five, and a gross margin of 22%. Based on the projected overhead cost structure, annual
breakeven revenue is $1.2 million. At this level of sales, the company would employ 46 fulltime equivalent cleaners and four administrative staff. Breakeven revenue represents a
capture rate of 0.1% of the total DC metro market and an estimated 3% of new office
cleaning business forecast through 2007.
§
$250,000 total capitalization is required, with $200,000 in equity and $50,000 in term debt. A
line of credit is also required beginning in year three.
§
The company’s low profit margins limit its capacity to provide employee benefits and
distribute patronage dividends. Wages have been budgeted to match the local union scale,
and workers receive five paid personal days each year, but no health insurance benefits.
These compensation constraints, along with the company’s lack of earnings potential, raise
serious questions relating to overall job quality and retention of worker members.
§
If the task force opts to proceed with a cleaning cooperative, it can enter the market in one of
two ways:
First, the cleaning co-op can begin doing business on a very small scale, build its reputation
and grow slowly over time. In lieu of previous experience, the co-op can enhance its
credibility and possibly accelerate its sales growth by attracting a manager with a proven
performance record in the local market. The employment of public housing residents might
also unlock cleaning service opportunities with HUD-financed properties. Still, initial job
creation is likely to be small, and the company’s impact as a development strategy may be
insufficient to gain the serious attention of policy makers and funders.
Alternately, the task force can identify a large, friendly customer that is willing to contract
for cleaning services with the new company. This option would jump-start the business on a
larger scale, guaranteeing a minimum sales volume that would support more immediate job
creation and constitute a more impressive “model” of economic development. Finding a
2
friendly customer with significant business volume has proven difficult to date, and
additional, aggressive networking would be needed by the task force to pursue this option.
§
Taken together, the weak customer demand, intense competition and adverse cost structure in
the metro DC market argue against developing a commercial cleaning company as a model
urban cooperative.
3
2.0 Introduction
The ICA Group and the National Cooperative Business Association have undertaken this
feasibility study on behalf of the Urban Cooperative Development Task Force to explore the
prospects for a commercial cleaning cooperative that would create quality employment
opportunities for low-income residents in Washington, DC. The task force is seeking to create a
business that will inform policy makers and legislators about the benefits and importance of
cooperatives as an urban economic development tool. The task force also aims to create a worker
cooperative development model that can be replicated in other cities throughout the US.
As an urban economic development strategy, cooperatives have the power to create quality
employment opportunities for their worker members in the form of equitable compensation,
supportive working conditions, democratic decision-making, participation in business profits and
ongoing opportunities to learn and advance. A future business would be designed to deliver all of
those benefits to its worker members, who would be recruited through community-based
organizations that represent disadvantaged residents. Since the workers would likely lack
personal financial resources to invest in the company, social purpose equity would be a major
source of capital for this venture.
Commercial cleaning was selected as a promising business sector for this study for several
reasons. First, the work is low-skilled, making it accessible to people who lack a higher
education and/or previous work experience. Second, it permits a team approach, which can
provide a supportive work environment for new or inexperienced workers, and non-English
speakers. Third, it requires a fairly modest capital investment. These low barriers to entry make
commercial cleaning an intensely competitive business, however. As such, in the course of this
study, ICA and NCBA sought to identify market niches, in terms of both customers and services,
that could help a new company differentiate itself in the market and quickly establish a customer
base.
The study begins with an overview of the national commercial cleaning market, followed by an
in-depth analysis of the DC metro janitorial services market, including its size, future growth
prospects, competitive climate and potential opportunities within specific customer and service
niche markets. Next, the study identifies the resources needed to operate the business and
identifies its anticipated cost structure and capital requirements. Finally, the study outlines two
alternative strategies for replication and recommends next steps for the Urban Cooperative
Development Task Force.
4
3.0 Commercial Cleaning Industry
3.1 National Market
Industry Description
Commercial cleaning consists of janitorial services provided to a variety of commercial property
types: office, retail, industrial, medical facilities, and multi-family apartment common space,
among others. Common services offered include vacuuming, dusting, scrubbing, trash removal,
floor buffing, rug cleaning, and window washing. While some firms provide services to both the
commercial and the residential market, most commercial firms exclusively serve the commercial
market. Commercial cleaning is typically performed in the evenings and early mornings while
the employees of a commercial property are away from the site.
Industry Size, Structure and General Characteristics
Janitorial services is a $30 billion industry employing some 930,000 workers in the U.S.
Revenues have risen steadily in recent years, at a compound annual growth rate of 7.3% between
1998 and 2001.1
Annual Revenues, Janitorial Services, 1998-2001
(Millions of dollars)
$40,000
$30,000
$20,000
$10,000
$0
1998
1999
2000
2001
The janitorial services industry, though not recession-proof, is somewhat resistant to economic
downturns due to the relatively inelastic demand for cleaning services. In late 2001, industry
revenues were predicted to grow by 5.5% annually through 2005, driven mainly by continued
outsourcing.2 Since then, the general economic slowdown has no doubt been felt by janitorial
service providers as part of the overall weaker demand for business services. Office and
institutional building markets account for about two-thirds of commercial cleaning demand, and
when building occupancies decline, fees paid to contract providers for janitorial services also
fall. Customers’ efforts to trim costs by reducing the frequency of cleaning services also results
in lower revenues for contract providers.
1
2
1997 Economic Census and 2001 Service Annual Survey, U.S. Census Bureau
Freedonia Group, October 2001
5
While the number of janitorial service employees nationwide grew by 6% between 1998 and
2001, the total number of firms declined slightly, by one-and-a half percent or nearly 800 firms,
during the same period. The biggest percentage loss was among companies with 4 or fewer
employees, although firms of this size continue to be the most common in the industry,
accounting for over half of the nearly 55,000 total firms in 2001.3
Given the low-skilled nature of the work and low barriers to entry, the industry is intensely
competitive and yields modest profit margins. These factors keep wages low and tempt many
contractors to use and exploit undocumented workers, a practice that persists in urban centers
with high immigrant populations.
Industry Trends
Increased Outsourcing for Cleaning Services
Increasingly, companies are seeking to reduce their facilities management expenses by
outsourcing these tasks. In one recent survey of facilities managers, custodial and housekeeping
services topped the list of most frequently outsourced functions, and were among the three
services “least likely to be brought back in-house.”4
Continued Diversification and Consolidation by Large Firms
Large facility services firms are expanding their businesses into multiple sectors as a way to add
value, improve efficiency and increase sales, and many have achieved this through mergers and
acquisitions.5 ABM Industries, for example, the largest US-owned facility services contractor,
provides janitorial as well as elevator, lighting, parking, security, engineering and air
conditioning services for its customers. Aramark has completed nine acquisitions since 2000,
including ServiceMaster Company in 2001, and now offers janitorial services in addition to
dining and catering, mailroom operations, uniform and clothing rental, and plant operations and
maintenance, among other services.
Market Specialization and Segmentation by Smaller Firms
As the industry consolidates, smaller companies are beginning to focus on niche cleaning, such
as mold remediation, indoor air quality, specialty floor care, window washing and disaster cleanup.6 These services are typically provided less frequently than general maintenance services.
Improved Products and Equipment
An increased focus on indoor air quality and greater environmental awareness is driving the use
of new, less toxic cleaning supplies. The industry is also benefiting from the availability of more
efficient and ergonomic equipment, such as automated floor cleaning systems, micro-fiber cloths
and mops, and backpack vacuums.7
3
County Business Patterns, NAICS 56172 - Janitorial Services, 1998-2001
International Facility Management Association, World Workplace Conference Attendees, 2001
5
Brereton Industry Reporter, February 2003
6
International Custodial Advisor’s Network, 2003 Annual Forecast
7
Freedonia Group, October 2001
4
6
3.2 DC Metro Area Market
The DC metro area, for purpose of this study, consists of the District of Columbia, the suburban
Maryland counties of Montgomery and Prince George’s, and the City of Alexandria, Arlington
County and Fairfax County in northern Virginia. As a rough measure of relative size, northern
Virginia has the largest share of office space inventory, about 44%, compared to DC with 33%
and suburban Maryland with 23%.
DC metro area janitorial service companies generated nearly a billion dollars in total revenue in
2001. Between 1998 and 2001, metro area revenues grew at a compound annual growth rate
(CAGR) of 6.8%, a bit slower than the national CAGR of 7.3% for the same period, but a
healthy pace nonetheless. As shown in the following graph, the experience reported by
individual markets within the DC metro area varied widely:
DC Metro Area Janitorial Service Revenues
Dollars ($1,000s)
300,000
250,000
Fairfax Co, VA
200,000
Mont Co, MD
DC
150,000
PG Co, MD
100,000
Arl Co, VA
50,000
Alex, VA
0
1998
1999
2000
2001
The suburban Maryland counties of Montgomery and Prince George’s marked the upper and
lower extremes of sales growth during the 3-year period ending 2001, with CAGRs of 15.4% and
a negative 4.1% respectively. In Virginia, Fairfax County posted a better than average gain of
8.8%, compared with Alexandria, where revenues grew at a compound annual rate of 2.5%, and
Arlington County, where sales growth remained nearly flat. Revenues in the District of
Columbia grew slightly slower than the metro area overall, at a compound annual rate of 5.9%.
It is important to note that annual revenue data corresponds to the counties where cleaning
companies have their offices, not necessarily to where the work is being performed, so sales
activity in the market as a whole is a more important indicator than sales activity within
individual localities. Still, the higher revenue growth in Montgomery and Fairfax Counties may
correspond in part to more new office space coming on line and more private sector outsourcing
in these locations, while the slower growth in Alexandria and Arlington County may reflect the
greater maturity of these markets.
7
Firm Characteristics
According to the Census Bureau, there were 1,030 janitorial service establishments8 employing
36,702 people in the DC metro area in 2001.9 The average local establishment had 36 employees,
$969,000 in annual revenues and $27,200 in billings per employee. Comparable national figures
show that the average janitorial establishment in the US had 17 employees, $521,000 in revenues
and $30,700 in billings per employee. Commercial cleaning establishments in DC thus appear to
be larger than the average national establishment.
DC Metro Janitorial Service Establishments by
Number of Employees
20-99
15%
100-499
5%
>499
1%
1-19
79%
Penetration Ratios
The DC metro janitorial services market has substantially higher rates of penetration than the
national market. Nationally, there is one janitorial service employee for every 306 persons, while
the local ratio is one janitorial service employee per every 98 persons, indicating a much higher
density of local janitorial service activity in the DC metro area. The disparity is due in part to
differences in revenue generation. Nationally, the industry generates $100 in revenue per capita,
while in the DC metro market, the industry generates $279 in revenue per capita.
Com parative Janitorial Services
Revenue per Capita, 2001
Com parative Population per
Janitorial Service Worker, 2001
306
$279
$100
98
DC Metro
DC Metro
National
8
National
Note: County Business Pattern data tracks establishments (physical locations) rather than firms. Although total
establishments can vary greatly from total firms in some industries, the national ratio of establishments to firms in
the janitorial service industry is 1.04. For purpose of this report, establishments and firms can be treated as roughly
equivalent.
9
U.S. Census Bureau, County Business Patterns, 2001 (NAICS #56172)
8
4.0 Assessment of Local Market Demand
4.1 Commercial Office Cleaning Demand Model
Demand for janitorial/commercial cleaning services is heavily tied to the real estate market.
Growth in the commercial cleaning industry depends upon either increased outsourcing or the
construction of new properties with cleaning needs. Demand for new janitorial positions can
therefore be forecast by building a model based on projected new construction and occupancy
rates in the DC metro market. (Outsourced positions are difficult to project and do not, in any
event, represent new jobs.) ICA’s demand model focuses on the office market as the largest
component, about three-fourths, of the local commercial cleaning market.
The DC metro office market is among the strongest in the country, with the federal government,
government contractors, association headquarters and numerous professional services firms
providing a stable base of tenants. Within the three main submarkets:
§
DC has the lowest historical vacancy rates, due to supply constraints caused partly by
building height limits. Government agencies own or lease nearly half of DC’s commercial
office space, and law firms are among the larger private sector tenants. With the delivery of
new space in 2004, vacancy rates are projected to peak at 9.2% (from a low of 3.6% in 2000)
and then decline over the next three years, to 6.7% in 2007, as construction slows and the
new space is absorbed.10
§
Suburban Maryland’s office market is considered fairly stable, with a concentration of
tenants serving the health care, biological and pharmaceutical industries. Despite a slow
economy, the 2003 vacancy rate of 12% remained even with the market’s 15-year historical
average. With modest levels of new construction planned, this rate is forecast to fall slightly
each year through 2007, and remain near 11% overall.11
§
Northern Virginia is traditionally the most volatile of the three markets, particularly Fairfax
County, which is dominated by private sector tenants, including many computer technology
and telecom businesses. Alexandria and Arlington County enjoy steadier demand from the
federal agencies, defense contractors and associations located inside the Beltway. Despite its
higher vacancy rates, northern Virginia has the most new construction planned through 2007,
and vacancy rates are expected to remain fairly constant around 15%.12
In the following model, the number of janitorial workers needed to meet the new office market
demand for cleaning services has been projected by holding constant the ratio of office cleaners
to occupied space (based on actual activity during 1998-2001):
10
Reis, Inc. and Greater Washington Commercial Association of Realtors, 2002 Area Market Wrap Up
Ibid.
12
Ibid.
11
9
Table 1. Commercial Office Cleaning Demand Model
Completed New Office
Construction (sq. ft.)
Total Office Inventory
(sq. ft.)
Vacancy %
2002
2003
2004
2005
2006
2007
Total
8,627,000
3,461,000
3,949,000
5,068,000
5,740,000
4,911,000
DC
MD
VA
2,361,000
1,842,000
4,424,000
2,157,000
380,000
924,000
2,525,000
290,000
1,134,000
1,452,000
886,000
2,730,000
1,440,000
1,619,000
2,681,000
1,310,000
1,604,000
1,997,000
Total
269,846,000
272,695,000
276,644,000
281,712,000
287,452,000
292,363,000
DC
MD
VA
83,730,000
61,701,000
124,415,000
85,275,000
62,081,000
125,339,000
87,800,000
62,371,000
126,473,000
89,252,000
63,257,000
129,203,000
90,692,000
64,876,000
131,884,000
92,002,000
66,480,000
133,881,000
Total
11.3%
12.3%
12.3%
12.2%
11.7%
10.8%
DC
MD
VA
6.8%
11.5%
14.3%
8.1%
12.0%
15.2%
9.2%
11.3%
15.0%
9.0%
10.9%
15.1%
7.9%
10.7%
14.7%
6.7%
10.2%
14.0%
30,503,000
33,408,000
34,035,000
34,466,000
33,525,000
31,693,000
5,683,000
7,090,000
17,730,000
6,866,000
7,468,000
19,074,000
8,051,000
7,019,000
18,965,000
8,032,000
6,925,000
19,509,000
7,177,000
6,965,000
19,383,000
6,177,000
6,783,000
18,733,000
239,343,000
239,287,000
242,609,000
247,246,000
253,927,000
260,670,000
78,047,000
54,611,000
106,685,000
78,409,000
54,613,000
106,265,000
79,749,000
55,352,000
107,508,000
81,220,000
56,332,000
109,694,000
83,515,000
57,911,000
112,501,000
85,825,000
59,697,000
115,148,000
203,441,550
203,393,950
206,217,650
210,159,100
215,837,950
221,569,500
6,600
6,600
6,600
6,600
6,600
6,600
Vacant Office Space (sq.
Total
ft.)
DC
MD
VA
Occupied Office Space
Total
(sq. ft.)
DC
MD
VA
Cleanable Occupied
Total
Office Space (85%)
Occupied Office Space
Total
per Janitor (sq. ft.)
New Janitors Needed to
Total
Meet Demand
DC
MD
VA
Employment - Janitorial
Total
Services
-
37,127
-7
428
597
860
868
47
0
-54
173
95
160
189
126
282
296
203
362
298
230
341
37,120
37,548
38,145
39,005
39,874
Sources: ICA estimates based on data from Reis, Inc. and County Business Patterns
The model predicts that after small net job losses in 2003, demand will exist for an additional
2,747 cleaners through 2007. The majority of these jobs will be in northern Virginia and the
District of Columbia as follows:
Table 2. New Janitors Needed, 2003-2007
Northern Virginia
1,090
39.7%
District of Columbia
1,002
36.5%
Suburban Maryland
Total
655
23.8%
2,747
100.0%
Low vacancy rates in DC, coupled with the steady completion of new office space there, will
create new jobs within the District at nearly the same pace as in northern Virginia. Existing firms
will, of course, capture much of the increased demand. Nevertheless, the figures indicate that the
office market can support a number of startup firms in the DC metro market. Given an average of
10
36 employees per firm (see Firm Characteristics on page 8), and assuming that new firms
capture 10 percent of the new demand, the office market could support about seven to eight new
firms of this size over the next four years.
It should be noted that this analysis focuses only on the office market. The retail, institutional
and industrial markets could provide additional sources of new demand.
4.2 Required Market Capture
Another way of assessing the viability of a startup commercial cleaning business is to look at the
percentage of the total janitorial services market that a new company would have to capture in
order to achieve breakeven sales. Given the assumptions contained in the Financial Plan section
of this report, breakeven revenue for a cleaning enterprise with a 22% gross margin and year one
wages of $8.40 per hour is $1.2 million. An individual company would have to capture 0.1% of
the total metro DC janitorial services market to achieve breakeven.
4.3 Local Market Sectors
Federal Government Market
Federal agencies owned or occupied 87 million square feet of office space in the metro DC area
as of 2002.13 Over half this space is in the District of Columbia where federal agencies awarded
about $40 million in janitorial service contracts in 2000.14 (An additional $34.4 million in
contract awards were made in the Maryland, Virginia and West Virginia areas encompassed by
the DC primary metropolitan statistical area.15) Many of these contracts are set asides for entities
that meet certain socioeconomic criteria. Under the Javits-Wagner-O’Day Act (JWOD), for
example, federal government agencies are encouraged to outsource with community
rehabilitation programs (CRPs) that employ blind and disabled populations. Other contracts may
be set aside for 8(a) minority-owned companies, small or small, disadvantaged businesses,
women-owned businesses, veteran-owned businesses or HUB Zone businesses.
An independent federal agency, The Committee for Purchase From People Who Are Blind or
Severely Disabled, administers the JWOD program through two non-profit agencies, National
Industries for the Blind (NIB) and National Industries for the Severely Handicapped (NISH).
NISH serves as an agent to market janitorial (and other) services to individual federal agency
sites, and when an agency elects to assign its janitorial contract to NISH, the Committee assesses
whether the set-aside will cause an “adverse impact” on the existing, for-profit contractor.16 If
the Committee approves the set-aside, NISH selects the local program provider, negotiates the
13
Center for Regional Analysis, George Mason University, The Impact of Federal Procurement on the National
Capital Region, October 2002
14
Ibid.
15
Eagle Eye, Inc.
16
In assessing adverse impact, the Committee considers the impact on the existing contractor’s total sales, and its
history as a continuous government supplier which may make it more dependent on these sales.
11
contract and recommends a price (also subject to the Committee’s approval). Once a site has
been added to the Committee’s procurement list, NISH essentially becomes the permanent
mandatory, sole source provider.
In the DC market, NISH reports that it has captured about 20% of the federal janitorial services
market, through a half dozen or so Community Rehab Program affiliates. These include Chimes,
Inc., Davis Memorial Goodwill Industries, Melwood and ServiceSource (described in more
detail in the Competition section of this study). One of NISH’s major federal customers is the
General Services Administration. (Nationally, GSA and the Department of Defense are the top
two federal agency purchasers of janitorial services.17)
Each federal agency annually sets its own procurement goals (subject to Congressional approval)
and determines how to meet them. As a new business, the cooperative could easily qualify as a
small business or HUB Zone business, and might also qualify as a small, disadvantaged business.
The potential dollar volume may be limited, however. Of the approximately $40 million cleaning
contracts awarded in DC in 2000, only $560,000 went to HUBZone businesses.18 Section 8(a)
status is more lucrative, but harder to achieve, requiring a minimum of two years’ experience
before a firm can apply.
Local Government Market
DC officials were generally unresponsive to inquiries about potential opportunities to contract
for cleaning services (except for the DC Public Housing Authority, which is discussed in the next
section). Several calls to the Office of Property Management, which manages properties owned
and leased by the District of Columbia government, were not returned. At the suggestion of
Manna, Inc., ICA also contacted the Department of Housing and Community Development to
explore opportunities for post-construction cleaning of HUD-financed housing units in
conjunction with a new federal Lead Safe Housing Rule. ICA spoke with the Project Manager to
request information needed to assess the market potential for this niche service, including the
volume of housing stock affected by this rule and a list of local developers, but he failed to
provide this. ICA subsequently spoke with the Vice President for Housing and Community
Development at Marshall Heights Community Development Organization, who reported that the
inventory of housing stock subject to this rule is small, finite and volatile from year to year
depending on how funds are allocated for new construction or rehab of older units.
Housing and Urban Development (HUD) Section 3
Section 3 of the Housing and Urban Development (HUD) Act of 1968 requires that, “to the
greatest extent possible,” recipients of HUD public housing and community development funds
provide employment opportunities or award subcontracts to public housing residents and other
17
18
Eagle Eye, Inc.
The Federal Procurement Data Center did not respond to a written request for contract award totals in the DC area
for all socioeconomic program categories.
12
low-income individuals. Most of these opportunities are in the building trades.19 For Housing
and Community Development fund recipients, Section 3 applies only to contracts or subcontracts
exceeding $100,000 for certain construction-related projects, and does not include routine
maintenance.20 For Public and Indian Housing fund recipients, however, Section 3 applies to any
expenditure, including operations.
Public housing and other agencies that are subject to Section 3 can comply in two ways, by
directly hiring Section 3 residents, or by awarding contracts to Section 3 resident-owned
businesses or to contractors that provide training, employment and contracting opportunities to
Section 3 residents. The law offers flexibility for recipients to alternately provide “other
economic opportunities,” such as sponsoring job information meetings, conducting job readiness
classes or coordinating with federally funded job training programs. These allowances result in
low compliance by many public housing authorities in meeting their hiring and contracting
obligations.
Locally, ICA spoke with the DC Public Housing Authority and the Housing Opportunity
Commission of Montgomery County, Maryland to obtain additional information.21 In DC, the
Section 3 Compliance Specialist said a strong effort is underway to push their existing vendors
(of all services) to train and hire residents, and they would welcome the creation of a cleaning
company that is owned and controlled by residents. Although it has been difficult to attract
residents’ participation in programs that promote entrepreneurship, she felt that a cooperative
business model might have more appeal. She was unable to provide details about potential
business volume, but mentioned Henson Ridge, a new 600-unit development that will include
some 30 to 40 rental properties whose managers would be keen to contract with a cleaning
company that employs resident workers. She will be arranging a meeting with property managers
sometime after early December and invited a representative of the initiative to participate.
Montgomery County, which manages about 8,000 public housing units, reported that it takes
Section 3 into account for construction-related contracts over $100,000 only. Some buildings
have on-site custodial staff and others outsource for cleaning services. The contracts are for one
year, and contractors frequently change. Price, responsiveness to the proposal request, and
reliability, as demonstrated by business references are the most important selection criteria. A
startup business would not qualify as a contractor, and no preference would be given to a
resident-owned business.
Nationally, Congress authorizes nearly $3 billion dollars to public housing authorities each year
for their operation expenses.22 Although Section 3 is not strictly enforced, opportunities may
exist for a resident-owned cleaning cooperative to capture some share of local housing authority
cleaning contracts. The DC Housing Authority certainly appears open to this concept. Teaming
with a local neighborhood group that can organize residents and apply pressure to area housing
19
National Low Income Housing Coalition
Housing & Community Development funds include a dozen funding sources, including Community Development
Block Grants, HOME and Section 202 Senior Housing funds.
21
ICA also contacted Housing Authorities in Alexandria and Fairfax County, Virginia, which did not respond.
22
National Low Income Housing Coalition
20
13
authority officials to maximize future contracting opportunities could enhance the successful
pursuit of this business.
Private Sector Market
Major customer segments in the private sector office market include association headquarters,
professional service firms, defense contractors, and large commercial tenants, including
computer technology and telecom businesses, among others. In targeting specific customer
segments, ICA and NCBA focused on national associations and other nonprofit organizations,
and professional service firms, including law firms and property management companies. These
segments were selected on the basis of their size and stability in the market, and the expectation
that nonprofit organizations and particularly cooperative associations, would be more receptive
to supporting a social purpose cleaning cooperative.
4.4 Customer Survey Results
ICA and NCBA surveyed 36 potential customers across various sectors and areas within metro
DC in order to assess the level of demand for the services of a commercial cleaning cooperative
and help identify potential market opportunities. Based on these interviews, it is clear that
demand for services from a new cleaning company is weak. The consistent response received
from cooperative organizations, nonprofits, law firms and property management companies is
that they value the experience and performance of their existing vendors and are not interested in
considering a new company. The completion of new office space will increase demand for
cleaners, but experience is a key criterion for property managers who award this business. One
property management company that manages low-income rental housing echoed this sentiment
but said it might consider a startup that employed its residents.
It should also be noted that the sample of cooperative and nonprofit organizations that were
surveyed is small. Inasmuch as DC is home to some 2,000 association headquarters, it is
conceivable that a few may be persuaded to steer their cleaning business to the proposed
cooperative. Making the right connections to access this business, however, will require highlevel networking.
The survey results are presented below, and a listing of organizations surveyed is found in
Appendix A.
Cooperative Organizations
NCBA contacted three national cooperative organizations to assess their interest in supporting a
commercial cleaning cooperative. The National Rural Electric Coop Association (NRECA) was
approached about opportunities to clean its 258,000 sq. ft. facility in Ballston,Virginia. NRECA,
which also owns and manages a large office building in Dupont Circle, has used the same
contractor for five years and stated that it would only consider doing business with a company
14
that has an established presence in the market. Outreach to the National Rural Utilities
Cooperative Finance Corporation in Herndon, Virginia yielded no response. NCBA also spoke
with the Amalgamated Life Insurance Company to explore potential opportunities to do disaster
cleanup through an insurance industry partner such as the Union Labor Insurance Company
(ULICO), but received a negative response.
DC Credit Union League
NCBA contacted the DC Credit Union League, which agreed to send surveys to its member
credit unions. Ten responses were received, and of these, only two outsource for cleaning
services. One, the Police Federal Credit Union, has 1,600 sq. ft. of space and would consider
using the services of a new cleaning cooperative when their current contract expires in 2005. The
second, Transportation Federal Credit Union, occupies 6,000 sq. ft. of space and has used the
same contractor for over 10 years. They are satisfied with their existing vendor and doubt they
would consider using a new co-op company. The remaining eight credit unions reported that they
receive cleaning services as part of their lease or through their sponsor organization.
Property Management Companies
ICA contacted four commercial property management companies serving the DC metro area:
Cassidy & Pinkard, which manages 30 commercial buildings totaling 5 million sq. ft., Bernstein
Management Company, which manages a mix of commercial and residential space (2.6 million
and 2.4 million sq. ft. respectively), KSI Management Corporation, which manages 8,000
apartment units (affordable, market and luxury) in multi-family buildings that range from 100 to
400 units each, and E and G Group, which manages 1,600 units in five rental communities,
mainly in DC.
Cassidy & Pinkard contracts with seven to eight janitorial service providers, selected from
proposals requested annually from 10 to 15 companies. Cassidy & Pinkard generally limits this
group to firms they know, although they sometimes include new ones. The company notes, “it’s
hard for new companies to get a foot in the door.” References, cleaning protocols,
responsiveness to the request for proposal, and price are their most important selection criteria.
Bernstein Management outsources all of its janitorial service needs. On the commercial side,
individual building managers oversee the bid process and award contracts for a two-year period.
In its residential division, Bernstein uses two long-term cleaning contractors and periodically
bids this business out, but is satisfied with its current vendors. For both types of properties,
tenant satisfaction is the most important criteria. So long as the tenants are happy and the price
remains reasonable, they do not change cleaning vendors. Bernstein would only consider a new
company for a new property where the existing contractor was not acceptable.
KSI Management’s cleaning arrangements for the common space, leasing offices and apartment
turnovers in their buildings vary by property. Some have in-house cleaning staff and others
outsource for cleaning services, and some vendors service multiple buildings. Contracts are bid
15
out yearly at the discretion of individual property managers who select contractors subject to the
management company’s approval. The most important criteria in selecting cleaning vendors are
thoroughness, behavior toward residents, price and experience. A new company could approach
individual property managers about future bid opportunities, but their satisfaction with existing
contractors and the extent to which they are willing to consider new firms is unknown.
The E and G Group has vacillated between in-house custodial staff and outside cleaning
contractors, and is not loyal to any particular firm. E and G would be nervous about contracting
with a startup company, however, and the pricing would need to be competitive. An initiative
employing their residents would be compelling, though, and their Chief Operating Officer
seemed open to considering such a company.
ICA also contacted two nonprofit housing developers, Wesley Housing Development
Corporation and Manna, Inc., in Alexandria, Virginia and Washington, DC, to explore potential
opportunities to provide cleaning services for multi-family properties they own and operate.
Wesley, which manages 16 affordable rental properties in northern Virginia, has used the same
cleaning contractor for 15 years and has no plans to change. Manna, Inc. develops housing,
including new construction and rehab of existing properties, mainly for sale. Its cleaning needs
are therefore limited to one-time post-construction cleaning which is sometimes handled by the
contractor or arranged by the construction site manager, if needed. In either case, this represents
one-time, low volume business.
Conference for Catholic Facility Management
At the suggestion of the U.S. Conference of Catholic Bishops, ICA contacted the Conference for
Catholic Facility Management in Bowie, Maryland, a network of facility and real estate
managers with responsibility for a variety of buildings and other properties owned by some 250
dioceses and religious orders throughout the US. Local property holdings can be extensive. The
Archdiocese of New York, for example, has a portfolio of over 2,000 buildings and properties
including over 400 churches, 300 elementary and high schools, and hundreds of residences,
office buildings, hospitals, nursing homes and miscellaneous institutional projects. The executive
director was not willing to disclose information about his members but offered to email
information about the cleaning co-op initiative to conference members in the DC area, with a
request for them to contact ICA directly if interested. No responses to this outreach were
received.
Law Firms
ICA contacted three law firms – Walsh, Colucci, Lubely, Emrich & Terpak (WCLET), McGuire
Woods, and Crowell & Moring – with offices in DC and northern Virginia that range in size from
12,500 to over 200,000 sq ft. Both WCLET and Crowell & Moring, with the largest space,
outsource for cleaning and are satisfied with their existing vendors. Neither expects to bid out
their janitorial services unless there is a significant change in quality or price. McGuire Woods
16
does not contract for cleaning services, which are included in its leases for office space in both
DC and Virginia.
Nonprofit and Government Organizations
ICA contacted four national and one local nonprofit organizations. The American Red Cross,
which occupies a million sq. ft. in seven buildings in DC and northern Virginia, uses a single
contractor for routine cleaning and three small companies for periodic cleaning of marble, wood
and stainless steel. Likewise, the U.S. Conference of Catholic Bishops uses a single contractor
(of 14 years) to clean its 170,000 sq. ft. facility. Both are satisfied with their existing vendors and
have no interest in considering a new supplier. Public Citizen, a nonprofit with 33,000 sq. ft., has
a full-time custodian and outsources for quarterly carpet cleaning and occasional disaster
cleaning.
ICA also contacted the Washington Metro & Transportation Authority, which reported they use
in-house custodial staff to clean their administrative offices plus the Metro stations, trains and
buses throughout the region. Calls to The World Bank, which occupies three million square feet
in eight buildings, were not returned.
Downtown Cluster of Congregations
The Downtown Cluster of Congregations sent customer surveys to senior clergy at all of its 38
member congregations. Three responded to NCBA, and ICA contacted six additional members
as a follow-up to the survey. All of these congregations use in-house custodial staff and only one
church, St. Paul’s, said they are considering contract cleaning services for the future, noting that
keeping their buildings clean “has always been an issue.” Three other congregations currently
outsource for carpet cleaning and/or window washing and one uses a contractor for occasional
cleaning of its stone exterior. Of these, one indicated they would consider using the co-op to
provide window cleaning services.
17
5.0 Competition Analysis
DC metro’s competitive field is formidable, including a strong mix of large, national multiservice firms, well-established family-owned cleaning companies, over two dozen 8(a) minorityowned businesses and several large, non-profit rehabilitation programs that employ workers with
disabilities to fulfill federal government contracts. As noted in the customer survey results, many
customers are very loyal to their cleaning vendors and disinclined to even consider new
contractors if the service is satisfactory and the pricing reasonable. Contract pricing is an
important competitive factor, but generally is weighed in the context of other considerations such
as reliability, trust, quality and responsiveness to special cleaning needs that arise from time to
time.
5.1 Description of Firms
The Census Bureau reports 1,030 janitorial service establishments (i.e., total locations) in metro
DC as of 2001. Excluding those with fewer than five employees reduces this number by half to
510. The latter number is consistent with a check of current yellow pages listings, which yields
590 establishments (520 firms) and Dun and Bradstreet’s database which includes slightly fewer
total firms (463) using similar search criteria. These figures do not include some of the
companies that provide janitorial services in combination with other facilities support services
(e.g., Aramark), and therefore are somewhat understated.
Following are descriptions of a sampling of firms that characterize the various commercial
cleaning competitors in the DC metro market.
Large Competitors (500+ employees)
American Building Maintenance, also know as ABM Janitorial Services, is the largest division of
ABM Industries, Inc., a national, publicly-traded company based in San Francisco, with $2
billion in annual revenue and over 62,000 employees. About half of this revenue comes from the
janitorial business, and ABM Janitorial Services operates over 200 branch offices nationwide,
including three in DC and four in northern Virginia. Other corporate divisions provide parking,
engineering, security, lighting, elevator, mechanical and network services for commercial,
industrial, institutional and retail facilities throughout across North America.
Capital Building Maintenance Corp. (CBMC), Inc. is a non-union provider of janitorial and
building maintenance services based in College Park, Maryland and employing some 1,800
workers.
Cavalier Services, Inc., a Fairfax, Virginia firm, provides cleaning and maintenance services for
commercial office buildings, owner-occupied facilities, industrial buildings, medical facilities,
and residential common areas. Specialized services include floor care and restroom floor
restoration, carpet and upholstery cleaning, construction clean-up and light building repair. The
18
president of Cavalier Services, Steve Rohan, served as lead negotiator for the Washington
Service Contractors Association in master contract negotiations with SEIU Local 82.
Centennial One, Inc. is a local, 27-year-old janitorial service company based in Landover,
Maryland, owned by Lillian Lincoln, a black woman who initially built her business with
government contracts obtained through 8(a) set asides, then shifted her marketing focus to
commercial accounts when the company’s 8(a) status expired in 1985. Major customers include
Dulles Airport and buildings owned by Computer Sciences, Northrup-Grumman and Arthur D.
Little. As of five years ago, the company employed 1,200 people and reported $18 million in
revenue, and Ms. Lincoln had begun to prepare her daughter Tasha to eventually take over the
management of the company. In addition to its Prince George’s County headquarters, Centennial
One has three offices in DC.
P & R Enterprises, Inc., headquartered in Falls Church, Virginia, provides janitorial and building
maintenance services to commercial and institutional facilities, including Georgetown
University. P & R Enterprises has two offices in DC and is one of two associate members of the
National Service Alliance in the metro DC area.
Potomac Services is a 32-year-old company based in Bethesda, Maryland that “maintains
personalized business relationships and develops customized cleaning programs” for 82 client
sites in the DC metro area (and 17 in Florida), claiming a customer retention rate of nearly
100%. Locally, the company has four branch offices in DC. Total annual revenues (including
Florida sales) are $18 million.
Red Coats, Inc. is a 40-year-old, family-owned business, headquartered in Bethesda, Maryland
and employing over 3,700 people throughout the mid-Atlantic and Florida. The company
provides commercial cleaning services to offices, residential buildings, shopping malls and
medical facilities, and offers a full line of special services including carpet maintenance,
recycling, marble and stone restoration, pressure washing, window cleaning, and fire, smoke and
water damage restoration. Locally, Red Coats has three locations in DC, two in Montgomery
County and two in Fairfax County. Two sister companies provide security services.
UNICCO Service Company is a 54-year-old company based in Newton, Massachusetts, with
over $600 million sales and 20,000 employees. The company offers a wide range of facilities
services including maintenance, operations, engineering, cleaning, lighting and administrative/
office services, and has a strong presence in the DC area, with 15 offices in DC, two in
Montgomery County and five in northern Virginia. The corporation claims a 95% customer
retention rate.
Small and Medium-Size Competitors (<500 employees)
Capitol Hill Building Maintenance is a 15-year-old company owned by an African immigrant
woman (from Sierra Leone) and former welfare recipient. Based in Landover, Maryland, the
business currently employs some 200 people and bills over $3 million dollars annually. Capitol
Hill Building Maintenance is also a co-owner with transport and grounds maintenance
19
companies in a separate entity, COSTAR III, LLC, an entity formed to compete for federal
contracts that recently won a $6.6 million contract (with three one-year renewal options) to
provide operating services at the Naval Air Station Patuxent River. The business owner actively
hires people who rely on public assistance, including immigrants, as a way to help them achieve
financial independence, and COSTAR III included three small, disadvantaged subcontractors in
its winning Naval Air Station bid.
Christos Building Services is a 15-year-old company in Vienna, Virginia that provides contract
cleaning for both commercial and residential buildings in the DC metro area. Christos has two
sister companies, Metropolitan Carpet Specialists and Paramount Building Services, a
construction company specializing in kitchen and bath renovations.
Mister Kleen Maintenance Company is a 25-year-old business in Alexandria, Virginia that
maintains over 100 commercial facilities and provides cleaning services to the residential market
as well.
USSI, Inc. is a 90-year-old commercial contract cleaner serving the DC/Baltimore metro area and
the state of Florida. Specialty services include carpet cleaning, specialty floor programs, pressure
washing, construction detail cleaning, tenant move-in and move-out, light maintenance, periodic
detail cleaning, garage cleaning and assistance with recycling programs. The company has
branch offices in Vienna, Virginia and Silver Spring, Maryland, in addition to its Washington,
DC headquarters.
Niche Competitors
Able Service Contractors is a 25-year-old, Hispanic-owned company in Annandale, Virginia that
specializes in large facility and hospital sanitation. The company graduated from the 8(a)
program in 1992 but is among the top cleaning firms that do business with the federal
government. As of 2000, Able was ranked the 10th largest prime contractor and fifth largest small
business contractor receiving federal janitorial service contract awards, which averaged $5
million annually (for the three-year period ending 2000).23 One large government customer is the
National Naval Medical Center in Bethesda, where the company has offered free English classes
to workers, as an employee benefit and to help them advance into supervisory positions.
Quality Touch, Inc. is a janitorial and maintenance service company in Washington, DC that
offers commercial and residential office cleaning, in addition to disaster cleaning, apartment
turnover cleaning and post-mortem clean-up. The company also features maintenance services
for health care, education and church facilities. Its listing as an affiliate of the Community
Business Partnership (a foundation-supported initiative to promote small businesses in selected
DC communities) describes its cleaning services as “environmentally health conscious.”
Teltara, Inc., a Native-American owned company based in Scottsdale, Arizona, supplies
custodial services, hospital housekeeping, security guards and grounds maintenance to the
federal government, as both a direct contractor and subcontractor to DTI Associates, based in
23
Eagle Eye, Inc.
20
Arlington, Virginia. As of 2000, Teltara was ranked as the third largest prime contractor and top
small business contractor receiving federal janitorial service contract awards, which averaged
$15.5 million annually (for the three-year period ending 2000).24 The company operates in 10
states from Alaska to Florida, and the Defense Department is its largest customer. In DC, local
contracts include the IRS headquarters and Washington Navy Yard.
8(a) Certified Companies
§
Gali Service Industries Inc. is an Hispanic-owned, 8(a) certified business in Bethesda, MD,
which offers complete janitorial services as well as carpet cleaning, floor care for hard
surfaces, hygienic maintenance for medical facilities, pre- and post-construction cleaning,
computer room cleaning (including cleaning under raised floors), window and glass cleaning,
and pressure washing and exterior maintenance.
§
Makro Janitorial Services is an Hispanic-owned, 8(a) certified company in Gaithersburg,
Maryland with $5.3 million in annual sales and about 200 employees. As a contract provider
to the National Naval Medical Center in Bethesda, the company participated in an ESL
program for immigrant workers in 1999.
§
R & R Janitorial, Painting, & Building Service is an 8(a) certified company with four
locations in DC. The company has formerly provided contract cleaning services to the DC
Metro Police department and the Department of Parks and Recreation.
JWOD Federal Contractors
§
Chimes, a group of not-for-profit agencies serving people with barriers to independent living
in five mid-Atlantic states,25 is one of a half dozen or so NISH affiliates in the DC metro
area. Many of its JWOD contracts are for custodial and janitorial services, including hospital
housekeeping, but some involve central facility management, commissary services, grounds
maintenance, furnishings management, food service support and mail room management.
Chimes employs some 1,300 to 1,400 people with disabilities and cleans over 20 million sq.
ft. of federal office space. Current contract customers include the Library of Congress and
Departments of Commerce, Interior and Veterans Affairs in DC, the Social Security Metro
West complex in Maryland, and the Pentagon in Virginia.
§
Nationally, Goodwill Industries was ranked the federal government’s top prime contractor
for janitorial services, averaging $35 million in annual awards during the three years ending
2000. In Washington, DC, Davis Memorial Goodwill Industries (DMGI) launched its
janitorial services division in 1981 with a large contract with the U.S. Bureau of Engraving
and Printing. Today, the division employs 350 people and generates $10.7 million in annual
revenue, and government facilities continue to be its main customer. In 1998, DMGI
launched a new division, Best Kept Buildings (BKB), to expand into the commercial office
sector, and an advisory board of local senior property managers played a critical role in
helping BKB develop “Class A” commercial office clients.
24
25
Eagle Eye, Inc.
Maryland, Virginia, Delaware, Pennsylvania and New Jersey
21
§
Melwood, another NISH affiliate, is a not-for-profit social service agency in Upper Marlboro,
Maryland that serves people with disabilities and provides janitorial services throughout the
metro DC area. Employing over 550 janitorial workers, Melwood supplies contract cleaning
services to the Smithsonian Institution, the US Departments of Agriculture, Justice, Treasury
and Navy, the General Services Administration and NASA’s Goddard Space Flight Center,
in addition to local hotels and businesses. Melwood also offers landscaping, mailroom and
facility management services to other governmental and business customers.
§
ServiceSource, a NISH affiliate in Fairfax, Virginia, serves over 1,600 people with
disabilities and is one of the largest 50 employers in Fairfax County. ServiceSource
employees perform a variety of services including custodial support, mail center
management, grounds maintenance, food service operations, digital imaging and scanning,
and data entry. ServiceSource has recently teamed with Logistics, Engineering and
Environmental Support Services, Inc. (LESCO) to provide janitorial services to NASA’s
headquarters in Washington, DC. (LESCO is a tech systems and design company based in
Huntsville, Alabama with 8(a) status until January 2004).
5.2 Survey Results
NCBA requested information from eight area cleaning companies about their services and rates
to clean a 50,000 sq. ft. office space in Washington DC, in addition to asking them about their
wages and benefits, and main competitive strength. The companies surveyed vary in size and
years of experience: five are local and three operate in the eastern US region or nationally. All
but two generate 80% to 100% of their revenues from commercial cleaning sales.
To do basic cleaning, trash removal and some floor, wall and exterior cleaning tasks on a nightly
basis, half of the companies quoted a rate in the $.80 to $1.00 per sq. ft. range. One company
quoted a price of $1.00 to $1.30 per sq. ft., but also estimated more hours to complete the work.
These rates are consistent with contract pricing reported by two customers surveyed, both with
offices in Virginia. One pays $.81 per sq. ft. and another $1.20 per sq. ft. Several factors may
account for this range, including differences in floor surfaces, volume of outside visitors,
prevalence of glass doors and partitions, and the amount of trash generated. Another factor is the
total square footage of space. In the example cited, the $.81 customer has eight times the total
space of the $1.20 customer, and for smaller customers, the contractor has to factor in travel time
between jobs.
Hourly wages paid by these five companies are $7.00 to $8.25 per hour. All claimed to offer
health insurance to workers in DC and Maryland where the SEIU has contracts, but would not
elaborate on the details of this benefit. One company specified that its workers in DC and
Maryland are eligible for union health benefits while its workers in Virginia receive vacation and
sick leave benefits only.
Two of the companies surveyed were low-price bidders, with quotes in the $.16 to $.25 per sq. ft.
range, although both proposed nightly service for the same number of hours as the companies
22
above. For one company, this price covered basic cleaning only; supplies, trash removal, and
floor, wall and exterior cleaning were extra. The second company included all of those services
in its quote but was unwilling to disclose the wages paid, noting only that cleaning was a second
job for most of its workers. The final company surveyed was at the opposite extreme rate-wise,
quoting $2.50 per sq. ft., although it also reported the highest wages – $9.00 per hour plus
benefits for full-time workers and $10.00 per hour for part-time workers – and indicated it was
“flexible on pricing.”
When asked about their competitive strength, the companies cited a variety of advantages.
Several named their ability to respond to emergencies, performance record, reliable workforce,
and additional services offered (e.g., security and engineering). Individual companies also
mentioned their local ownership, bilingual managers, quality assurance program and pride taken
in their work as distinguishing characteristics.
The survey results underscore the highly competitive pricing of commercial cleaning services in
the DC metro market and the competitive advantage of firms that have built a successful track
record.
23
6.0 Analysis of Market Niche Opportunities
Given the commodity nature of commercial cleaning and entrenched position of competitors that
provide routine cleaning services, a new company should seek to differentiate itself by serving a
market niche. This involves pursuing particular customer niches for which a social purpose
and/or worker-owned company has special appeal or offering a specialized service such as
disaster restoration, mold remediation or use of eco-friendly products. Several potential
strategies are briefly summarized below:
6.1 Customer Niche Markets
§
Cooperative Organizations
The weak response to NCBA’s initial outreach to large cooperative organizations in the DC
metro area is not encouraging. Securing a contract to service just a single facility the size of
NRECA’s (about 250,000 sq. ft.) would be sufficient to launch a new venture. The ability of
the task force to find a “friendly” co-op customer of this scale is one way to position the new
company to establish a track record and succeed in a highly competitive market.
§
Nonprofit Organizations and Institutions
This is a fairly broad niche, encompassing non-profit associations, foundations and
community development corporations, and large institutions, such as schools, museums and
churches. While these customers are often receptive to social marketing pitches, their quality
and price standards are similar to those of mainstream corporate customers. The lack of
interest by members of the Downtown Cluster of Congregations and Conference for Catholic
Facility Management indicates that it may be difficult to penetrate this market through arms
length marketing efforts. Outreach to the American Red Cross and World Bank was likewise
unfruitful. As with the co-op market, serving this niche will require more networking by task
force members to identify organizations that are friendly to the initiative’s goals and willing
to use their purchasing prerogative to support a new venture.
§
Medical Facilities
Another customer niche is medical facilities, including hospitals, clinics, rehabilitation
facilities, medical offices and laboratories. Hospital cleaning involves more interaction with
building occupants, and all medical facility cleaning requires special protocols for infection
control and handling of radioactive and biological wastes. In general, medical contracts
require prior experience and are difficult for a startup to get. ICA did explore the possibility
of partnering with a Massachusetts-based company that uses ultrasound technology to clean
hospital equipment (stretchers, wheelchairs, IV poles and carts). The privately-held company
is seeking to expand its business nationally; the owner was skeptical about a joint venture,
however, and the volume of potential job creation appeared relatively small.
§
Government Agencies
Concentrating on sales to government customers has both positive and negative aspects. On
the positive side, it is possible to secure a large block of demand from a single customer. On
24
the negative side, the bidding process and contract requirements can often be burdensome,
and government entities tend to be slow payers. As previously discussed, many federal
agency cleaning contracts are set-asides for NISH-affiliated agencies or businesses that
qualify under various socioeconomic programs. The cooperative’s best opportunity to qualify
for federal set-aside contracts would be as a HUB Zone business located in Washington, DC,
although the volume of HUB Zone contracts is relatively small. (Janitorial service contracts
awarded in 2000 to all HUB businesses in DC totaled $558,000.)
6.2 Service Niche Markets
ICA explored a number of specialized services, from floor care, upholstery cleaning (including
office partitions) and window washing to disaster restoration, post-construction clean-up and
mold remediation. Some niche services represent a more predictable stream of business revenue
than others. Window washing, hard-surface floor care and HVAC cleaning, for example, may be
scheduled on a regular or seasonal basis, although many of these services are performed only
once or twice per year. Specialty services like disaster restoration or carpet and upholstery
cleaning are one-time or very infrequent, and all of these services require a larger customer base
and more operating capital to cover sales and cash flow fluctuations. Many niche services also
require a relatively higher initial investment in specialty equipment and workforce training, and
involve higher physical risks and commensurately higher costs for liability and worker
compensation insurance. Partnering with a large insurance company to provide disaster cleaning
is one way the cooperative might generate a stream of steady business in this particular service
niche. The Union Labor Insurance Company was explored as a prospect, but was found not to be
a possibility.
An additional market niche is green cleaning, which involves the use of non-toxic and nonpolluting cleaning products that reduce exposure to hazardous chemicals and improve indoor air
quality (benefiting both building occupants and janitorial workers). Anecdotal evidence indicates
that the market for environmentally friendly cleaning services is growing. Increasingly, some
states and municipalities are requiring the use of “environmentally preferred products,”26 and
many residential customers, particularly those with children, are responsive to the health and
safety benefits. WAGES, a California-based organization that sponsors women-owned cleaning
cooperatives, has had some success in making an environmental marketing pitch to residential
customers and reports that delivering environmentally friendly services does not significantly
raise direct costs for their companies. Commercial customers are less attuned to environmental
considerations, however. Serving the residential cleaning market is a possibility but would
involve starting very small and building volume slowly over time, which may not be compatible
with the initiative’s goal to influence policy makers.
26
Building Services Management, Green Cleaning: What is it and Who Decides?, April 2003
25
7.0 Assessment of Local Labor Supply
The largest local pool of unskilled workers is found in the District of Columbia, which has a
significantly poorer and less educated population than its suburban neighbors, and twice the
unemployment. The DC area attracts a high number of immigrants, mainly to its suburban
counties. El Salvador is the country of origin for the largest percentage of legal immigrants who
have settled there during the last decade.
7.1 Demographic Profile
Population
The DC primary metropolitan statistical area (PMSA), including outlying counties in Maryland,
Virginia and West Virginia, ranks as the sixth largest population center in the U.S., with about
five million residents. About 70% live within the metro area encompassed by this study, with the
greatest number of people found in the Maryland suburbs as follows:
DC Metro Population, 2001 Estimates
571,822
DC
1,301,403
Suburban MD
(PG & Mont)
Northern VA
(Alex, Arl &
Fairfax)
1,708,138
While suburban Maryland has the most people, northern Virginia experienced the most
population growth during the last decade, increasing by 17%, in comparison with 12.7% growth
in suburban Maryland (and 13.1% for the nation as a whole). During the same period, the
District of Columbia lost 5.7% of its population.
Immigrants accounted directly for 49% of the PMSA’s population increase during the last
decade, with an annual average of over 29,000 immigrants settling in the area since 1990. About
one-third of all immigrants were from El Salvador, Vietnam, China, India and the Philippines. El
Salvador was the largest single country of origin, with 11.5% of the total.27
Income
Economically, distinct lines of poverty and prosperity can be seen among the various locales that
comprise metro DC. DC itself is by far the poorest community, with some 20.2% of residents
living below poverty and a median household income of $40,127, according to the 2000 Census.
27
Federation for American Immigration Reform
26
At the opposite end of the scale, Fairfax County’s poverty rate is 4.5%, and its median household
income is $81,050.
Unlike most large cities, where communities grew more economically mixed during the last
decade, DC’s poverty became more concentrated. In 2000, 24% of its poor residents lived amid
“concentrated poverty” (defined as neighborhoods where at least 40% of residents are poor),
compared to only 9% in 1990.28 Nationally in 2000, 12% of the urban poor lived in census tracts
with concentrated poverty, a decline from 17% in 1990. The worsening numbers in DC are
attributed mainly to a breakdown in city services that motivated middle class families to move
out of the city, and to a lesser extent, gentrification within the District that priced people out of
some neighborhoods and into poorer ones.
Education Levels
The District of Columbia has low literacy levels (the worst in the country) and high dropout
rates. Of the 78% of DC residents 25 and older who are high school graduates, many test at or
below a 5th grade reading level. In contrast, 85% to 91% of Montgomery County, Maryland and
northern Virginia residents are high school graduates, and over half have Bachelor’s degrees or
higher. Eighty-five percent of Prince Georges County residents are high school graduates and
27% have advanced degrees.
Race and Ethnicity
The District of Columbia and Prince Georges County are predominantly black jurisdictions (6063%), while Montgomery County and northern Virginia are mainly white (60-70%).
Montgomery County and the City of Alexandria have the most ethnically diverse populations,
and Arlington and Fairfax counties have the greatest concentrations of Hispanic and Asian
residents (18% and 13% respectively).
7.2 Unemployment and Workforce Mobility
A comparison of current unemployment rates underscores the economic disparities between the
District and its suburban neighbors. In 2002, 6.4% of District residents were unemployed (and
seeking work) compared with 3.7% of all residents within the PMSA. As of May 2003, DC had
an unemployed labor force of some 18,400 persons, about 19% of the total 96,600 unemployed
persons within the greater PMSA. (These numbers do not include so-called “discouraged
workers,” individuals who cannot find jobs and have stopped seeking them.)
Only 28% of DC residents commute to jobs outside the District. By comparison, 82% of all
residents in the DC PMSA travel outside their place of residence to work, into DC or between
suburbs.29
28
29
Washington Post, May 18, 2003, D.C. Pockets of Poverty Growing
DC Workforce Investment Council, State of the Workforce Study, January 2003,
27
7.3 Union Representation
Of some 37,000 janitorial service workers in the DC metro area, 5,300 are represented by Local
82 of the Service Employees International Union (SEIU) under Master Commercial Agreements
in DC and Montgomery County, Maryland; only about 10% of these janitors are full-time and
receive health insurance. Separate contracts cover direct service and maintenance workers,
including janitors, at many academic institutions and public venues (e.g., Howard University,
George Washington University, The Kennedy Center and MCI Center). Health insurance
benefits vary by individual contract. Local 82 also represents some 1,500 workers under various
contracts in federal and district government buildings, and most of these workers receive health
insurance.
The starting union wage is $8.00 per hour. A new Master Commercial Agreement ratified in DC
earlier this year provides for wage increases of 5% annually for five years, from $8.40 in 2004 to
$10.20 in 2008. Union janitors in buildings over 100,000 sq. ft. are guaranteed a minimum 25
hours’ work per week. Those working in buildings over 500,000 sq. ft. are guaranteed a
minimum 30 hours’ work per week. Beginning in January 2005, 750 part-time workers covered
under that agreement will begin receiving health insurance.
28
8.0 Operations
8.1 Management
Hiring a cooperative manager with strong sales ability would be key to the success of this
initiative. Attracting an individual with a record of satisfied accounts would add credibility to the
new company and encourage customers to give it a chance. In addition to marketing and
customer relations, the manager would perform or supervise other functions including training,
scheduling, crew supervision, quality control, billing, purchasing and payroll.
The financial model in this study assumes a general manager with primary responsibility for
sales and financial management, plus supervisors who are responsible for training, scheduling,
customer relations and quality control. Annual salaries at startup are budgeted at $55,000 for the
general manager and $35,000 for supervisors. In the first year, a half-time supervisor supports
the general manager. Thereafter, as the company grows, the ratio of managers to workers is 1:10
(based on a typical ratio of 1:8 to 1:12).
8.2 Worker/Members
Recruitment
If the decision is made to go forward, a critical task of this initiative will be to find motivated
workers that will form the membership of the cleaning cooperative. In the course of this study,
ICA and NCBA approached the Latino Economic Development Corporation (LEDC), a
community development organization, as a potential source of labor. LEDC focuses on business
development, housing and real estate development, including training and technical assistance,
lending and tenant organizing. The organization mainly serves the Mount Pleasant, Adams
Morgan and Columbia Heights neighborhoods of DC, but also attracts Latino immigrants from
suburban Maryland and Virginia because its services are bilingual. In a meeting in September,
LEDC’s executive director pledged their assistance to provide outreach to the local Latino
population to recruit workers for a new entity. As previously noted, local public housing
residents represent another potential labor pool.
Workers would be screened for their motivation and physical capacity to perform the work.
Workers need to be organized and able to follow instructions, and they need physical strength
and stamina to lift and push equipment, transfer and dispose trash, and bend and reach to perform
other cleaning tasks. Workers may be subject to criminal record checks (a common requirement
in buildings occupied by government agencies), and bonding may be required.
Training
Workers would be thoroughly trained in standard cleaning procedures and sound safety and
health practices, including the handling of cleaning chemicals, proper use and care of equipment
and tools, and first aid procedures. The training would include a combination of classroom and
29
hands-on instruction. ICA has identified two potential training vendors – Davis Memorial
Goodwill Industries in DC and Spartan Chemical Company, a supplier of cleaning and
maintenance products that offers generic training materials, in-service workshops, and various
training and certification programs.
8.3 Services and Work Flow
For purpose of this study, the company is assumed to provide general cleaning services for a
niche customer, as opposed to delivering a specialty service. The company would offer some or
all of the following services:
Vacuuming
Dusting
Trash removal
Bathroom cleaning
Kitchen cleaning (for office kitchens)
Spot removal/carpet cleaning
Floor buffing/waxing
Window cleaning
Exterior/sidewalk cleaning
In general, the company would provide new customers with a thorough “deep” clean on the first
day of services, followed by “maintenance” cleans on as frequent a basis as the client is willing
to pay for (daily is optimal). Depending upon the use of the space and its cleaning patterns, the
company would periodically perform deep cleans to maintain customer satisfaction.
Commercial cleaning services in office settings are generally performed in the evening (5:00 to
11:00 p.m.). Some contract types – schools, medical facilities, etc. – provide opportunities for
daytime hours.
To maximize productivity, workers would work in teams, an arrangement that also facilitates
cross training and fosters a sense of unity and mutual support. In team cleaning, team members
function as specialists, with each worker responsible for one particular aspect of the cleaning
performed in an area (versus zone cleaning, where an individual worker is responsible for all of
the cleaning tasks in an assigned area). There are four basic types of specialists (described on the
following page), and the utility specialist often functions as the team leader. A team can be
comprised of any number of people and any configuration of specialties, depending on the need.
Multiple teams of four or more, for example, might be required to service large contracts, while
two-person teams might suffice to service smaller contracts. Workers would be cross-trained in
each specialty to be able to rotate tasks and to cover absences of other worker owners for illness
and vacation.
30
Specialist
Tasks
Tools
Light Duty
Dust, spot clean, remove trash
Large wheeled trash can with
accessory apron, labeled spray
bottles, personal protective
equipment (PPE)
Vacuum
Vacuum, check trash, turn out
lights, secure area
Backpack vacuum with four
filtration system, PPE
Restroom
Restroom cart, mop and bucket,
disinfectant applicator, wet floor
Clean and disinfect fixtures and
sign, stock solution bottle,
floors, fill dispensers, empty trash
cleaning cloths, disinfectant spray
bottle, PPE
Utility
Haul out trash, clean entryways,
spot clean carpet, handle light
maintenance and any other
specialty service
Large wheeled trash collection
bin, floor buffer/scrubber, carpet
extractor, PPE
8.4 Equipment and Supplies
The company would utilize vacuum cleaners, mops and buckets, floor buffers/scrubbers, carpet
extractors, restroom carts and trash collection bins. In addition, the company would use a variety
of supplies including cleaning cloths, cleaning solutions, gloves and trash bags. Depending on
the size of their space, customers might be expected to provide space for supplies and possibly
some equipment on-site. Equipment used less frequently, such as carpet extractors, would be
mobile.
8.5 Wages and Job Quality
The starting wage for union janitors working under SEIU Master Commercial Agreements in DC
and Maryland is $8.00 per hour, and a new contract in DC includes 5% annual increases through
2008 ($8.40 in 2004). Non-union janitors earn the DC minimum wage of $6.15 per hour. Union
janitors are guaranteed a minimum of 25 to 30 hours per week and some receive employer-paid
health insurance.
The financial model in this study assumes a beginning wage of $8.40 per hour and annual
increases of 5%. A 30-hour work week is also assumed. Five paid personal days (30 hours) have
been budgeted for direct workers, but no health insurance.
31
9.0 Financial Plan
9.1 Billing Rate and Revenue Forecast
Rates for office cleaning services in the DC metro area range between $.80 to $1.25 per square
foot, depending on the building and location. Other factors that affect the rate charged include
frequency of cleaning, total area cleaned, differences in floor surfaces, volume of “traffic” from
outside visitors, prevalence of glass doors and partitions, and amount of trash generated. For
purpose of this study, a billing rate of $1.05 per sq. ft. has been used in year one, and assumes
daily cleaning services at 1¾ hours per site. Rates increase by five percent annually thereafter.
The revenue forecast assumes a partner-based scenario, in which two to five large customers
contract for cleaning services to help launch the cooperative. Revenues grow steadily over five
years, with monthly break-even sales achieved midway through year three as follows:
Table 3. Five Year Sales Summary
Number of Square Feet Cleaned
Billing Rate per Square Foot
Total Sales
Year 1
Year 2
Year 3
Year 4
250,000
500,000
750,000
975,000
1,170,000
$1.05
$1.10
$1.16
$1.22
$1.28
$262,500 $551,250
Year 5
$868,219 $1,185,119 $1,493,249
9.2 Breakeven Analysis
The target gross margin for the company is 22%. Given the projected overhead cost structure,
annual breakeven revenues are about $1.2 million. The financial projections indicate that a
company with this cost structure and sales growth would achieve breakeven sales in year four of
operations.
9.3 Capital Expenditures
Capital expenditures would be required for cleaning equipment, computer equipment and office
furniture. The financial model assumes that both categories of equipment have a useful life of
three years. Purchases of direct equipment are based on a ratio of:
§
§
§
1 Vacuum cleaner per 3 direct workers
1 Floor buffer per 5 direct workers
1 Carpet extractor per 10 workers
The following table provides a summary of all capital expenditures:
32
Table 4. Capital Expenditures
Year 1
Year 2
Year 3
Year 4
Year 5
Vacuum cleaners
$3,019
$126
$2,044
$3,962
$1,352
Floor buffers
3,170
132
2,146
4,160
8,042
Carpet extractors
2,943
123
1,993
3,863
1,318
Computer hardware
1,600
800
800
2,400
1,600
Computer software
5,000
0
0
2,000
0
Office furniture
1,000
500
500
500
500
$16,732
$1,681
$7,483
$16,886
$12,813
Total
9.4 Financial Projections
Appendix B contains detailed financial projections for the startup company. First-year sales are
projected at $262,500. At this level of sales, the company would employ 12 full-time equivalent
(FTE) cleaning workers. Over the course of five years, the business grows steadily to nearly $1.5
million in sales and 55 FTE workers. The company achieves profitability on a monthly basis in
month 31 and earns modest profits in years four and five.
Table 5. Five Year Financial Summary
Number of Square Feet Cleaned
FTE Cleaning Workers
Year 1
Year 2
Year 3
Year 4
Year 5
250,000
500,000
750,000
975,000
1,170,000
11.8
23.6
35.4
46.0
55.2
Sales
$262,500 $551,250
$868,219
Gross Margin
$55,549
$119,916
$191,931
$265,828
$337,673
21%
22%
22%
22%
23%
($10,183)
($551)
$8,576
-1%
0%
1%
Gross Margin %
Net Income
Net Income %
($59,788) ($47,004)
-23%
-9%
$1,185,119 $1,493,249
9.5 Capitalization
ICA estimates that the startup capitalization needed by the new company would be $250,000. Of
this, $200,000 is equity and $50,000 is long-term debt. The model assumes debt financing in the
form of a term loan beginning at the end of year two. A line of credit at 75% of accounts
receivable is also required beginning midway through year three of operations. No member
contributions have been budgeted. These are expected to be nominal, given the low level of
compensation, and would not materially affect the financials.
9.6 Assumptions
The financial projections are based on the following assumptions:
33
§
§
§
§
§
§
§
§
§
§
§
§
§
Annual billing rate: $1.05 per sq. ft.
Direct wage, year one: $8.40 per hour
Duration and frequency of cleaning jobs: 1.75 hours each @ 5 nights per week
Travel time: 2 trips of 20 minutes each per night (not including first and last trips)
Expense inflation: 3%
Wage inflation: 5%
Billing rate inflation: 5%
Accounts receivable: 45 days
Accounts payable: 30 days
Long-term debt: 5 year term at 8% interest
Interest on line of credit: 8%
Office rental: 500 sq. ft. @ $20 per sq. ft.
Annual health insurance premium (management staff only): $4,500
34
10.0 Methodology for Future Replication of Cooperative Business
In pursuing replication of the cooperative cleaning company, the task force can consider a
partner-based or market-based strategy. A partner-based strategy represents a “wholesale”
approach in which the partner is the key link to business volume in local markets. In contrast, a
market-based strategy represents a “retail” approach in which local markets are directly targeted,
and businesses are developed in each site through alliances with individual local partners. The
partner-based approach is likely to assure higher initial sales volume and therefore more job
creation at startup and a shorter time to profitability. In contrast, a market-based approach
generally takes longer to achieve scale. The methodology for each approach is outlined below.
10.1 Partner-Based Replication Strategy
1. Identify and interview national firms or organizations that can deliver guaranteed business
volume in a particular market niche.
To access federal contracts, for example, the task force could approach large national
contractors like Sodexho and Aramark, who often team with community rehabilitation
programs (i.e., NISH affiliates) or with small, minority, disadvantaged and women-owned
businesses to fulfill federal contracts. To be attractive to these national contractors, the
cooperative(s) would have to meet some socioeconomic criteria – 8(a) minority certification
or HUB Zone status, for example – that would enhance the partner’s federal bidding position
and/or enable them to access set asides.30 In the medical sector, a national network like the
Catholic Health Association could be approached about doing business with its member
Catholic health care facilities and related organizations (which include two member hospitals
in DC and two in Montgomery County, Maryland). Regardless of market niche, arms-length
cold calling of potential partners is unlikely to be successful, and personal connections and
high-level networking are essential.
2. Identify the three to five cities that the national partner has the most interest in pursuing.
3. Develop a joint strategy and memo of understanding to proceed.
The memo of understanding should include a plan for approaching local branches or other
affiliates to gain their buy-in of the concept, assign responsibility for specific actions, and
develop a budget for implementing the plan.
30
Certification as an 8(a) business requires at least two years’ business experience, so the cooperative could not
immediately pursue this strategy.
35
4. Raise national grant funds to support the initiative.
Funds would initially be raised to carry out the work plan, perform due diligence and
complete business planning activities. (Funds would subsequently need to be raised to
capitalize the businesses.)
5. Perform due diligence on the selected local offices or affiliates of the national partner.
6. Develop a business plan for each of the final sites.
7. Work with partner to roll out initiative.
This structure has some complications for a cooperative business model. The partner(s) will
likely expect some level of control in directing the company. Thus, the entity would probably
have to be structured as a hybrid cooperative with some outside ownership.
10.2 Market-Based Replication Strategy
1. Analyze large metropolitan markets with significant potential, focusing on the strength of
selected niche markets, presence of potential local partners, and characteristics of the local
labor supply. In each of the cities being considered, determine the:
§
§
§
Size and future prospects of selected niche markets (e.g., cooperatives, nonprofits,
commercial real estate, medical facilities)
Presence of potential local partners (e.g., CDCs, associations, employers, individuals,
etc.)
Demographics – size, age, skills, income, unemployment – of the local labor market
2. Based on the results of the preliminary analysis, narrow the list of cities to the top three
possible sites.
In each of the three sites:
3. Interview potential local partners to evaluate their fundraising connections, customer
connections, workforce connections, and business development capacity. Specifically,
determine what they can deliver in terms of their:
§ Capacity to raise capital and/or make a direct financial investment
§ Access to friendly and/or desired niche customers
§ Access to the local labor force
§ Long-term business and management support
4. Select local partner(s)
Multiple partnerships are likely and the nature of various partnerships will differ, ranging
from a few strategic introductions to short-term service on an Advisory Board to longer-term
involvement as an investor, director or recruitment and training partner.
36
5. Raise local grants to support further feasibility and business planning work.
6. Conduct feasibility studies and develop business plans that focus on the most promising local
market niche in each site.
7. Work with partner to capitalize and launch.
The market-based approach is more compatible with a pure cooperative model, although the
balance of ownership and control would depend in part on the sources of social purpose capital
that are raised for each site.
In sum, each strategy offers the following advantages and disadvantages:
Replication
Strategy
Pros
Cons
Larger scale
- more immediate job creation
- bigger public profile
Partner-Based
Difficulty in finding committed
national partner(s)
Shared control by workers with
partner(s)
Lower risk
Established presence in
multiple markets
Individual
Market-Based
More control retained by
workers
Smaller scale
- slower job creation
Lower startup capital required
Higher risk
More effort needed to cultivate
local partners in each market
37
11.0 Conclusions and Next Steps
Developing a successful commercial cleaning cooperative in the metro DC area will be a
difficult endeavor, and the ability of this venture to generate reasonable financial returns and
fulfill its promise as a model for urban economic development is doubtful. Several forces in the
market – weak customer demand, entrenched competition, and low margins – are working
against the ability of a new enterprise to succeed on either front.
On the market side, the local janitorial services industry is expected to grow at a modest rate
during the next few years due to new office construction with projected high occupancy rates and
increased outsourcing by individual companies and property managers. Market demand for
cleaning services from a startup company is very weak, however. The consistent message from
potential customers surveyed for this study is that they value the experience and performance of
their existing cleaning vendors and have no interest in considering a new company. A few
property managers who are less loyal to their current contractors are no less insistent that new
cleaning vendors be established and experienced.
Billing rates that are pegged to low worker wages present another formidable challenge. A new
venture’s need to price its services competitively coupled with the desire to pay a decent wage
produces a cost structure that delays profitability, constrains the company’s capacity to borrow
capital, and allows no margin for error in achieving annual sales targets. Reducing first-year
wages from the local union scale of $8.40 per hour to $8.25, for example, is a rational business
response to this problem but would dilute the initiative’s objective to create quality jobs.
Despite these obstacles, there are two ways a new cleaning business can enter the market should
the task force opt to proceed within this environment. One option is to begin operating on a very
small scale, using a few initial contracts to establish a track record, and then building on that
base of satisfied customers. An opportunity to pursue this strategy may exist among public and
other low-income housing developments, where Section 3 of the HUD Act encourages local
housing authorities to contract with companies that are owned by or employ public housing or
other low-income residents. The DC Housing Authority is receptive to this idea, and a key to
pursuing this strategy will be to partner with a community-based group that can organize public
housing and other neighborhood residents, engage them in this effort, and effectively apply
pressure to local officials to translate good intentions into firm contracts with a new company.
Still, the initial scale is expected to be small.
An alternative and more promising strategy is to identify a large customer that is friendly to the
initiative’s economic development goals, controls a significant volume of space, and is willing to
contract with the new company at startup. Attracting such a customer would enable the
cooperative to create more immediate jobs, achieve a higher profile, and accelerate the path to
sustainability. A customer that has a national presence could also help the initiative enter
additional markets. An essential element of pursuing this strategy is the direct (and continued)
involvement of task force members in targeting prospective organizations, conducting high-level
networking to make the necessary connections, and securing long-term contracting
commitments.
38
In either case, however, the company would be subject to intense market pressures in terms of
pricing and sales growth that would limit its earnings potential and prevent the cooperative from
paying health benefits or patronage dividends. This, in turn, raises questions about long-term job
quality and the company’s ability to retain worker members. Focus groups, arranged by local
neighborhood groups, would be useful to get potential workers’ input and perspective to inform
these questions. Altogether, though, the weak customer demand, intense competition and low
wages that characterize the local market argue against developing a commercial cleaning
company in metro DC as a model urban cooperative.
39
Appendix A:
Customer Survey List
Customer Survey List
Amalgamated Life Insurance Company (regarding Union Labor Insurance Company)
American Red Cross
Asbury United Methodist Church
Bernstein Management Company
Calvary Baptist Church
Cassidy & Pinkard
Church of the Pilgrims
Conference for Catholic Facility Management
Constellation Federal Credit Union
Crowell & Moring
Department of Housing and Urban Development Federal Credit Union
Department of Labor Federal Credit Union
District of Columbia Department of Housing and Community Development
District of Columbia Public Housing Authority
E and Group
Engraving and Printing Credit Union
First Congregational Church
Housing Opportunity Commission of Montgomery County
International Brotherhood of Electrical Workers 26 Federal Credit Union
KSI Management Corporation
Lincoln Congregational Temple
Manna, Inc.
McGuire Woods
National Rural Electric Cooperative Association
National Rural Utilities Cooperative Finance Corporation
Naval Research Lab Federal Credit Union
Organization of American States Federal Credit Union
People’s Congregational Church
Police Federal Credit Union
Public Citizen
St. John’s Church of Lafayette Square
St. Paul’s Church, Rock Creek Parish
Shiloh Baptist Church
Transportation Federal Credit Union
U.S. Conference of Catholic Bishops
U.S. Post Office Federal Credit Union
Walsh, Colucci, Lubely, Emrich & Terpak
Washington Metro & Transportation Authority
Wesley Housing Development Corporation
Appendix B:
Financial Projections
Income Statement--5 Year Summary
Year 1
Year 2
Year 3
Year 4
Year 5
Sales
Office
Total Gross Sales
262,500
262,500
551,250
551,250
868,219
868,219
1,185,119
1,185,119
1,493,249
1,493,249
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
153,915
26,367
180,282
13,125
2,625
3,044
3,938
3,938
206,951
323,222
55,370
378,592
27,563
5,513
3,130
8,269
8,269
431,334
507,977
87,041
595,018
43,411
8,682
3,130
13,023
13,023
676,288
691,920
118,588
810,508
59,256
11,851
2,122
17,777
17,777
919,291
870,003
149,145
1,019,148
74,662
14,932
2,036
22,399
22,399
1,155,577
55,549
119,916
191,931
265,828
337,673
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
72,500
12,977
10,000
2,400
300
120
2,600
600
300
12,000
2,264
960
1,200
100
2,704
656
121,681
110,725
21,160
10,300
2,767
309
124
2,678
618
309
12,360
1,944
989
1,236
103
5,679
1,378
172,678
132,613
25,788
10,609
3,133
318
127
2,758
637
318
12,731
1,626
1,018
1,273
106
8,925
2,171
204,153
174,836
34,800
10,927
2,500
328
131
2,841
656
328
13,113
1,160
1,049
1,311
109
12,158
2,963
259,209
219,474
44,311
11,255
2,867
338
135
2,926
675
338
13,506
1,035
1,080
1,351
113
15,287
3,733
318,424
Operating Profit
(66,132)
(52,762)
(12,222)
6,619
19,248
6,344
5,758
5,786
481
604
0
0
3,747
7,650
11,276
Gross Profit
Total Other Income
Total Other Expenses
Profit Before Tax
Total Taxes
Net Income
Average FTE Workers
(59,788)
0
(59,788)
11.8
(47,004)
0
(47,004)
23.6
(10,183)
0
(10,183)
35.4
(551)
0
8,576
0
(551)
8,576
46.0
55.2
11/26/03
Balance Sheet--5 Year Summary
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
181,502
0
1,766
183,268
83,411
63,000
0
146,411
89,465
68,906
0
158,371
36,685
119,380
0
156,065
49,104
148,140
0
197,244
61,417
186,656
0
248,073
18,413
(11,341)
7,072
25,896
(17,604)
8,292
41,982
(22,226)
19,756
54,795
(27,129)
27,666
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
Total Other Assets
16,732
0
16,732
16,732
(5,444)
11,288
0
0
0
0
0
0
200,000
157,699
165,443
164,357
216,999
275,739
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
0
0
0
0
0
0
9,267
8,220
0
0
0
17,487
13,249
8,986
0
0
8,472
30,708
15,771
15,492
0
8,541
9,175
48,980
20,331
19,152
0
62,691
9,937
112,110
25,216
24,075
0
112,982
10,761
173,034
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
0
0
0
0
0
0
41,528
0
41,528
32,353
0
32,353
22,416
0
22,416
11,655
0
11,655
Total Assets
LIABILITIES
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
0
200,000
0
200,000
0
200,000
(59,788)
140,212
0
200,000
(106,792)
93,208
0
200,000
(116,976)
83,024
0
200,000
(117,526)
82,474
0
200,000
(108,950)
91,050
Total Liabilities & Net Worth
200,000
157,699
165,443
164,357
216,999
275,739
0
0
0
0
0
0
Check
11/26/03
Statement of Cash Flows--5 Year Summary
Year 1
Year 2
Year 3
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
(59,788)
5,444
0
0
(54,344)
(47,004)
5,897
0
0
(41,107)
(10,183)
6,263
0
0
(3,920)
(551)
4,622
0
0
4,071
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
(63,000)
1,766
0
9,267
8,220
0
0
(43,747)
(5,906)
0
0
3,982
766
0
0
(1,158)
(50,474)
0
0
2,522
6,506
0
0
(41,446)
(28,760)
0
0
4,559
3,660
0
0
(20,540)
(38,516)
0
0
4,885
4,923
0
0
(28,708)
Net Cashflows from Operations
(98,091)
(42,265)
(45,366)
(16,469)
(15,229)
(1,681)
0
(1,681)
(7,483)
0
(7,483)
(16,086)
0
(16,086)
(12,813)
0
(12,813)
(43,945)
(52,850)
(32,555)
(28,042)
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
FREE CASH FLOW FOR FINANCING
TAXES
Less: Taxes
Cash Flow Prior To Financing
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
0
0
0
(98,091)
0
(98,091)
0
0
0
0
0
0
0
0
Year 4
0
Year 5
8,576
4,903
0
0
13,479
0
(43,945)
(52,850)
(32,555)
(28,042)
0
50,000
0
0
0
50,000
8,541
(8,472)
0
0
0
69
54,149
(9,175)
0
0
0
44,974
50,292
(9,937)
0
0
0
40,355
INCREASE (DECREASE) CASH
(98,091)
6,055
(52,780)
12,419
12,313
Starting Cash
Ending Cash
181,502
83,411
83,411
89,465
89,465
36,685
36,685
49,104
49,104
61,417
11/26/03
Income Statement--Year 1
Sales
Office
Total Gross Sales
Total Net Sales
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
Gross Profit
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
Operating Profit
Total Other Income
Other Expenses
Interest on Long Term Debt
Interest on LOC
Total Other Expenses
Profit Before Tax
Total Taxes
Net Income
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Year 1
0
0
0
0
0
0
10,500
10,500
10,500
10,500
10,500
10,500
15,750
15,750
15,750
21,000
21,000
21,000
21,000
21,000
21,000
31,500
31,500
31,500
31,500
31,500
31,500
36,750
36,750
36,750
42,000
42,000
42,000
42,000
42,000
42,000
262,500
262,500
262,500
0
0
0
0
0
254
0
0
254
0
0
0
0
0
254
0
0
254
6,157
1,055
7,211
525
105
254
158
158
8,410
6,157
1,055
7,211
525
105
254
158
158
8,410
9,235
1,582
10,817
788
158
254
236
236
12,488
12,313
2,109
14,423
1,050
210
254
315
315
16,566
12,313
2,109
14,423
1,050
210
254
315
315
16,566
18,470
3,164
21,634
1,575
315
254
473
473
24,722
18,470
3,164
21,634
1,575
315
254
473
473
24,722
21,548
3,691
25,239
1,838
368
254
551
551
28,801
24,626
4,219
28,845
2,100
420
254
630
630
32,879
24,626
4,219
28,845
2,100
420
254
630
630
32,879
153,915
26,367
180,282
13,125
2,625
3,044
3,938
3,938
206,951
(254)
(254)
2,090
2,090
3,262
4,434
4,434
6,778
6,778
7,949
9,121
9,121
55,549
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
0
0
9,671
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
0
0
9,671
6,042
1,081
833
200
25
10
217
50
25
1,000
566
80
100
8
108
26
10,372
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
108
26
9,806
6,042
1,081
833
200
25
10
217
50
25
1,000
283
80
100
8
162
39
10,156
6,042
1,081
833
200
25
10
217
50
25
1,000
283
80
100
8
216
53
10,223
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
216
53
9,940
6,042
1,081
833
200
25
10
217
50
25
1,000
566
80
100
8
325
79
10,641
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
325
79
10,075
6,042
1,081
833
200
25
10
217
50
25
1,000
283
80
100
8
379
92
10,425
6,042
1,081
833
200
25
10
217
50
25
1,000
283
80
100
8
433
105
10,492
6,042
1,081
833
200
25
10
217
50
25
1,000
0
80
100
8
433
105
10,209
72,500
12,977
10,000
2,400
300
120
2,600
600
300
12,000
2,264
960
1,200
100
2,704
656
121,681
(9,925)
(9,925)
(8,282)
(7,716)
(6,894)
(5,789)
(5,506)
(3,863)
(3,297)
(2,476)
(1,371)
(1,088)
(66,132)
568
568
561
551
538
531
522
514
507
499
495
489
6,344
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(9,357)
0
(9,357)
(9,357)
0
(9,357)
(7,721)
0
(7,721)
(7,165)
0
(7,165)
(6,356)
0
(6,356)
(5,258)
0
(5,258)
(4,984)
0
(4,984)
(3,349)
0
(3,349)
(2,790)
0
(2,790)
(1,976)
0
(1,976)
(876)
0
(876)
(599)
0
(599)
(59,788)
0
(59,788)
11/26/03
Balance Sheet--Year 1
Month 0
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
181,502
0
1,766
183,268
181,838
0
1,178
183,016
173,524
0
589
174,113
161,360
7,875
0
169,235
145,664
15,750
1,178
162,591
137,324
19,688
589
157,601
126,462
27,563
0
154,024
116,708
31,500
1,178
149,386
Month 8
Month 9
Month 10
Month 11
Month 12
93,493
51,188
1,178
145,858
87,012
59,063
589
146,664
83,411
63,000
0
146,411
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
Total Other Assets
16,732
0
16,732
16,732
(454)
16,278
16,732
(907)
15,825
16,732
(1,361)
15,371
16,732
(1,815)
14,917
16,732
(2,268)
14,464
16,732
(2,722)
14,010
16,732
(3,176)
13,556
108,774
39,375
589
148,738
16,732
(3,629)
13,103
99,219
47,250
0
146,469
16,732
(4,083)
12,649
16,732
(4,537)
12,195
16,732
(4,990)
11,742
16,732
(5,444)
11,288
0
0
0
0
0
0
0
0
0
0
0
0
0
200,000
199,294
189,937
184,606
177,509
172,064
168,034
162,942
161,840
159,118
158,053
158,405
157,699
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
0
0
0
0
0
0
8,588
63
0
0
0
8,651
8,588
63
0
0
0
8,651
8,938
2,102
0
0
0
11,041
9,006
2,102
0
0
0
11,108
8,898
3,122
0
0
0
12,020
9,106
4,142
0
0
0
13,248
8,998
4,142
0
0
0
13,140
9,207
6,181
0
0
0
15,388
9,274
6,181
0
0
0
15,455
9,166
7,200
0
0
0
16,367
9,375
8,220
0
0
0
17,595
9,267
8,220
0
0
0
17,487
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Total Assets
LIABILITIES
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
0
200,000
0
200,000
0
200,000
(9,357)
190,643
0
200,000
(18,714)
181,286
0
200,000
(26,435)
173,565
0
200,000
(33,599)
166,401
0
200,000
(39,955)
160,045
0
200,000
(45,214)
154,786
0
200,000
(50,198)
149,802
0
200,000
(53,547)
146,453
0
200,000
(56,337)
143,663
0
200,000
(58,313)
141,687
0
200,000
(59,190)
140,810
0
200,000
(59,788)
140,212
Total Liabilities & Net Worth
200,000
199,294
189,937
184,606
177,509
172,064
168,034
162,942
161,840
159,118
158,053
158,405
157,699
0
0
0
0
0
0
0
0
0
0
0
0
0
Check
11/26/03
Statement of Cash Flows--Year 1
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
Month 1
(9,357)
454
0
0
(8,903)
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
0
589
0
8,588
63
0
0
9,240
Net Cashflows from Operations
337
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
FREE CASH FLOW FOR FINANCING
TAXES
Less: Taxes
Cash Flow Prior To Financing
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
INCREASE (DECREASE) CASH
Starting Cash
Ending Cash
0
0
0
337
0
337
0
0
0
0
0
0
337
181,502
181,838
Month 2
(9,357)
454
0
0
(8,903)
0
589
0
0
0
0
0
589
(8,314)
0
0
0
(8,314)
0
(8,314)
0
0
0
0
0
0
(8,314)
181,838
173,524
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10 Month 11 Month 12
(7,721)
454
0
0
(7,267)
(7,165)
454
0
0
(6,711)
(6,356)
454
0
0
(5,902)
(5,258)
454
0
0
(4,805)
(4,984)
454
0
0
(4,531)
(3,349)
454
0
0
(2,896)
(2,790)
454
0
0
(2,336)
(1,976)
454
0
0
(1,522)
(876)
454
0
0
(423)
(599)
454
0
0
(145)
(7,875)
589
0
350
2,039
0
0
(4,897)
(7,875)
(1,178)
0
67
0
0
0
(8,985)
(3,938)
589
0
(108)
1,020
0
0
(2,437)
(7,875)
589
0
209
1,020
0
0
(6,058)
(3,938)
(1,178)
0
(108)
0
0
0
(5,223)
(7,875)
589
0
209
2,039
0
0
(5,038)
(7,875)
589
0
67
0
0
0
(7,219)
(3,938)
(1,178)
0
(108)
1,020
0
0
(4,203)
(7,875)
589
0
209
1,020
0
0
(6,058)
(3,938)
589
0
(108)
0
0
0
(3,457)
(12,164)
(15,696)
(8,339)
(10,863)
(9,754)
(7,934)
(9,555)
(5,726)
(6,481)
(3,602)
0
0
0
(12,164)
0
(12,164)
0
0
0
0
0
0
0
0
0
(15,696)
0
(15,696)
0
0
0
0
0
0
(12,164)
(15,696)
173,524
161,360
161,360
145,664
0
0
0
(8,339)
0
(8,339)
0
0
0
0
0
0
(8,339)
145,664
137,324
0
0
0
(10,863)
0
(10,863)
0
0
0
0
0
0
(10,863)
137,324
126,462
0
0
0
(9,754)
0
(9,754)
0
0
0
0
0
0
(9,754)
126,462
116,708
0
0
0
(7,934)
0
(7,934)
0
0
0
0
0
0
(7,934)
116,708
108,774
0
0
0
(9,555)
0
(9,555)
0
0
0
0
0
0
(9,555)
108,774
99,219
0
0
0
(5,726)
0
(5,726)
0
0
0
0
0
0
0
0
0
(6,481)
0
(6,481)
0
0
0
0
0
0
0
0
0
(3,602)
0
(3,602)
0
0
0
0
0
0
(5,726)
(6,481)
(3,602)
99,219
93,493
93,493
87,012
87,012
83,411
11/26/03
Income Statement--Year 2
Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19 Month 20 Month 21
Month 22
Month 23
Month 24
Year 2
Sales
Office
Total Gross Sales
Total Net Sales
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
45,938
551,250
551,250
551,250
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
26,935
4,614
31,549
2,297
459
261
689
689
35,945
323,222
55,370
378,592
27,563
5,513
3,130
8,269
8,269
431,334
9,993
9,993
9,993
9,993
9,993
9,993
9,993
9,993
9,993
9,993
9,993
9,993
119,916
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
9,227
1,763
858
231
26
10
223
52
26
1,030
324
82
103
9
473
115
14,552
9,227
1,763
858
231
26
10
223
52
26
1,030
0
82
103
9
473
115
14,228
110,725
21,160
10,300
2,767
309
124
2,678
618
309
12,360
1,944
989
1,236
103
5,679
1,378
172,678
Operating Profit
(4,559)
(4,235)
(4,559)
(4,235)
(4,559)
(4,235)
(4,559)
(4,235)
(4,559)
(4,235)
(4,559)
(4,235)
(52,762)
Gross Profit
Total Other Income
Other Expenses
Interest on Long Term Debt
Interest on LOC
Total Other Expenses
Profit Before Tax
Total Taxes
Net Income
499
492
490
488
483
481
479
474
473
471
466
464
5,758
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(4,060)
0
(4,060)
(3,743)
0
(3,743)
(4,069)
0
(4,069)
(3,747)
0
(3,747)
(4,076)
0
(4,076)
(3,754)
0
(3,754)
(4,080)
0
(4,080)
(3,761)
0
(3,761)
(4,086)
0
(4,086)
(3,764)
0
(3,764)
(4,093)
0
(4,093)
(3,771)
0
(3,771)
(47,004)
0
(47,004)
11/26/03
Balance Sheet--Year 2
Month 12 Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19
Month 20
Month 21
Month 22
Month 23
Month 24
52,042
68,906
1,172
122,121
49,619
68,906
0
118,526
44,003
68,906
2,344
115,253
41,573
68,906
1,172
111,651
89,465
68,906
0
158,371
18,413
(10,358)
8,055
18,413
(10,849)
7,563
18,413
(11,341)
7,072
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
Total Other Assets
Total Assets
83,411
63,000
0
146,411
16,732
(5,444)
11,288
75,632
65,953
2,344
143,929
18,413
(5,935)
12,477
72,581
68,906
1,172
142,659
18,413
(6,427)
11,986
70,175
68,906
0
139,081
18,413
(6,918)
11,494
64,575
68,906
2,344
135,825
18,413
(7,410)
11,003
62,162
68,906
1,172
132,241
18,413
(7,901)
10,512
60,072
68,906
0
128,978
18,413
(8,392)
10,020
54,140
68,906
2,344
125,390
18,413
(8,884)
9,529
18,413
(9,375)
9,037
18,413
(9,867)
8,546
0
0
0
0
0
0
0
0
0
0
0
0
0
157,699
156,406
154,644
150,575
146,828
142,752
138,998
134,919
131,158
127,072
123,307
119,214
165,443
9,267
8,220
0
0
0
17,487
11,269
8,986
0
0
0
20,255
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
0
22,236
13,249
8,986
0
0
8,472
30,708
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
41,528
0
41,528
LIABILITIES
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
0
200,000
(59,788)
140,212
0
200,000
(63,848)
136,152
0
200,000
(67,591)
132,409
0
200,000
(71,660)
128,340
0
200,000
(75,407)
124,593
0
200,000
(79,483)
120,517
0
200,000
(83,237)
116,763
0
200,000
(87,317)
112,683
0
200,000
(91,077)
108,923
0
200,000
(95,164)
104,836
0
200,000
(98,928)
101,072
0
200,000
(103,021)
96,979
0
200,000
(106,792)
93,208
Total Liabilities & Net Worth
157,699
156,406
154,644
150,575
146,828
142,752
138,998
134,919
131,158
127,072
123,307
119,214
165,443
0
0
0
0
0
0
0
0
0
0
0
0
0
Check
11/26/03
Statement of Cash Flows--Year 2
Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19 Month 20 Month 21 Month 22 Month 23 Month 24
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
(4,060)
491
0
0
(3,569)
(3,743)
491
0
0
(3,251)
(4,069)
491
0
0
(3,578)
(3,747)
491
0
0
(3,256)
(4,076)
491
0
0
(3,584)
(3,754)
491
0
0
(3,263)
(4,080)
491
0
0
(3,588)
(3,761)
491
0
0
(3,269)
(4,086)
491
0
0
(3,595)
(3,764)
491
0
0
(3,273)
(4,093)
491
0
0
(3,602)
(3,771)
491
0
0
(3,280)
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
(2,953)
(2,344)
0
2,001
766
0
0
(2,529)
(2,953)
1,172
0
1,981
0
0
0
200
0
1,172
0
0
0
0
0
1,172
0
(2,344)
0
0
0
0
0
(2,344)
0
1,172
0
0
0
0
0
1,172
0
1,172
0
0
0
0
0
1,172
0
(2,344)
0
0
0
0
0
(2,344)
0
1,172
0
0
0
0
0
1,172
0
1,172
0
0
0
0
0
1,172
0
(2,344)
0
0
0
0
0
(2,344)
0
1,172
0
0
0
0
0
1,172
0
1,172
0
0
0
0
0
1,172
Net Cashflows from Operations
(6,098)
(3,052)
(2,406)
(5,600)
(2,413)
(2,091)
(5,932)
(2,097)
(2,423)
(5,617)
(2,430)
(2,108)
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
(1,681)
0
(1,681)
FREE CASH FLOW FOR FINANCING
(7,778)
TAXES
Less: Taxes
Cash Flow Prior To Financing
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
0
(7,778)
0
0
0
0
0
0
0
0
0
(3,052)
0
(3,052)
0
0
0
0
0
0
0
0
0
(2,406)
0
(2,406)
0
0
0
0
0
0
0
0
0
(5,600)
0
(5,600)
0
0
0
0
0
0
0
0
0
(2,413)
0
(2,413)
0
0
0
0
0
0
0
0
0
(2,091)
0
(2,091)
0
0
0
0
0
0
0
0
0
(5,932)
0
(5,932)
0
0
0
0
0
0
0
0
0
(2,097)
0
(2,097)
0
0
0
0
0
0
0
0
0
(2,423)
0
(2,423)
0
0
0
0
0
0
0
0
0
(5,617)
0
(5,617)
0
0
0
0
0
0
0
0
0
(2,430)
0
(2,430)
0
0
0
0
0
0
0
0
0
(2,108)
0
(2,108)
0
50,000
0
0
0
50,000
INCREASE (DECREASE) CASH
(7,778)
(3,052)
(2,406)
(5,600)
(2,413)
(2,091)
(5,932)
(2,097)
(2,423)
(5,617)
(2,430)
47,892
Starting Cash
Ending Cash
83,411
75,632
75,632
72,581
72,581
70,175
70,175
64,575
64,575
62,162
62,162
60,072
60,072
54,140
54,140
52,042
52,042
49,619
49,619
44,003
44,003
41,573
41,573
89,465
11/26/03
Income Statement--Year 3
Month 25 Month 26 Month 27 Month 28 Month 29 Month 30 Month 31 Month 32 Month 33 Month 34 Month 35
Month 36
Year 3
Sales
Office
Total Gross Sales
Total Net Sales
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
65,116
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
79,587
868,219
868,219
868,219
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
38,098
6,528
44,626
3,256
651
261
977
977
50,748
38,098
6,528
44,626
3,256
651
261
977
977
50,748
38,098
6,528
44,626
3,256
651
261
977
977
50,748
38,098
6,528
44,626
3,256
651
261
977
977
50,748
38,098
6,528
44,626
3,256
651
261
977
977
50,748
38,098
6,528
44,626
3,256
651
261
977
977
50,748
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
46,565
7,979
54,543
3,979
796
261
1,194
1,194
61,967
507,977
87,041
595,018
43,411
8,682
3,130
13,023
13,023
676,288
Gross Profit
14,369
14,369
14,369
14,369
14,369
14,369
17,620
17,620
17,620
17,620
17,620
17,620
191,931
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
11,051
2,149
884
261
27
11
230
53
27
1,061
876
85
106
9
669
163
17,660
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
669
163
16,785
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
669
163
16,785
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
669
163
16,785
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
669
163
16,785
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
669
163
16,785
11,051
2,149
884
261
27
11
230
53
27
1,061
751
85
106
9
818
199
17,720
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
818
199
16,970
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
818
199
16,970
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
818
199
16,970
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
818
199
16,970
11,051
2,149
884
261
27
11
230
53
27
1,061
0
85
106
9
818
199
16,970
132,613
25,788
10,609
3,133
318
127
2,758
637
318
12,731
1,626
1,018
1,273
106
8,925
2,171
204,153
Operating Profit
(3,292)
(2,416)
(2,416)
(2,416)
(2,416)
(2,416)
(101)
650
650
650
650
650
(12,222)
Total Other Income
Other Expenses
Interest on Long Term Debt
Interest on LOC
Total Other Expenses
Profit Before Tax
Total Taxes
Net Income
517
497
486
485
480
479
479
473
473
473
473
473
5,786
0
0
0
333
0
333
329
0
329
324
0
324
320
0
320
315
0
315
310
0
310
306
25
331
301
81
382
296
68
364
291
88
380
287
73
359
3,412
335
3,747
68
792
741
759
743
763
(10,183)
0
0
0
0
0
0
68
792
741
759
743
763
(2,775)
0
(2,775)
(2,252)
0
(2,252)
(2,259)
0
(2,259)
(2,255)
0
(2,255)
(2,256)
0
(2,256)
(2,252)
0
(2,252)
0
(10,183)
11/26/03
Balance Sheet--Year 3
Month 24 Month 25 Month 26 Month 27 Month 28 Month 29 Month 30 Month 31 Month 32
Month 33
Month 34
Month 35
Month 36
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
89,465
68,906
0
158,371
66,285
83,290
3,606
153,181
52,538
97,675
1,803
152,015
51,476
97,675
0
149,151
45,443
97,675
3,606
146,723
44,813
97,675
1,803
144,291
44,183
97,675
0
141,857
36,685
108,527
3,606
148,818
36,685
119,380
1,803
157,868
36,685
119,380
0
156,065
36,685
119,380
3,606
159,671
36,685
119,380
1,803
157,868
36,685
119,380
0
156,065
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
18,413
(11,341)
7,072
25,896
(11,863)
14,033
25,896
(12,385)
13,511
25,896
(12,906)
12,989
25,896
(13,428)
12,467
25,896
(13,950)
11,945
25,896
(14,472)
11,423
25,896
(14,994)
10,901
25,896
(15,516)
10,380
25,896
(16,038)
9,858
25,896
(16,560)
9,336
25,896
(17,082)
8,814
25,896
(17,604)
8,292
Total Other Assets
0
0
0
0
0
0
0
0
0
0
0
0
0
165,443
167,214
165,526
162,140
159,190
156,236
153,281
159,720
168,247
165,923
169,006
166,682
164,357
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
13,249
8,986
0
0
8,472
30,708
14,775
12,687
0
0
8,528
35,990
16,024
12,687
0
0
8,585
37,297
15,586
12,687
0
0
8,643
36,916
15,586
12,687
0
0
8,700
36,974
15,586
12,687
0
0
8,758
37,032
15,586
12,687
0
0
8,817
37,090
16,054
15,492
0
3,806
8,875
44,228
16,147
15,492
0
12,163
8,935
52,736
15,771
15,492
0
10,191
8,994
50,448
15,771
15,492
0
13,238
9,054
53,555
15,771
15,492
0
10,898
9,114
51,275
15,771
15,492
0
8,541
9,175
48,980
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
41,528
0
41,528
40,791
0
40,791
40,049
0
40,049
39,302
0
39,302
38,551
0
38,551
37,794
0
37,794
37,032
0
37,032
36,265
0
36,265
35,493
0
35,493
34,716
0
34,716
33,933
0
33,933
33,146
0
33,146
32,353
0
32,353
0
200,000
(119,241)
80,759
0
200,000
(118,482)
81,518
0
200,000
(117,739)
82,261
0
200,000
(116,976)
83,024
Total Assets
LIABILITIES
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
Total Liabilities & Net Worth
Check
0
0
0
0
0
0
0
0
0
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
(106,792) (109,567) (111,819) (114,078) (116,334) (118,589) (120,841) (120,773) (119,981)
93,208
90,433
88,181
85,922
83,666
81,411
79,159
79,227
80,019
165,443
167,214
165,526
162,140
159,190
156,236
153,281
159,720
168,247
165,923
169,006
166,682
164,357
0
0
0
0
0
0
0
0
0
0
0
0
0
11/26/03
Statement of Cash Flows--Year 3
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
Month 25 Month 26 Month 27 Month 28 Month 29 Month 30 Month 31 Month 32 Month 33 Month 34 Month 35 Month 36
(2,775)
522
0
0
(2,253)
(2,252)
522
0
0
(1,730)
(2,259)
522
0
0
(1,737)
(2,255)
522
0
0
(1,733)
(2,256)
522
0
0
(1,734)
(2,252)
522
0
0
(1,730)
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
(14,384)
(3,606)
0
1,525
3,701
0
0
(12,764)
(14,384)
1,803
0
1,250
0
0
0
(11,332)
0
1,803
0
(438)
0
0
0
1,365
0
(3,606)
0
0
0
0
0
(3,606)
0
1,803
0
0
0
0
0
1,803
0
1,803
0
0
0
0
0
1,803
Net Cashflows from Operations
(15,017)
(13,062)
(372)
(5,339)
69
73
0
0
0
0
0
0
69
73
0
0
69
73
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
FREE CASH FLOW FOR FINANCING
TAXES
Less: Taxes
Cash Flow Prior To Financing
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
INCREASE (DECREASE) CASH
Starting Cash
Ending Cash
(7,483)
0
(7,483)
(22,500)
0
0
0
0
(13,062)
0
0
0
0
(372)
0
0
0
0
(5,339)
0
(22,500)
(13,062)
(372)
(5,339)
0
(680)
0
0
0
(680)
0
(685)
0
0
0
(685)
0
(690)
0
0
0
(690)
0
(694)
0
0
0
(694)
0
(699)
0
0
0
(699)
(23,181)
(13,747)
(1,062)
(6,033)
(630)
89,465
66,285
66,285
52,538
52,538
51,476
51,476
45,443
45,443
44,813
68
522
0
0
590
792
522
0
0
1,314
741
522
0
0
1,263
759
522
0
0
1,281
743
522
0
0
1,265
763
522
0
0
1,285
(10,853)
(3,606)
0
468
2,805
0
0
(11,186)
(10,853)
1,803
0
92
0
0
0
(8,957)
0
1,803
0
(375)
0
0
0
1,428
0
(3,606)
0
0
0
0
0
(3,606)
0
1,803
0
0
0
0
0
1,803
0
1,803
0
0
0
0
0
1,803
(10,596)
(7,644)
2,690
(2,325)
3,068
3,088
0
0
0
0
0
0
3,068
3,088
0
0
0
0
0
(10,596)
0
0
0
0
(7,644)
0
0
0
0
2,690
0
0
0
0
(2,325)
0
(10,596)
(7,644)
2,690
(2,325)
3,068
3,088
0
(703)
0
0
0
(703)
3,806
(708)
0
0
0
3,098
8,357
(713)
0
0
0
7,644
(1,972)
(718)
0
0
0
(2,690)
3,048
(722)
0
0
0
2,325
(2,341)
(727)
0
0
0
(3,068)
(2,356)
(732)
0
0
0
(3,088)
(630)
(7,498)
44,813
44,183
44,183
36,685
0
0
0
0
0
36,685
36,685
36,685
36,685
36,685
36,685
36,685
36,685
36,685
36,685
11/26/03
Income Statement--Year 4
Month 37 Month 38 Month 39 Month 40 Month 41 Month 42 Month 43 Month 44 Month 45 Month 46 Month 47 Month 48
Year 4
Sales
Office
Total Gross Sales
Total Net Sales
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760
98,760 1,185,119
98,760 1,185,119
98,760 1,185,119
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
57,660
9,882
67,542
4,938
988
177
1,481
1,481
76,608
691,920
118,588
810,508
59,256
11,851
2,122
17,777
17,777
919,291
Gross Profit
22,152
22,152
22,152
22,152
22,152
22,152
22,152
22,152
22,152
22,152
22,152
22,152
265,828
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
14,570
2,900
911
208
27
11
237
55
27
1,093
1,160
87
109
9
1,013
247
22,664
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
14,570
2,900
911
208
27
11
237
55
27
1,093
0
87
109
9
1,013
247
21,504
174,836
34,800
10,927
2,500
328
131
2,841
656
328
13,113
1,160
1,049
1,311
109
12,158
2,963
259,209
(512)
648
648
648
648
648
648
648
648
648
648
648
6,619
31
41
41
41
41
41
41
41
41
41
41
41
481
282
57
339
277
340
617
272
406
678
267
396
663
262
431
693
257
417
674
252
403
655
247
438
685
242
424
666
237
410
647
231
445
677
226
432
658
3,051
4,599
7,650
(820)
73
11
26
(4)
15
34
4
23
42
12
31
0
0
0
0
0
0
0
0
0
0
0
73
11
26
(4)
15
34
4
23
42
12
31
Operating Profit
Total Other Income
Other Expenses
Interest on Long Term Debt
Interest on LOC
Total Other Expenses
Profit Before Tax
Total Taxes
Net Income
0
(820)
(551)
0
(551)
11/26/03
Balance Sheet--Year 4
Month 36 Month 37 Month 38 Month 39 Month 40 Month 41 Month 42 Month 43
Month 44
Month 45
Month 46
Month 47
Month 48
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
36,685
119,380
0
156,065
49,104
133,760
4,873
187,737
49,104
148,140
2,436
199,680
49,104
148,140
0
197,244
49,104
148,140
4,873
202,117
49,104
148,140
2,436
199,680
49,104
148,140
0
197,244
49,104
148,140
4,873
202,117
49,104
148,140
2,436
199,680
49,104
148,140
0
197,244
49,104
148,140
4,873
202,117
49,104
148,140
2,436
199,680
49,104
148,140
0
197,244
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
25,896
(17,604)
8,292
41,982
(17,989)
23,992
41,982
(18,374)
23,607
41,982
(18,760)
23,222
41,982
(19,145)
22,837
41,982
(19,530)
22,452
41,982
(19,915)
22,067
41,982
(20,300)
21,681
41,982
(20,685)
21,296
41,982
(21,071)
20,911
41,982
(21,456)
20,526
41,982
(21,841)
20,141
41,982
(22,226)
19,756
Total Other Assets
0
0
0
0
0
0
0
0
0
0
0
0
0
164,357
211,730
223,288
220,466
224,954
222,132
219,311
223,798
220,977
218,155
222,643
219,821
216,999
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
15,771
15,492
0
8,541
9,175
48,980
18,631
19,152
0
50,951
9,236
97,970
20,910
19,152
0
60,899
9,298
110,259
20,331
19,152
0
59,393
9,360
108,235
20,331
19,152
0
64,606
9,422
113,511
20,331
19,152
0
62,545
9,485
111,512
20,331
19,152
0
60,470
9,548
109,501
20,331
19,152
0
65,691
9,612
114,785
20,331
19,152
0
63,637
9,676
112,795
20,331
19,152
0
61,569
9,741
110,792
20,331
19,152
0
66,797
9,806
116,085
20,331
19,152
0
64,751
9,871
114,104
20,331
19,152
0
62,691
9,937
112,110
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
32,353
0
32,353
31,555
0
31,555
30,751
0
30,751
29,942
0
29,942
29,128
0
29,128
28,309
0
28,309
27,483
0
27,483
26,653
0
26,653
25,817
0
25,817
24,975
0
24,975
24,128
0
24,128
23,275
0
23,275
22,416
0
22,416
0
200,000
(117,635)
82,365
0
200,000
(117,612)
82,388
0
200,000
(117,570)
82,430
0
200,000
(117,558)
82,442
0
200,000
(117,526)
82,474
Total Assets
LIABILITIES
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
Total Liabilities & Net Worth
Check
0
0
0
0
0
0
0
0
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
(116,976) (117,795) (117,723) (117,711) (117,685) (117,689) (117,674) (117,640)
83,024
82,205
82,277
82,289
82,315
82,311
82,326
82,360
164,357
211,730
223,288
220,466
224,954
222,132
219,311
223,798
220,977
218,155
222,643
219,821
216,999
0
0
0
0
0
0
0
0
0
0
0
0
0
11/26/03
Statement of Cash Flows--Year 4
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
Month 37 Month 38 Month 39 Month 40 Month 41 Month 42 Month 43 Month 44 Month 45 Month 46 Month 47 Month 48
(820)
385
0
0
(434)
73
385
0
0
458
11
385
0
0
396
26
385
0
0
411
(4)
385
0
0
382
15
385
0
0
400
34
385
0
0
419
4
385
0
0
390
23
385
0
0
408
42
385
0
0
427
12
385
0
0
398
31
385
0
0
416
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
(14,380)
(4,873)
0
2,859
3,660
0
0
(12,733)
(14,380)
2,436
0
2,280
0
0
0
(9,664)
0
2,436
0
(580)
0
0
0
1,857
0
(4,873)
0
0
0
0
0
(4,873)
0
2,436
0
0
0
0
0
2,436
0
2,436
0
0
0
0
0
2,436
0
(4,873)
0
0
0
0
0
(4,873)
0
2,436
0
0
0
0
0
2,436
0
2,436
0
0
0
0
0
2,436
0
(4,873)
0
0
0
0
0
(4,873)
0
2,436
0
0
0
0
0
2,436
0
2,436
0
0
0
0
0
2,436
Net Cashflows from Operations
(13,168)
(9,206)
2,253
(4,462)
2,818
2,837
(4,454)
2,826
2,845
(4,446)
2,834
2,853
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
(16,086)
0
(16,086)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
FREE CASH FLOW FOR FINANCING
(29,254)
2,818
2,837
2,826
2,845
2,834
2,853
0
0
0
0
0
0
TAXES
Less: Taxes
Cash Flow Prior To Financing
0
0
0
0
(9,206)
0
0
0
0
2,253
0
0
0
0
(4,462)
0
0
0
0
(4,454)
0
0
0
0
(4,446)
0
(29,254)
(9,206)
2,253
(4,462)
2,818
2,837
(4,454)
2,826
2,845
(4,446)
2,834
2,853
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
42,410
(737)
0
0
0
41,673
9,948
(742)
0
0
0
9,206
(1,506)
(747)
0
0
0
(2,253)
5,213
(752)
0
0
0
4,462
(2,061)
(757)
0
0
0
(2,818)
(2,075)
(762)
0
0
0
(2,837)
5,221
(767)
0
0
0
4,454
(2,054)
(772)
0
0
0
(2,826)
(2,068)
(777)
0
0
0
(2,845)
5,228
(782)
0
0
0
4,446
(2,046)
(788)
0
0
0
(2,834)
(2,060)
(793)
0
0
0
(2,853)
INCREASE (DECREASE) CASH
12,419
0
0
0
0
0
0
0
0
0
0
Starting Cash
Ending Cash
36,685
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
49,104
(0)
49,104
49,104
11/26/03
Income Statement--Year 5
Sales
Office
Total Gross Sales
Total Net Sales
Month 49 Month 50 Month 51 Month 52 Month 53 Month 54 Month 55 Month 56 Month 57
Month 58
Month 59
Month 60
Year 5
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
124,437
1,493,249
1,493,249
1,493,249
Cost of Goods Sold
Direct Labor
Benefits
Total Direct Labor Cost
Direct Materials
Expendable Supplies
Depreciation
Equipment Exp. (non-depr.)
Vehicle Exp. (non-depr.)
Total COGS
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
72,500
12,429
84,929
6,222
1,244
170
1,867
1,867
96,298
870,003
149,145
1,019,148
74,662
14,932
2,036
22,399
22,399
1,155,577
Gross Profit
28,139
28,139
28,139
28,139
28,139
28,139
28,139
28,139
28,139
28,139
28,139
28,139
337,673
Operating Expenses
Administrative Salaries
Administrative Benefits
Rent
Depreciation
Office Supplies
Printing & Copying
Professional Serv.--accounting
Insurance
Postage
Marketing
Training
Utilities
Telephone/Communications
Waste Disposal
Payroll Service
Miscellaneous
Total Operating Expenses
18,290
3,693
938
239
28
11
244
56
28
1,126
1,035
90
113
9
1,274
311
27,484
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
18,290
3,693
938
239
28
11
244
56
28
1,126
0
90
113
9
1,274
311
26,449
219,474
44,311
11,255
2,867
338
135
2,926
675
338
13,506
1,035
1,080
1,351
113
15,287
3,733
318,424
655
1,690
1,690
1,690
1,690
1,690
1,690
1,690
1,690
1,690
1,690
1,690
19,248
41
51
51
51
51
51
51
51
51
51
51
51
604
221
418
639
216
704
920
210
793
1,003
205
774
979
200
812
1,012
194
790
984
189
767
956
183
805
989
178
783
961
172
760
932
167
798
965
161
776
937
2,295
8,981
11,276
57
822
738
763
730
758
786
753
781
809
777
805
8,576
Total Taxes
0
0
0
0
0
0
0
0
0
0
0
0
0
Net Income
57
822
738
763
730
758
786
753
781
809
777
805
8,576
Operating Profit
Total Other Income
Other Expenses
Interest on Long Term Debt
Interest on LOC
Total Other Expenses
Profit Before Tax
11/26/03
Balance Sheet--Year 5
Month 48 Month 49 Month 50 Month 51 Month 52 Month 53 Month 54 Month 55
Month 56
Month 57
Month 58
Month 59
Month 60
ASSETS
Current Assets
Cash
Accounts Receivable
Prepaid Expenses
Total Current Assets
49,104
148,140
0
197,244
61,417
167,398
6,102
234,917
61,417
186,656
3,051
251,124
61,417
186,656
0
248,073
61,417
186,656
6,102
254,175
61,417
186,656
3,051
251,124
61,417
186,656
0
248,073
61,417
186,656
6,102
254,175
61,417
186,656
3,051
251,124
61,417
186,656
0
248,073
61,417
186,656
6,102
254,175
61,417
186,656
3,051
251,124
61,417
186,656
0
248,073
Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
41,982
(22,226)
19,756
54,795
(22,635)
32,160
54,795
(23,043)
31,751
54,795
(23,452)
31,343
54,795
(23,860)
30,934
54,795
(24,269)
30,526
54,795
(24,678)
30,117
54,795
(25,086)
29,709
54,795
(25,495)
29,300
54,795
(25,903)
28,891
54,795
(26,312)
28,483
54,795
(26,720)
28,074
54,795
(27,129)
27,666
Total Other Assets
Total Assets
0
0
0
0
0
0
0
0
0
0
0
0
0
216,999
267,077
282,875
279,416
285,109
281,650
278,190
283,884
280,424
276,964
282,658
279,198
275,739
20,331
19,152
0
62,691
9,937
112,110
23,291
24,075
0
105,626
10,003
162,994
25,734
24,075
0
118,964
10,070
178,841
25,216
24,075
0
116,092
10,137
175,520
25,216
24,075
0
121,838
10,204
181,333
25,216
24,075
0
118,468
10,272
178,031
25,216
24,075
0
115,076
10,341
174,707
25,216
24,075
0
120,815
10,410
180,515
25,216
24,075
0
117,438
10,479
177,208
25,216
24,075
0
114,039
10,549
173,879
25,216
24,075
0
119,771
10,619
179,681
25,216
24,075
0
116,388
10,690
176,369
25,216
24,075
0
112,982
10,761
173,034
22,416
0
22,416
21,552
0
21,552
20,682
0
20,682
19,806
0
19,806
18,924
0
18,924
18,036
0
18,036
17,143
0
17,143
16,243
0
16,243
15,338
0
15,338
14,426
0
14,426
13,508
0
13,508
12,585
0
12,585
11,655
0
11,655
0
200,000
(112,122)
87,878
0
200,000
(111,341)
88,659
0
200,000
(110,532)
89,468
0
200,000
(109,755)
90,245
0
200,000
(108,950)
91,050
LIABILITIES
Current Liabilities
Accounts Payable
Accrued Payroll
Accrued Taxes
Line of Credit
Current Portion of Long Term Debt
Total Current Liabilities
Long Term Liabilities
Long Term Debt
Other Long Term Liabilities
Total Long Term Liabilities
Equity
Class A Shares
Contributed Equity
Retained Earnings
Total Net Worth
Total Liabilities & Net Worth
Check
0
0
0
0
0
0
0
0
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
(117,526) (117,469) (116,648) (115,910) (115,147) (114,418) (113,660) (112,874)
82,474
82,531
83,352
84,090
84,853
85,582
86,340
87,126
216,999
267,077
282,875
279,416
285,109
281,650
278,190
283,884
280,424
276,964
282,658
279,198
275,739
0
0
0
0
0
0
0
0
0
0
0
0
0
11/26/03
Statement of Cash Flows--Year 5
OPERATIONS CASH FLOWS
Net Income
Add: Depreciation & Amortization
Add: Income Taxes
Add: Other non-operating expenses
Gross Cash Flow
Month 49 Month 50 Month 51 Month 52 Month 53 Month 54 Month 55 Month 56 Month 57 Month 58 Month 59 Month 60
57
409
0
0
466
822
409
0
0
1,230
738
409
0
0
1,147
763
409
0
0
1,171
730
409
0
0
1,138
758
409
0
0
1,166
786
409
0
0
1,194
753
409
0
0
1,161
781
409
0
0
1,189
809
409
0
0
1,218
777
409
0
0
1,185
805
409
0
0
1,213
Changes in Assets & Liabilities
(Inc) Dec Accounts Receivable
(Inc) Dec Prepaid Expenses
(Inc) Dec Other Assets
Inc (Dec) Accounts Payable
Inc (Dec) Accrued Payroll
Inc (Dec) Accrued Tax
Inc (Dec) Other Liability
Total changes - Operations
(19,258)
(6,102)
0
2,960
4,923
0
0
(17,477)
(19,258)
3,051
0
2,443
0
0
0
(13,764)
0
3,051
0
(518)
0
0
0
2,533
0
(6,102)
0
0
0
0
0
(6,102)
0
3,051
0
0
0
0
0
3,051
0
3,051
0
0
0
0
0
3,051
0
(6,102)
0
0
0
0
0
(6,102)
0
3,051
0
0
0
0
0
3,051
0
3,051
0
0
0
0
0
3,051
0
(6,102)
0
0
0
0
0
(6,102)
0
3,051
0
0
0
0
0
3,051
0
3,051
0
0
0
0
0
3,051
Net Cashflows from Operations
(17,012)
(12,534)
3,680
(4,931)
4,189
4,217
(4,908)
4,212
4,241
(4,884)
4,236
4,264
INVESTMENT & OTHER CASH FLOWS
(Inc) Dec Fixed Assets
(Inc) Dec Other Non-Current Assets
Net Cashflows from Investments
(12,813)
0
(12,813)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
FREE CASH FLOW FOR FINANCING
(29,825)
4,189
4,217
4,212
4,241
4,236
4,264
0
0
0
0
0
0
TAXES
Less: Taxes
Cash Flow Prior To Financing
0
0
0
0
(12,534)
0
0
0
0
3,680
0
0
0
0
(4,931)
0
0
0
0
(4,908)
0
0
0
0
(4,884)
0
(29,825)
(12,534)
3,680
(4,931)
4,189
4,217
(4,908)
4,212
4,241
(4,884)
4,236
4,264
FINANCING CASH FLOWS
Inc (Dec) Line of Credit
Inc (Dec) in Long Term Debt
Inc (Dec) Class A Stock
Inc (Dec) Contributed Equity
Dividends Paid
Total Financing Activities
42,935
(798)
0
0
0
42,137
13,338
(803)
0
0
0
12,534
(2,871)
(809)
0
0
0
(3,680)
5,745
(814)
0
0
0
4,931
(3,370)
(820)
0
0
0
(4,189)
(3,392)
(825)
0
0
0
(4,217)
5,739
(831)
0
0
0
4,908
(3,376)
(836)
0
0
0
(4,212)
(3,399)
(842)
0
0
0
(4,241)
5,732
(847)
0
0
0
4,884
(3,383)
(853)
0
0
0
(4,236)
(3,406)
(859)
0
0
0
(4,264)
INCREASE (DECREASE) CASH
12,313
0
Starting Cash
Ending Cash
49,104
61,417
61,417
61,417
(0)
61,417
61,417
0
0
61,417
61,417
61,417
61,417
(0)
61,417
61,417
0
0
0
0
0
0
61,417
61,417
61,417
61,417
61,417
61,417
61,417
61,417
61,417
61,417
61,417
61,417
11/26/03