ENCOMPASS

Aarti Shah | Beverly Siu | Japheth YeungHomestead High School, California

Business Financial PlanChapter 8990 | 2014-15

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EXECUTIVE SUMMARY EXECUTIVE SUMMARY

Encompass is a fully-stocked one-stop shop home improvement store with a warehouse and storefront where customers can view and purchase wide-selection of merchandise as well as access our extensive range of services. Inspired by our passion for interior design, we, Japheth Yeung, Aarti Shah, and Beverly Siu, have decided to establish a retail store that provides the residents and organizations of the Santa Clara County with the opportunity to make style and comfort affordable. Although there are several established local and online competitors in the area, we aim to differentiate ourselves by offering a wide variety of merchandise that consumers can purchase in budget-friendly bundle deals, bulk, or individual orders, all at one location. We also offer delivery and consulting services as well as contracting services such as installation and repair services. Within two years of opening, we hope to launch the Encompass LLC: Simulation App, which will allow customers to simulate Encompass’ merchandise in their home.

Encompass’s  retail  store  and  warehouse  are located in a 25,000 ft2 facility, bordering two major cities, Sunnyvale and Cupertino, which is the heart of the Santa Clara County, California. The location also encompassing several business districts and residential areas, making it the optimal location to reach a large target market of local businesses, homeowners, and college students. Encompass will market to these groups through cross-promotion and social media, as well as establish relationships through face-to-face and mail solicitation.

With our combined knowledge in home improvement retail, finance, and management, we hope to provide our clientele with the necessary knowledge to aid them in their home improvement projects. We have hired two full-time sales/floor personnel employees, one full-time warehouse employee, and one part-time warehouse employee, who will assist in various sectors of day-to-day operations. In addition, we have established contracts with various independent contractors and installers to provide our customers with the necessary services to aid with their projects.

Encompass will operate as a limited liability corporation (LLC), providing us with personal asset protection and pass-through taxation benefits. Initially, each owner will invest $30,000 each for a total of $90,000. However, in order to secure adequate financing, we have reviewed various funding options and worked with the Small Business Administration, which directed us towards banks that are certified SBA Preferred Lenders. After contacting several banks, including non-certified SBA Preferred Lenders, we have decided to acquire our loan and line of credit from a certified SBA Preferred Lender, Bank of the West. We will acquire an SBA 7(a) loan of $500,000 at 6.5% annual percentage rate (APR) for a term of ten years. In addition, we will also pursue a $250,000 line of credit at a 6.75% interest rate for a term of five years. These sources of financing will assist us with the operating cash to cover our start-up costs and any unforeseen costs.

To guarantee the attainability of our loans and facility, Encompass considered the 4 Cs of Credit: Capital, Capacity, Collateral, and Character.  Encompass’  capital  will  include  the  owners’  initial  cash  investments. Our company is projected to become profitable by the third accounting year, proving that we have the capacity to repay outstanding loans in the appropriate amount of time. Then in the event that we default on our loans in the next 5 years, our equipment and the cash we receive after liquidation of our inventory will be secured as collateral. Our character will be proven  through  the  owner’s  full  time  dedication  to  this  company.  

Every forecast for a business must be built on some underlying assumptions, which will support or refute the overall assumption that there is a place in the market for Encompass LLC. We assume that there are will be no unforeseen changes in economic policy to make our clients' products immediately obsolete. We also assume that Encompass’  host location will continue to provide the necessary customer flow and the economy of the target market area will remain stable. If this is so, as we continue with our extensive marketing strategies, Encompass’  market share is projected to increase 1.15 percent by the end of the first six months. Encompass will also strive to be constantly up-to-date with the current fashion trends in home improvement and will have an assortment of bundle deals that fit the customer both in price and in style. Combined with our extensive range of products and services, Encompass values and ethics will help to retain and increase its database of customers. Combined with the fact that the home improvement industry has experienced revenue growth of 4.9 percent each year for the past three years and is assumed to increase 5.8% this year, we believe these factors will ensure the success of Encompass. Throughout the years, we hope to build lasting and loyal relationships with our customers and continue to expand our market share.

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TABLE OF CONTENTS TABLE OF CONTENTS

Executive Summary Page 1 Table of Contents Page 2

1. Company Description Page 3 a. Description of the Business b. Legal Form of Business c. Company Mission Statement d. Company Vision Statement e. Company Governance f. Company Location g. Short and Long-Term Goals

2. Operations and Management Page 5 a. Business Facilities Described

a. Encompass’  Inside  Storefront b. Warehouse c. Office Facilities d. Loading Zone

b. Business Services Described a. Consultation and Delivery Service b. Installation and Repairs Services

c. Website and Simulation App d. Management Personnel Identified e. Workforce Identified

a. Current Workforce b. Projected Workforce

f. Customer Payment Plan 3. Target Market Page 7

a. Target Market Defined a. Size b. Growth Potential c. Needs d. Market Share & Projection

b. Effective Analysis a. Market Potential b. Current Market Patterns c. Market Risks and Competition d. SWOT Analysis

4. Financial Institution Page 10 a. Description and Rationale for Financial Institution

5. Loan Request Page 10 a. Amount Requested b. Rationale for Type of Loan c. Purpose of Loan

a. Itemized Start-Up Expenditures d. Plan for Repayment e. Projections for Financial Stability

6. Financial Statements Page 12 a. Projected Income Statement b. Projected Cash Flow Statement c. Projected Balance Sheets

7. Works Cited Page 15

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COMPANY DESCRIPTION COMPANY DESCRIPTION

Description of the Business Encompass LLC is a one-stop shop home improvement store offering local customers accessible and bundle deals on merchandise and services. Members of local communities, such as companies, homeowners, and college students will be able to access Encompass’ wide variety of products, which includes but is not limited to kitchen cabinets, home theater equipment, indoor and outdoor furniture, lighting fixtures, and flooring. Merchandise will be offered to customers in both bulk and individual orders. Encompass will also offer delivery, consulting and contracting services, such as repairs and installation services to provide convenience for customers. Encompass plans to distinguish itself from its competition by developing a simulation app to provide consumers with the opportunity to view our catalog of merchandise and preview their selections in context of their homes. Unlike other nearby home improvement stores, we sell an extensive selection of merchandise in discounted bundles, providing customers with convenience and the opportunity to save money, which is essential to maintain Encompass’ motto,  “Making  style  and  comfort  affordable.”

Encompass LLC is a 25,000 ft2 facility located at 760 E El Camino Real, Sunnyvale CA 94087. This location attracts potential clientele from major cities in the Santa Clara County including, Sunnyvale and Cupertino. Being located next to major highways and various neighborhoods gives business organizations, local students, and residents easy access to Encompass. This will improve Encompass’ ability to later expand its target market.

We, the founders – Japheth Yeung, Aarti Shah, and Beverly Siu – established and will oversee the  company’s  day-to-day operations. Encompass will begin with three full-time employees and one part-time employee that will assist with customer service, delivery and warehouse organization. We will also hire independent contractors on a commission basis to provide our clients with installation and repairs services. Encompass will begin operations on January 2, 2015 in order to attract consumers seeking new trends and deals on furniture to start of the New Year. Encompass’ storefront hours are Monday through Thursday 10 A.M to 8 P.M, Friday to Saturday 11 A.M to 9 P.M, and Sunday 12 P.M to 9 P.M.

As the owners of Encompass, we have a strong sense of responsibility to our community and will participate in cause-related marketing to benefit organizations located in the surrounding area. Encompass will also assist local homeless shelters and schools with furniture and other necessary home improvement items at discounted prices. The satisfaction of our customers is valued greatly by every employee of Encompass and is the driving force of our business; we aim to achieve  success  by  treating  every  customer’s  home  as  if  it  was  our  own and providing them with the best selection of home improvement goods and services to fit their every desire.

Legal Form of Business Encompass is established as a limited liability company (LLC) managed by the members of the company under the laws and auspices of the State of California. This corporate structure provides us, the members, with operational flexibility as well as the primary advantage of personal liability protection. If the company should acquire debts or liabilities, as an LLC our personal assets are protected in the event of litigation against the business and the members are exempt from legal action, whereas in a partnership, the partners are vulnerable to unlimited liability and seizure of their personal assets. An LLC also provides us with the  tax  benefit  of  “pass  through”  taxation,  which  allows  the  profits  of  the  business  to be passed on to the owners as personal income and eliminates double-taxation, which is the concept that income taxes are paid twice on the same source of earned income. Due to this, the owners have individual responsibility for filing individual profits or losses on personal tax returns rather than having to file for corporate taxes. Company Mission Statement Encompass LLC’s  mission  is  to  treat  every  customer’s  home  as if it was our own, by providing clients with the opportunity to make style and comfort affordable while establishing ourselves as a leader in the home improvement industry. We strive to give clients the best selection of home improvement goods and services for every occasion, and the value and integrity of our customers and employees will always be honored.

Company Vision Statement As Encompass LLC continues to grow, our company aims to change the way customers view their home. Through high-quality service, friendly customer support, and affordable products, within five years, Encompass strives to be the most-

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COMPANY DESCRIPTION desired home improvement warehouse in the Santa Clara County where customers are guaranteed that our heart is working to make their home where their heart is. Company Governance Encompass LLC is locally owned, governed, and operated by its three co-founders: Japheth Yeung, Aarti Shah, and Beverly Siu. The chain of command is determined by the management areas the owners have established: Mr. Yeung will oversee the product lines and inventory, establishment of relations with businesses, and hiring of store and warehouse personnel; Ms. Shah will manage the finances of the company and the development of marketing strategies; Ms. Siu will be responsible for all technical aspects of the company and manage the database. Each member has an equitable financial share of 33.3 percent of the company and has equal say in all company decisions. The members of Encompass will strive to make decisions that reflect the following: fair collaboration with suppliers, commitment to customer satisfaction, high ethical standards, and efficiency in productivity and management.

Company Location Encompass LLC’s  retail  store  and  warehouse  are located at 760 E El Camino Real, Sunnyvale CA 94087 as a stand-alone store in one of the top grossing locations of Sunnyvale and near the border of Cupertino. Encompass LLC’s premises are located in a commercial area of medium flow of traffic (average daily traffic is over 90,000 vehicles per day)i, upper middle-class residential district, and near several commercial plazas. This location is in close proximity to the Cupertino and Sunnyvale emerging residential neighborhoods, allowing the residents of these areas easy access to our store. Numerous organizations, including the currently-renovating Apple Headquarters and several motels are nearby, providing us with direct access to potential clientele. Encompass LLC, situated by three major highways (SR 85, U.S 101, and 1-280), is also easily accessed by residents of several major cities similar to that of Cupertino and Sunnyvale.

Short and Long Term Goals

Short Term Goals Encompass plans to open on January 2, 2015, the beginning of a new year when consumers are most often seeking new furniture trends and deals. A week before opening, Encompass will have its inventory on stock, including various home improvement items such as lighting, cabinetry, and furniture. At this time, the owners will have finished setting-up displays, lighting, wiring, and the office. We aim to have hired and trained two full-time in-store floor personnel, one full-time warehouse employee and one part-time warehouse employee by this time. Prior to opening day, Encompass will engage in a week-long “Grand  Opening”  promotion and vigorous marketing strategies to effectively reach our target market. We will expand our media marketing campaign by distributing fliers, designing discount offers, and promoting online through Facebook and Twitter.

Within one month of opening, we hope to finish and launch our website and online store. In the first two months Encompass will launch an aggressive marketing campaign using a cross promotion strategy by attending multiple home improvement trade shows to gain exposure. Encompass will attend San Jose Spring Home Show and the ASI Advantage Road Show: San Jose in the first year. Fliers will also be distributed in the surrounding area to spread the word about Encompass. We will continue the use of social media platforms, expanding onto Pinterest and Instagram. Encompass will also have established written contracts with our independent contractors by this time period.

We will continue our marketing campaign through flyers, social media and word-of-mouth advertising; through these steps, we hope to have increased our market share by 1.15 percent by the end of six months.

Long Term Goals Our long-term goals reflect what we expect to achieve within the first few years of operation, following the opening of Encompass. Within the second year of operations, we hope to have completed and released the Encompass: Simulation App, which will allow consumers to preview our merchandise in their home. We will continue our extensive marketing strategy with flyers/coupons, social media, and cross promotion. By the end of five years, we hope to have expanded our workforce to include two additional full-time sales/floor personnel, two additional part-time sales/floor personnel, two additional full-time warehouse employees, and one designated truck driver. At this time, we also plan to dismiss the independent contractors and hire our own. By 2020, we will relinquish and pay off any debts accumulated on our line of credit; we hope to have paid off debts accumulated from the SBA 7(a) loan by 2025 as well as open a new storefront in San Jose, California, after having established our reputation in the Sunnyvale area.

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OPERATIONS AND MANAGEMENT

OPERATIONS AND MANAGEMENT

Business Facilities Described Encompass LLC’s  25,000  ft2 premises consists of an inside sectionalized storefront, warehouse, consulting office, loading zone, and restroom facilities. Encompass offers delivery and installation service, as well as repairs services for its customers. These services are offered year round, except on specific holidays. Operational hours will be Encompass’ Inside Storefront The 16,875 ft2 storefront is divided as shown on the floor plan; each area has various displays to offer customers a visual aid. Salespersons are available to assist customers and identify the items requested. Sales personnel will also work the checkout stands.

Encompass’ Warehouse The furniture and accessories warehouse is 6,250 ft2 and provides space to store a wide variety of merchandise sold at Encompass. The warehouse holds Encompass’ merchandise until it is needed to be restocked or delivered upon purchase. The necessary warehouse equipment and shipping supplies will also be stored in this area. Warehouse employees and managers are granted sole use of the warehouse equipment. Office Facilities Encompass allocated a 1,250 ft2 room for a consultation and office space, furnished with two desks, two professional task chairs, two desktop computers, four office guest chairs, one coffee table and machine, and one three-shelf bookcase to hold various catalogs. The owners will serve as consultants to offer customers the most recent product knowledge and the necessary assistance regarding their purchase. Our offices work to communicate with the customers to connect and schedule appointments with contractors and installers. Loading Zone Encompass’  loading  zone  houses  one  professional  delivery  van. This  area  is  primarily  used  by  the  business’  vehicle  to  load merchandise from the warehouse into the van to be delivered to the customer. Warehouse employees and Mr. Yeung are granted sole use of the delivery van for company use only. Business Services Described Consultation and Delivery Services The owners will work as consultants to directly offer customers the necessary assistance regarding their purchase. Our offices will connect customers with contractors and installers and schedule appointments. In regards to delivery services, Encompass’  licensed warehouse employees will deliver goods upon request. The delivery fee will be included in the purchase and will be conducted on a scheduled appointment made by the customer upon purchase in-store or online. Appointments will be offered during our operational hours: Monday through Thursday 10 A.M to 8 P.M, Friday to Saturday 11 A.M to 9 P.M, and Sunday 12 P.M to 9 P.M Installation and Repairs Services Encompass offers installation and repairs services through independent contractors and installers. Contractors and installers will be handpicked by the owners of the company and will be screened for experience, licenses and insurance. Services will be conducted upon a scheduled appointment via online scheduling, phone, or in-store visit.

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OPERATIONS AND MANAGEMENT Website & Simulation App Encompass’ website is located at http://encompassrenovations.weebly.com/. Here, consumers can view a full-length catalog of goods, prices, and purchase merchandise online or schedule appointments for installation, repair, and delivery services. The Encompass app, which will allow consumers to simulate our goods in their home before they purchase, will be available for Apple, Android, and Windows users. Management Personnel Identified Japheth Yeung (Chief Executive Officer) Japheth  Yeung  holds  a  Master’s  in  Business  Administration and a minor in Entrepreneurship from University of California, Berkeley Haas School of Business. Mr. Yeung has worked as the Floor Manager for IKEA and Home Depot. Mr. Yeung will focus on Encompass’ inventory, to establish potential product lines. He will also be responsible for overseeing the schedule of merchandise deliveries and shipments. Additionally, he will also work to establish relations with businesses and potential clientele. Finally, Mr. Yeung will be responsible for hiring, training and managing the employees of Encompass LLC. Aarti Shah (Chief Financial Officer) Aarti Shah holds a Master’s in Accounting from University of Southern California, Leventhal School of Accounting. She is a licensed Certified Public Accountant (CPA) and has previously owned a local H&R Block, which enables her to bring her knowledge in accounting and taxation to this company. Ms. Shah is responsible for the financial aspect of the business such as the financial planning and record keeping, as well managing the financial risks of the company. As Chief Financial Officer, she will work closely with the other executives  to  monitor  cash  flow  and  oversee  the  company’s  capital and analysis of income and expenses. Ms. Shah will also oversee the development of market strategies. Beverly Siu (Chief Operations Officer) Beverly Siu  holds  a  Master’s  in  Major  Programme  Management  from  Oxford  University,  Saïd Business School and a Bachelor’s  in  Information  Technology  from  Oxford  University.  She  has  previously  worked  as  a  project  manager  at  Snapchat Inc. and hopes to use this experience to contribute to Encompass. As Chief Operations Officer, she will assist with the storefront and customers and coordinate internal projects in order to reach company goals and ensure that all business activities comply with local, state, and federal regulations. Ms. Siu will also manage the customer database. Workforce Identified Current Workforce Under the current owners of Encompass LLC, there are three full-time employees and one part-time employee in addition to the owners, who will serve as managers  and  assist  in  various  sectors  of  the  business’  operations.  The  three owners will oversee the day-to-day operations and work as full-time employees/truck drivers with a starting annual salary of $40,000 each. The two full-time sales/floor personnel employees will have a starting wage of $10.30 per hour, the full-time warehouse employee will have a starting wage of $11 per hour, and the part-time warehouse employee will have a starting wage of $10.50. All full-time employees will work at least 40 hours in shifts, Monday through Thursday 10 A.M to 8 P.M, Friday to Saturday 11 A.M to 9 P.M, and Sunday 12 P.M to 9 P.M, while the part-time employee will work at a flexible schedule of at least 20 hours. Wage employees that work in addition to 40 hours will be paid overtime, 1.5 times their normal hourly rate. Prior to opening day, each employee will attend a mandatory training with the owners to review job responsibilities and to ensure efficiency throughout the store. Sales/floor personnel employees will be trained in handling money, assisting customers, and maintenance, which includes keeping the facilities clean to the customers’  satisfaction.  Warehouse  employees  will  assist  with  stocking,  pricing,  and  delivery  of  merchandise.  

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OPERATIONS AND MANAGEMENT

Furthermore, Encompass will establish contracts with independent contractors and installers, who will receive a 5 percent commission on each job performed. Since they will be classified as independent contractors, Encompass will not be responsible for paying their income taxes in accordance to IRS Regulations. We will review all employees’  and  contractors’  resumes  and  backgrounds to ensure that they meet Encompass’ expectations. Contractors and installers will also be required to carry insurance:  personal  liability,  worker’s  compensation, and property damage coverage. Projected Workforce By the end of five years, we hope to have expanded our workforce to include two additional full-time sales/floor personnel, two additional part-time sales/floor personnel, two additional full-time warehouse employees and one designated truck driver. Furthermore, we would like to dismiss the contractors and hire our own installers and repairmen in order to provide direct services to our customers and increase our revenue. As Encompass grows, we will continue to hire employees as necessary. Raises will be given at the discretion of the on-site manager. Encompass LLC will continue to be open seven days a week, but will expand its hours: Friday through Monday, we will be open from 9:00AM-9:00PM with the exception of Sunday, which operating hours will be from 10:00 A.M. to 9:00 P.M. From Tuesday to Thursday, Encompass will continue to operate from 10:00 A.M to 8:00 P.M. Customer Payment Plan Merchandise prices will be set depending on competitor prices and the relationship between price sensitivity and demand in order to provide our customers with low prices and budget-friendly deals. For store-provided services, an estimate will be provided prior to performance. Customers will have the ability to pay for services with cash, credit, or debit cards. Customers will also have the option to pay in installments for large projects or purchase of merchandise; eligibility for this option will depend on a credit score check. Once the customer is approved for this option, a contract will be drawn between Encompass and the customer. The contract will state the set period that has been agreed upon by both parties regarding when the complete amount will be paid off. A $100 down payment is required, but the customer will be granted 0 percent APR for the entire payment period. TARGET MARKET

Target Market Defined Encompass conducted a survey within the local communities requesting knowledge about their home improvement needs. Using this research, we concluded that Encompass’  potential clientele consists of two main groups: businesses and homeowners. College students and renters, being that they have a smaller income, home improvements are not their primary expense, or have only minor home improvement projects, will be considered as our secondary market.

Businesses: Encompass will target local organizations and businesses throughout the region. This sector of the market will include hotels, restaurants, offices, and up-and-coming housing developments such as furnished apartments.

Homeowners: These are individuals, primarily middle class or higher, who are looking to improve the outlook of their homes or are new homeowners in the area. Households of two or more people make up the majority of this sector.

Size Santa Clara County’s  total  population  as  of  2013  was  1,862,041.ii Cupertino and Sunnyvale, two major cities in Santa Clara County where our primary target markets reside, had populations in 2013 of 61,302 and 152,768, respectively.iii iv

Santa Clara County 2015 2016 2017 2018 2019 Population 1,917,566 1,945,946 1,974,746 2,003,972 2,033,631 Business Firms 48,938 48,736 49,078 49,421 49,767 Homeowners/Developments 98,918 99,858 100,806 101,764 102,730 College Students 212,635 216,037 219,494 223,006 226,574 Cupertino 2015 2016 2017 2018 2019 Population 61,302 61,865 62,435 63,010 63,589 Business Firms 6,117 6,160 6,203 6,247 6,290 Homeowners/Developments 3,284 3,279 3,307 3,335 3,363

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TARGET MARKET College Students 2,260 2300 2341 2382 2424 Sunnyvale 2016 2017 2018 2019 2020 Population 152,768 155,443 158,163 160,931 163,747 Business Firms 11,780 11,882 11,965 12,049 12,133 Homeowners/Developments 56752 56948 57145 57342 57540 College Students 10,342 10,525 10,709 10,898 11,090

Population projections were calculated based on 2010 to 2013 population demographics; we calculated and used compound annual growth rates of 1.48 percent for Santa Clara County, 0.92 percent for Cupertino and 1.75 percent for Sunnyvale in order to determine total populations of certain groupsv.

Growth Potential The  home  improvement  industry’s  sales  growth  is  predicted  to  increase  5.8  percent  in  2015  and  continue  growing;  from  2012 to 2014, the industry had a constant revenue growth of 4.9 percent annually.vi Much growth stems from the 2008 recession: Americans are seeking ways to renovate their current living situation instead of purchasing a new home. Cupertino’s  population  will  rise  6.9  percent  by  2020,  Sunnyvale  will  grow  by  28  percent  by  2020  and  Santa  Clara  County’s  overall  growth  is  6.5  percent. Home ownership will rise 13.8 million by 2020.vii As a one stop shop for all home improvement needs, Encompass can take advantage of the recent revival of the Santa  Clara  County’s  home  improvement industry and the population increase in order to grow as a business.

Need Encompass has identified the following as the primary needs that when met, create satisfied repeat customers. Local business owners and new homeowners have high demand for economical, yet fashionable furniture. Encompass fulfills both groups’  desires  by  providing  them with affordable, efficient, and stylish home improvements. We also aim to increases efficiency by offering items in bundle, bulk, or individual orders. These options allow us to provide discounts that cater to organizations’  or  individuals’ tight budgets. Furthermore customers ideally would also like to buy all their materials and acquire the necessary services from one supplier that they can count on. Encompass provides this convenience by being a one-stop shop that is centrally located and providing both products and post-purchase services.

Market Share & Projection

Cupertino/Sunnyvale

Effective Analysis

Market Potential Market potential is defined by the population in the surrounding areas and the popularity of kitchen and bathroom remodeling. Sunnyvale’s  proximity  to  San  Jose,  immense  population,  high  median  income  of  $101,611,  and  accumulation of businesses will aid in our success.viii In a recent Harvard Business Review report, analysis of the home improvement  market  projects  that  the  younger  generations  of  buyers  will  likely  “spend  more  on  remodeling...buyers  are more likely to spend a greater share of their remodeling dollars on kitchens and baths.”ix Encompass will work to take advantage of this and increase production with the installation of kitchen and bathroom improvements within this year. Thus, Encompass will increase its financial success and establish itself as a strong competitor in the home improvement market. The market has the potential to provide Encompass with a substantial amount of profit, so that in five years, we will be able to expand throughout the Silicon Valley, increasing our target market and sales.

2015 2016 2017 2018 2019 2020

Total Estimated Market 206,407 229,653 241,275 253,580 266,613 280,574 Homeowners 75,996 76,313 76,639 76,947 77,264 77,581 College Student 36,726 37,203 37,686 38,175 38,671 39,173 Projected Market Share 2.3% 3.8% 3.9% 4.0% 4.1% 4.2% Total Market Share 4,747 8,726 9,409 10,143 10,931 11,784 Growth Rate 8.5% 8.5% 7.8% 7.81% 8.53%

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TARGET MARKET

Current Market Patterns Currently, consumer spending is 70 percent of U.S. GDPx; residential improvement alone is 5 percent of the GDP and a $300 billion industry.xi The accessory and furniture industry also grew 1.6 percent from 2010 to 2015, and currently has revenue of $58 billion.xii The most frequent improvements were flooring, ceiling and paneling; consumers spent a total of $33.2 million on these projects.xiii Encompass plans to capitalize on bathroom and bedroom sectors as well as flooring, ceiling, and paneling, as these projects are currently increasing in popularity. Taking advantage of this piece of the market will make Encompass more successfully financially and a stronger competitor in the home improvement market.

Market Risks & Competition Competition in Santa Clara County includes hardware, furniture, and electronic stores such as Home  Depot,  Lowe’s,  Bed  Bath  &  Beyond,  and  Fry’s.  One of Encompass’ major sensitivity is that our location is within 10 to 15 miles of these stores, reducing the flow of clientele and business directed towards Encompass. We aim to overcome this by offering convenience by allowing customers to purchase a variety of items and services at low prices in one central location. Another major risk is should the housing market collapse or the economy enter a recession/depression, this would hurt the ability of many people to tap into their household equity for renovations and home improvement. During these times, we will scale our expenses in accordance to our growth to support our business, specifically by reducing variable expenses such as the use of external contractors.

Service/Goods Encompass LLC Home Depot Lowe's Bed, Bath, & Beyond Fry'sKitchen Ex: Cabinets $40-$400 $20-$356 $76-$200 $37-$579 -----Exterior Home Ex: Accessories $15-$3500 $3-$17,561 $9-$623 $1-$5,000 -----Flooring Ex: Carpeting $0.25-$4 $0.50-$8 $3.28-$5 ----- ----- Ex: Non carpet interior flooring (per sq ft) $0.50-$3.10 $0.75-$3 $1-$16 ----- -----Electrical/ Home Surveillance (Lighting, Surveillance Cameras, Home Theater) Ex: Surveillance Cameras $10-$1000 $8-$5,000 $15-$564 $9-$129 $10-$1,200 Ex: Lighting $5-$1300 $2-$1,499 $8-$1297 $29-$1,877 $10-$113Home Improvements/Furniture (Curio Cases, Closets, Furniture) Ex: Closets $20-$2000 $23-$1800 $280-$330 $9-$1,319 ----- Ex: Armchairs/Sofas/Couches $100-$3000 $117-$2118 $40-$1598 $189-$5,000 $40-$220

Simulation App X X NA NA NAInstallation Services X X X NA XRepair Services X X X NA XContracting Services X X X NA NA

SWOT Analysis

Strengths o Installation/repairs contractors and delivery

services provided o Simulation App provided for pre-purchase

experimentation o 0% interest offered on Installment Payment

Option

Weaknesses o Newly established company in a highly

competitive area o Limited experience in the home improvement

retail industry

Opportunities o Projected population growth and new housing

developments fostered by growing local economy o Deferred home improvement projects that were

put off during the housing market crash of 2008. o Accessory and furniture sector of industry

expected to grow 1.6 percent

Threats o Well-established home improvement competitors

within 10-15 mile radius. o Customer transition to online retailers such as

Amazon (with one day or next-day delivery) o Should the housing market collapse or the

economy enter a recession, sales would decrease

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FINANCIAL INSTITUTION FINANCIAL INSTITUTION

Description and Rationale for Financial Institution Encompass LLC has chosen Bank of the West, a commercial bank that is currently associated with the owners of Encompass. Bank of the West is a certified SBA Preferred Lender, meaning that under this program, the SBA loan-approval process is simplified and expedited. Non-preferred lenders must send loans into the SBA for approval, a process which can take up to four weeks. Contrarily, a designated lender is able to underwrite its own SBA loans, speeding up the process. Due to a well-established relationship, Bank of the West is willing to offer us competitive rates compared to other banks. In addition, should Encompass use  Bank  of  the  West’s  Automatic  Payment  option,  the  entity  can acquire a further discounted rate (reduction of 0.25 percent) on a line of credit. Furthermore, in order to acquire a line of credit, certain financial intermediaries require that the business have been under the current ownership for at least two years; however, Bank of the West does not hold such a requirement.

LOAN REQUEST

Amount Requested Encompass will borrow $500,000 in the form of an SBA 7(a) loan with a 6.5 percent APR for a duration of ten years. We will also secure a $250,000 line of credit with a 6.75 percent interest rate for a term of five years .The original interest rate is 7 percent, but we have been granted a reduction of 0.25 percent for choosing to use Bank of the West's Automatic Payment Option. Rationale for Type of Loan Since Encompass is established as an LLC, our business has several financing options to fund its business ventures, including standard debt financing, venture capitalists, and angel investors. While both angel investors and venture capitalists could provide a substantial amount of funding as well as expertise and industry connections, as the owners, we would like to retain the ownership between the original founders. Furthermore, venture capitalists often acquire a large claim in the company, making profitability difficult to achieve and a partial loss of autonomy as venture capitalists are often involved in much of the decision making process. Therefore, we have determined that most appropriate method of funding is to acquire a single SBA 7(a) loan and a line of credit. A SBA 7(a) loan is a government-guaranteed loan, commonly used by small businesses and is designed to help them improve and expand. Furthermore, the SBA guarantees as much as 75 percent on loans of $150,000 to $750,000. Moreover, the line of credit will grant us the flexibility to withdraw capital during periods of increased business activity or when the owners deem it necessary. The company’s  assets and the capital invested by the owners will be secured as collateral. Purpose of Loan Each owner will invest $30,000 into the business for a total of $90,000 in seed funding. However, in order to fund Encompass’  additional  needs,  we  have  acquired  an  SBA  7(a)  loan  and  a  line  of  credit.  The SBA 7(a) loan will assist us to cover start-up expenditures that our business will need to consider before beginning operations. Furthermore, the line of credit will allow us to draw upon capital to manage seasonal cash flow and inventory, cover expenses or any unforeseen costs during times of increased business activity, or begin projects in regards to the growth of our business.

Itemized Start-Up Expenditures

Interior Renovation 65,000$ Total Plant Assets $41,234.00Supplies 2,000$ Merchandise Inventory 200,000$ Professional Services 11,500$ Organization & Deposits 32,750$ Advertising & Marketing 4,000$ Opening Cash 5,000$ Operational Expenses 207,233$ Total Start-Up Requirements: 568,717$

Start Up Costs

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FINANCIAL INSTITUTION

Office Equipment & Furniture 3,560$ Store Equipment 5,297 Warehouse Equipment & Vehicle 32,377 Total 41,233$

Plant Assets

Lease Deposit 25,000$ Utilities Deposit 3,000 Licensing & Permits 550 Insurance 4,200 Total 32,750$

Organization & Deposits

Salary & Wages 120,547$ Payroll Taxes 16,186 Rent Expense 70,500 Total 207,233$

Operational Expenses

Cross Promotion 3,000$ Social Media 3,000 Flyers 2,000 Total 8,000$

Advertising & Marketing

Legal (Company & Lease) 5,000$ Accounting & Tax 6,000 Name & Logo 500 Total 11,500$

Professional Services

Total

Vehicle $20,500.00

Equipment $19,916.00

Furniture $818.00

Key

Itemized Start-Up Expenditures (cont.)

Plan for Repayment of Loan The $500,000 SBA 7(a) loan acquired from Bank of the West will be repaid at a 6.5 percent interest over 10 years. Installments of $5,677.40 will be made on a monthly basis, totaling $68,128.80 per yearxiv. The payment for the line of credit will depend on the funds withdrawn as interest is calculated only on funds drawn, not on the total principal.

SBA 7(a) Loan Line of Credit

Loan Principal 500,000.00$ 250,000.00$

Annual Interest 6.5% 6.75%

Payment Period 10 years 5 years

Payment per Month 5,677.40$

Payment per Year 68,128.80$

The calculations for payment per month were calculated using an amortization schedule

and was then used to calculate payment per year

Footnotes

The payment per month and year for the line of credit would depend on the amount

withdrawn at that time as interest is calculated only on the amount withdrawn, not on the

total principal.

Projections for Financial Stability Encompass projects a large influx of customers after conducting a major marketing campaign before opening. Since we open in a season of new decorating trends and when consumers are most likely to shop for home improvement deals, our niche of bundle deals will attract consumers. Our online and in-store capabilities allow us to appeal to the most modern shopper. Through our services and products, we hope to retain the loyalty of our customers. With the industry’s  having experienced growth over the last three years and is expected to increase 5.8 percent in the next three years, we believe that these business-friendly conditions will allow the company to operate at a profit by the end of three years and expect continual growth by providing customers affordable yet fashionable options.

Equipment Category PriceStore EquipmentCash Registers (2) $460.00Display Equipment $4,557.00Miscellaneous Accessories $200.00Barcode Scanners (5) $80.00Total Store Equipment $5,297.00

Office Equipment & FurnitureDesks (2) $249.00Professional Task Chairs (2) $110.00Guest Chairs (4) $320.00Desktop Computers (2) $642.00Coffee Table (1) $65.00Coffee Machine (1) $32.00Three-Shelf Bookcase (1) $42.00Software $2,100.00Total Office Equipment $3,560.00

Warehouse Equipment & VehiclePallet Racks & Ladders $4,000.00Hand Carts (3) $248.00Tagging & Packing Equipment $5,500.00Semi-Electric Stacker (1) $2,129.00Delivery Truck (1) $20,500.00Total Warehouse Equipment $32,377.00

Total Equipment Cost $41,234.00

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FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

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WORKS CITED "Loans and Lines of Credit." Bank of the West. BNP Paribas Group, n.d. Web. 12 Feb. 2015. "Demographics for 760 E El Camino Real, Sunnyvale, CA 94087.”  LoopNet. PitneyBowes Map Info, n.d. Web. 13 Feb.

2015. "Compound Annual Growth Rate Calculator." Investopedia. Investopedia, n.d. Web. 13 Feb. 2015. “Housing Element Update 2007-2014.” Cupertino. City of Cupertino, n.d. Web. 12 Feb. 2015. "Community Facts for Cupertino." American FactFinder. United States Census Bureau, n.d. Web. 13 Feb. 2015. "Community Facts for Sunnyvale." American FactFinder. United States Census Bureau, n.d. Web. 13 Feb. 2015. . "Santa Clara County Profile." California Labor Market Info, The Economy. State of California, n.d. Web. 13 Feb. 2015. “Foundation for Future Growth in the Remodeling Industry.”Joint Center for Housing Studies of Harvard University.

Harvard Design School/John F. Kennedy School of Government, n.d. Web. 12 Feb. 2015. "Home Improvement Stores in the US: Market Research Report." IbisWorld. IBISWorld, n.d. Web. 11 Feb. 2015. "How Do We Know? Home Improvements." Census.gov. US Department of Commerce, May 2013. Web. 13 Feb. 2015. Heller, Laura. "Home Improvement Retailers Better Watch Out, Amazon Is Coming." Forbes. Forbes Magazine, 16 July

2012. Web. 13 Feb. 2015. "Small Business Administration Financing (SBA Loans)." Small Business Banking Accounts and Services from Bank of

America. Bank of America Corporation, n.d. Web. 13 Feb. 2015. "Products and Services." Business Line of Credit. Wells Fargo. Wells Fargo & Company, n.d. Web. 12 Feb. 2015. "Small Business Administration Loans." Capital One. Capital One Financial Corporation, n.d. Web. 13 Feb. 2015. "SBA 7(a) Loan." SBA Loans. Bank of the West. Bank of the West, n.d. Web. 12 Feb. 2015. Endnotes: i http://www.loopnet.com/Listing/17739189/760-E-El-Camino-Real-Sunnyvale-CA/

ii http://quickfacts.census.gov/qfd/states/06/06085.html iii http://quickfacts.census.gov/qfd/states/06/0617610.html iv http://quickfacts.census.gov/qfd/states/06/0677000.html v http://www.investopedia.com/calculator/cagr.aspx vi https://www.hiri.org/ vii http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/w10-9_masnick_mccue_belsky.pdf viii http://www.city-data.com/city/Sunnyvale-California.html ix http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/w11-4_masnick_will_baker.pdf x http://mic.com/articles/15097/us-gdp-is-70-percent-personal-consumption-inside-the-numbers xi http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/r07-1.pdf xii http://www.ibisworld.com/industry/default.aspx?indid=1016 xiii http://www.census.gov/library/infographics/home_improvements.html xiv http://www.amortization-calc.com/