Home inspection business plan for your business
Do you want to start a home inspection business? Millions of homes are sold, purchased, leased and rented every year in the United States so people will contact you to inspect the homes before they make a deal. It shows how the extent of the opportunity presented by this business niche. Moreover, you can start with a relatively lower investment group for the business plan and can still make it profitable. But before starting home inspection business, you have to prepare a comprehensive business plan for it. The business plan will help you with startup and will also establish the foundation of your company policies. If you are wondering how to write an effective business plan then here we are providing you the business plan for a home inspection business startup named ‘Sigma Inspection Services’.
Executive Summary
2.1 The Home Inspection Business
Sigma Inspection Services will be a licensed and insured building inspection company owned and operated by Ricky Koch. The company’s main office will be located in the midst of commercial zone of Houston.
2.2 Management of Home Inspection
The company will be managed by Ricky and his team of technicians. Ricky is a Civil Engineer who has been associated with construction and real estate industry for more than 13 years. Being experienced in this field, Ricky knows how to start home inspection business.
2.3 Customers of Home Inspection
The company aims to serve the homes and buildings (residential, commercial & institutional) present in Houston.
2.4 Target of the Home Inspection Company
Our three-year business targets are summarized in the column chart below.
Home Inspection Company Summary
3.1 Company Owner
Sigma Inspection Services will be owned and operated by Ricky Koch. Ricky is a Civil Engineer who has been associated with the construction industry and rental real estate business for more than 13 years.
3.2 Why the Home Inspection Business is being started
The business is being started for making profits in this industry. With Ricky’s vast experience and the dedication of his team, the business is expected to achieve success at all levels.
3.3 How the Home Inspection Business will be started
Before starting this business, it is highly recommended to seek assistance from real estate marketers. They will not only help you understand how to start your own home inspection business but they will also guide you how to market home inspection business so as to make it successful.
For the startup, the company has procured an office in the midst of commercial zone of Houston. In addition to the usual office inventory, 2 computer systems, 4 home inspection toolkits, 4 digital cameras, and office furniture will be bought before the startup. The major startup costs are summarized in the column chart below.
The detailed startup requirements are given in the table below.
| Start-up Expenses | |
| Legal | $55,300 |
| Consultants | $0 |
| Insurance | $32,750 |
| Rent | $32,500 |
| Research and Development | $32,750 |
| Expensed Equipment | $32,750 |
| Signs | $1,250 |
| TOTAL START-UP EXPENSES | $187,300 |
| Start-up Assets | $0 |
| Cash Required | $332,500 |
| Start-up Inventory | $32,625 |
| Other Current Assets | $232,500 |
| Long-term Assets | $235,000 |
| TOTAL ASSETS | $121,875 |
| Total Requirements | $245,000 |
| START-UP FUNDING | $0 |
| START-UP FUNDING | $273,125 |
| Start-up Expenses to Fund | $11,875 |
| Start-up Assets to Fund | $15,000 |
| TOTAL FUNDING REQUIRED | $0 |
| Assets | $23,125 |
| Non-cash Assets from Start-up | $18,750 |
| Cash Requirements from Start-up | $0 |
| Additional Cash Raised | $18,750 |
| Cash Balance on Starting Date | $21,875 |
| TOTAL ASSETS | $0 |
| Liabilities and Capital | $0 |
| Liabilities | $0 |
| Current Borrowing | $0 |
| Long-term Liabilities | $0 |
| Accounts Payable (Outstanding Bills) | $0 |
| Other Current Liabilities (interest-free) | $0 |
| TOTAL LIABILITIES | $0 |
| Capital | $0 |
| Planned Investment | $0 |
| Investor 1 | $332,500 |
| Investor 2 | $0 |
| Other | $0 |
| Additional Investment Requirement | $0 |
| TOTAL PLANNED INVESTMENT | $695,000 |
| Loss at Start-up (Start-up Expenses) | $313,125 |
| TOTAL CAPITAL | $251,875 |
| TOTAL CAPITAL AND LIABILITIES | $251,875 |
| Total Funding | $255,000 |
Note
Before you start your own home inspection business, you must decide what services will you provide to your customers.
Services for customers
Deciding your services beforehand is extremely important since it helps in the planning of subsequent components of your business that’s why you must decide your services before starting a home inspection business. Sigma Inspection Services will provide following four types of services to its customers.
- General Home Inspection: General home inspection refers to a complete inspection of home including its structure as well as the installed facilities. General inspection is needed whenever a home is purchased, rented or leased.
- Maintenance Inspection: Maintenance inspection is needed by every household owner at regular intervals for the purpose of maintaining the home in a perfect state. Maintenance inspection reveals all the repair works which are needed in homes.
- Termite Inspection: Termite inspection is regularly needed in all those homes which are either built from wood or have extensive woodwork in them. In other homes, termite inspection is occasionally needed. A termite inspection reveals termite activity in wood which can be then treated in initial stages.
- Water & Seepage Inspection: Water & seepage inspection is regularly needed in those homes that have basements or tube wells installed in them. In other homes which it is occasionally needed for the purpose of checking sewage drains.
Marketing Analysis of home inspection business
If you are developing a home inspection business plan for your company then make sure to pay special attention to its marketing analysis. You can also take help from this home inspection business plan template. The most important component of the effective home inspection business plans is their marketing analysis that’s why Ricky hired the services of marketing experts to help him develop a good home inspection small business plan. The marketing experts also provided various home inspection marketing ideas and helped him develop an effective marketing home inspection business.
5.1 Market Trends
As of 2018, there are around 130 million houses in the United States. These 130 million houses need to have maintenance inspection, water & seepage inspection and termite inspection at regular intervals. Moreover, millions of houses are sold/purchased, rented or leased every year in the United States and before every deal to take place the houses are inspected. According to IBISWorld, building inspection industry generates $3 billion revenue every year in the United States. The industry comprises of more than 24,500 businesses responsible for employing around 38,500 people. Furthermore, the industry is growing at an estimated rate of 4.6% and the number of building inspection companies are increasing in the United States. Considering the industry states, the market for this industry has a lot of potential, provided that you plan your business successfully.
Operational/Strategic Planning Services
5.2 Marketing Segmentation
Our target market comprises of all those people who own a house and the people who are buying, selling, leasing or renting a house in Houston. The success of a startup totally depends upon how it markets itself to target its specific customer groups. A successful marketing strategy helps you determine how to run a successful home inspection business but it can only be developed after knowing the target audience and potential customers. Our marketing experts carried out an extensive research to identify our target customers and develop an effective marketing business plan home inspection to attract them. Following type of target audience can become the future customers of our services.
The detailed marketing segmentation of our target audience is as follows:
5.2.1 Home Owners & Dwellers:
Homeowners need a regular inspection of their homes to keep them maintained. This regular inspection is extremely important because it reveals all repair works which can become even costlier to repair if they aren’t repaired in time. This category not only includes the owners of homes but also include all kinds of dwellers whether they are living in rented or leased homes.
5.2.2 Home Buyers & Renters:
This category includes those people who are buying, selling, renting or leasing a home and wants to get the home inspected prior to the deal. Every year millions of deals take place in the United States and in every deal, the concerned people have to acquire inspection services. This target group will contribute the biggest part of the revenue to our business and hence will dictate our marketing strategy.
5.2.3 Residential, Commercial & Institutional Buildings:
This group includes large-scale residential buildings, apartments, condos, as well as the buildings of hotels, restaurants, factories, schools, colleges, offices, hospitals, municipal authorities and other institutions.
The detailed market analysis of our potential customers is given in the following table:
| Market Analysis | |||||||
| Potential Customers | Growth | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
| Home owners & dwellers | 35% | 11,433 | 13,344 | 16,553 | 18,745 | 20,545 | 13.43% |
| Home buyers & renters | 40% | 22,334 | 32,344 | 43,665 | 52,544 | 66,432 | 10.00% |
| Residential, commercial & institutional buildings | 25% | 12,867 | 14,433 | 15,999 | 17,565 | 19,131 | 15.32% |
| Total | 100% | 46,634 | 60,121 | 76,217 | 88,854 | 106,108 | 9.54% |
5.2 Business Target
Our business targets are as follows:
- To become the best inspection services of Houston within next 3 years of launch
- To achieve the net profit margin of $10k per month by the end of the first year, $15k per month by the end of the second year, and $25k per month by the end of the third year
- To balance the initial cost of the startup with earned profits by the end of the first year
5.3 Product Pricing
Setting the prices of services is a challenging part because it is very difficult to achieve the MARR (minimum attractive rate of return) while also attracting the customers. Considering our competition and all restraints, we have priced all of our services in the similar ranges as of our competitors.
Strategy
After identifying the market trends, the market demand, and the potential customers of the startup, the next step is to develop an effective sales strategy. Like marketing analysis, sales strategy is also an important component of a home inspection business start up so make sure to plan it before you start a home inspection business.
6.1 Competitive Analysis
We have a really tough competition ahead of us because there are hundreds of established inspection companies in Houston. But we believe that we will surpass all of our competitors in very less time due to various reasons. The first and the most important reason will be the quality of our services which will be second to none. We will make sure that our technicians inspect your property in the least possible time and in the best possible way. We will make sure that your property does not get damaged during our inspection process. Our second competitive advantage will be our exceptional customer service where all of our customers will be treated with utmost respect.
6.2 Sales Strategy
We will offer 10% discount on our services so as to increase sales during the first three months of our launch. We will carry out a large-scale social media campaign for our advertisement. We will introduce our startup to our target customers and stakeholders by sending brochures and introductory letters about us. We will arrange different seminars where we will emphasize the importance of building inspection and how helps to save money in the longer run, and in this way, we hope to promote ourselves.
6.3 Sales Monthly
Our forecasted monthly sales are given in the column chart below.
6.4 Sales Yearly
Our forecasted yearly sales are given in the column chart below.
6.5 Sales Forecast
Considering the market demand and the quality of our services, our sales pattern is expected to increase with years. Our forecasted yearly sales are summarized in the column charts below.
The detailed information about sales forecast, total unit sales, total sales is given in the following table.
| Sales Forecast | |||
| Unit Sales | Year 1 | Year 2 | Year 3 |
| General home inspection | 1,887,030 | 2,680,320 | 2,588,240 |
| Maintenance inspection | 802,370 | 815,430 | 823,540 |
| Termite inspection | 539,320 | 770230 | 1,002,310 |
| Water & seepage inspection | 265,450 | 322,390 | 393,320 |
| TOTAL UNIT SALES | 3,494,170 | 4,588,370 | 4,807,410 |
| Unit Prices | Year 1 | Year 2 | Year 3 |
| General home inspection | $140.00 | $150.00 | $160.00 |
| Maintenance inspection | $600.00 | $800.00 | $1,000.00 |
| Termite inspection | $700.00 | $800.00 | $900.00 |
| Water & seepage inspection | $650.00 | $750.00 | $850.00 |
| Sales | |||
| General home inspection | $2,149,800 | $2,784,000 | $3,383,200 |
| Maintenance inspection | $120,050 | $194,500 | $268,500 |
| Termite inspection | $50,110 | $71,600 | $93,000 |
| Water & seepage inspection | $139,350 | $194,600 | $249,850 |
| TOTAL SALES | |||
| Direct Unit Costs | Year 1 | Year 2 | Year 3 |
| General home inspection | $0.70 | $0.80 | $0.90 |
| Maintenance inspection | $0.40 | $0.45 | $0.50 |
| Termite inspection | $0.30 | $0.35 | $0.40 |
| Water & seepage inspection | $3.00 | $3.50 | $4.00 |
| Direct Cost of Sales | |||
| General home inspection | $989,300 | $1,839,000 | $2,679,700 |
| Maintenance inspection | $66,600 | $119,900 | $173,200 |
| Termite inspection | $17,900 | $35,000 | $52,100 |
| Water & seepage inspection | $19,400 | $67,600 | $115,800 |
| Subtotal Direct Cost of Sales | $1,294,100 | $1,699,400 | $2,104,700 |
Personnel plan
The personnel plan shows the staff required for the company along with their estimated salaries, and it must also be developed before you start home inspection business.
7.1 Home Inspection Company Staff
Ricky will act as the General Manager of the company, while the company will initially hire following people:
- 1 Front Desk Officer for acting as a Receptionist in the company head office
- 2 Accountants for maintaining financial records
- 3 Technicians for leading and directing the team of inspectors
- 4 Sales and Marketing Executives responsible for discovering new ventures
- 5 Assistants for assisting Technicians with inspection work
- 2 Drivers for facilitating the movement of team and equipment throughout the city
To ensure the best quality service, all employees will be selected through vigorous testing and will be trained for a month before starting their jobs.
7.2 Average Salary of Employees
| Personnel Plan | |||
| Year 1 | Year 2 | Year 3 | |
| Front Desk Officer | $85,000 | $95,000 | $105,000 |
| Accountants | $45,000 | $50,000 | $55,000 |
| Sales Executives | $152,000 | $159,000 | $166,000 |
| Assistants | $145,000 | $152,000 | $159,000 |
| Drivers | $50,000 | $55,000 | $60,000 |
| Total Salaries | $152,000 | $159,000 | $166,000 |
Financial Plan
The last thing you need to do before starting your own home inspection business is to prepare a detailed financial plan. Ricky hired financial experts to help him develop the financial plan for his home inspection business startup. The company will be solely financed by Ricky and he will also control the direction of business so as to make sure that it is expanding at the forecasted rate. No equity funding or loan will be required unless the company expands faster than forecasted.
8.1 Important Assumptions
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 10.00% | 11.00% | 12.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
| Tax Rate | 26.42% | 27.76% | 28.12% |
| Other | 0 | 0 | 0 |
8.2 Brake-even Analysis
| Brake-Even Analysis | |
| Monthly Units Break-even | 5530 |
| Monthly Revenue Break-even | $159,740 |
| Assumptions: | |
| Average Per-Unit Revenue | $260.87 |
| Average Per-Unit Variable Cost | $0.89 |
| Estimated Monthly Fixed Cost | $196,410 |
8.3 Projected Profit and Loss
| Pro Forma Profit And Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $309,069 | $385,934 | $462,799 |
| Direct Cost of Sales | $15,100 | $19,153 | $23,206 |
| Other | $0 | $0 | $0 |
| TOTAL COST OF SALES | $15,100 | $19,153 | $23,206 |
| Gross Margin | $293,969 | $366,781 | $439,593 |
| Gross Margin % | 94.98% | 94.72% | 94.46% |
| Expenses | |||
| Payroll | $138,036 | $162,898 | $187,760 |
| Sales and Marketing and Other Expenses | $1,850 | $2,000 | $2,150 |
| Depreciation | $2,070 | $2,070 | $2,070 |
| Leased Equipment | $0 | $0 | $0 |
| Utilities | $4,000 | $4,250 | $4,500 |
| Insurance | $1,800 | $1,800 | $1,800 |
| Rent | $6,500 | $7,000 | $7,500 |
| Payroll Taxes | $34,510 | $40,726 | $46,942 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $188,766 | $220,744 | $252,722 |
| Profit Before Interest and Taxes | $105,205 | $146,040 | $186,875 |
| EBITDA | $107,275 | $148,110 | $188,945 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $26,838 | $37,315 | $47,792 |
| Net Profit | $78,367 | $108,725 | $139,083 |
| Net Profit/Sales | 30.00% | 39.32% | 48.64% |
8.3.1 Profit Monthly
8.3.2 Profit Yearly
8.3.3 Gross Margin Monthly
8.3.4 Gross Margin Yearly
8.4 Projected Cash Flow
| Pro Forma Cash Flow | |||
| Cash Received | Year 1 | Year 2 | Year 3 |
| Cash from Operations | |||
| Cash Sales | $40,124 | $45,046 | $50,068 |
| Cash from Receivables | $7,023 | $8,610 | $9,297 |
| SUBTOTAL CASH FROM OPERATIONS | $47,143 | $53,651 | $59,359 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 |
| SUBTOTAL CASH RECEIVED | $47,143 | $53,651 | $55,359 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $21,647 | $24,204 | $26,951 |
| Bill Payments | $13,539 | $15,385 | $170,631 |
| SUBTOTAL SPENT ON OPERATIONS | $35,296 | $39,549 | $43,582 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| SUBTOTAL CASH SPENT | $35,296 | $35,489 | $43,882 |
| Net Cash Flow | $11,551 | $13,167 | $15,683 |
| Cash Balance | $21,823 | $22,381 | $28,239 |
8.5 Projected Balance Sheet
| Pro Forma Balance Sheet | |||
| Assets | Year 1 | Year 2 | Year 3 |
| Current Assets | |||
| Cash | $184,666 | $218,525 | $252,384 |
| Accounts Receivable | $12,613 | $14,493 | $16,373 |
| Inventory | $2,980 | $3,450 | $3,920 |
| Other Current Assets | $1,000 | $1,000 | $1,000 |
| TOTAL CURRENT ASSETS | $201,259 | $237,468 | $273,677 |
| Long-term Assets | |||
| Long-term Assets | $10,000 | $10,000 | $10,000 |
| Accumulated Depreciation | $12,420 | $14,490 | $16,560 |
| TOTAL LONG-TERM ASSETS | $980 | $610 | $240 |
| TOTAL ASSETS | $198,839 | $232,978 | $267,117 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $9,482 | $10,792 | $12,102 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| SUBTOTAL CURRENT LIABILITIES | $9,482 | $10,792 | $12,102 |
| Long-term Liabilities | $0 | $0 | $0 |
| TOTAL LIABILITIES | $9,482 | $10,792 | $12,102 |
| Paid-in Capital | $30,000 | $30,000 | $30,000 |
| Retained Earnings | $48,651 | $72,636 | $96,621 |
| Earnings | $100,709 | $119,555 | $138,401 |
| TOTAL CAPITAL | $189,360 | $222,190 | $255,020 |
| TOTAL LIABILITIES AND CAPITAL | $198,839 | $232,978 | $267,117 |
| Net Worth | $182,060 | $226,240 | $270,420 |
8.6 Business Ratios
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 4.35% | 30.82% | 63.29% | 4.00% |
| Percent of Total Assets | 4.35% | 4.71% | 5.80% | 9.80% |
| Accounts Receivable | 5.61% | 4.71% | 3.81% | 9.70% |
| Inventory | 1.85% | 1.82% | 1.79% | 9.80% |
| Other Current Assets | 1.75% | 2.02% | 2.29% | 27.40% |
| Total Current Assets | 138.53% | 150.99% | 163.45% | 54.60% |
| Long-term Assets | -9.47% | -21.01% | -32.55% | 58.40% |
| TOTAL ASSETS | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 4.68% | 3.04% | 2.76% | 27.30% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 25.80% |
| Total Liabilities | 4.68% | 3.04% | 2.76% | 54.10% |
| NET WORTH | 99.32% | 101.04% | 102.76% | 44.90% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 94.18% | 93.85% | 93.52% | 0.00% |
| Selling, General & Administrative Expenses | 74.29% | 71.83% | 69.37% | 65.20% |
| Advertising Expenses | 2.06% | 1.11% | 0.28% | 1.40% |
| Profit Before Interest and Taxes | 26.47% | 29.30% | 32.13% | 2.86% |
| Main Ratios | ||||
| Current | 25.86 | 29.39 | 32.92 | 1.63 |
| Quick | 25.4 | 28.88 | 32.36 | 0.84 |
| Total Debt to Total Assets | 2.68% | 1.04% | 0.76% | 67.10% |
| Pre-tax Return on Net Worth | 66.83% | 71.26% | 75.69% | 4.40% |
| Pre-tax Return on Assets | 64.88% | 69.75% | 74.62% | 9.00% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 19.20% | 21.16% | 23.12% | N.A. |
| Return on Equity | 47.79% | 50.53% | 53.27% | N.A. |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 4.56 | 4.56 | 4.56 | N.A. |
| Collection Days | 92 | 99 | 106 | N.A. |
| Inventory Turnover | 19.7 | 22.55 | 25.4 | N.A. |
| Accounts Payable Turnover | 14.17 | 14.67 | 15.17 | N.A. |
| Payment Days | 27 | 27 | 27 | N.A. |
| Total Asset Turnover | 1.84 | 1.55 | 1.26 | N.A. |
| Debt Ratios | ||||
| Debt to Net Worth | 0 | -0.02 | -0.04 | N.A. |
| Current Liab. to Liab. | 1 | 1 | 1 | N.A. |
| Liquidity Ratios | ||||
| Net Working Capital | $120,943 | $140,664 | $160,385 | N.A. |
| Interest Coverage | 0 | 0 | 0 | N.A. |
| Additional Ratios | ||||
| Assets to Sales | 0.45 | 0.48 | 0.51 | N.A. |
| Current Debt/Total Assets | 4% | 3% | 2% | N.A. |
| Acid Test | 23.66 | 27.01 | 30.36 | N.A. |
| Sales/Net Worth | 1.68 | 1.29 | 0.9 | N.A. |
| Dividend Payout | 0 | 0 | 0 | N.A. |
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