Tree of Hope Funding Business Plan for Mark Cuban

Business Plan

Tree of Hope Funding

Executive Summary

Tree of Hope Funding (TOHF) is a visionary company that recognizes individuals from disadvantaged communities have made major contributions to the economic, social, cultural, political and educational success of this country, yet still face inequities when it comes to attaining economic independence. Our contribution, towards a solution, is to provide real business opportunities to those who have been historically disenfranchised.

Our primary objective is to level the playing field by investing in and supporting entrepreneurs with creative and viable business ideas. We also work with established businesses in need of additional capital to grow. A key component of TOHF is the mandatory professional business training and education seminars provided for our clients. They include instruction on how to counteract the root causes of most business failure, strategies to run a successful business and fundamentals of fiscal responsibility. We have chosen Sacramento, California to begin assisting promising candidates. Once we have firmly established our paradigm in this region, we intend to broaden our scope nationally.

American Recovery and Reinvestment Act (ARRA) Dollars

On February 17th, President Obama signed into law the American Recovery and Recovery Act (ARRA). The overall goals of the ARRA funds are to stimulate the economy in the short term and invest in education and other essential public services to ensure the long-term economic health of our nation. 

SETA is the preeminent organization in the city of Sacramento that connects people to jobs and business owners to quality employees. They are responsible for the co-ordination of the request for proposal (RFP) component to release the ARRA funds to qualified organizations in Sacramento County. On May 21, 2009 TOHF submitted a proposal under the category of “Business Development and Innovations”.

SETA’s response to TOHF’s Proposal SETA initially awarded TOHF $65,000 and further stated that “…the proposal contained an innovative assessment and coaching approach to mentoring small businesses. Staff

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believes that TOHF will be an effective partner in connecting small businesses and entrepreneurs.” On June 17, 2009, we met with the Sacramento Works Planning and Oversight committee. SETA was so impressed by our business model/concept that they expanded the scope of their recommendation by awarding additional funding, which included in-kind supportive services.  Our new relationship with SETA also includes assuming the lead role for the Sacramento Works BIC at the Franklin One-Stop Career Center.  The Sacramento Works One-Stop Career Centers play a significant role in serving the underemployed, dislocated and economically disadvantaged communities in Sacramento.  These actions by SETA are unprecedented. We are the first for profit business that SETA has partnered with to provide small business coaching, education and training. Mission Statement

Tree of Hope Funding is a vision for economic empowerment in disadvantaged communities. We invest in people and their dreams. We are committed to supporting strong and vibrant business ideas and enterprises so that they can compete in the open market. Building trust, hope and successful businesses for our clients is paramount.

Background

TOHF was formed after a committee spent two years identifying what was needed in disadvantaged communities for them to prosper. Their focus ultimately centered on economics. It was agreed that their services had to go further than what the Small Business Development Centers (SBDCs) and Business Information Centers (BICs) offered. There had to be an organization that did more than just tell people where to find a job, where to get training or to how to start a business. These discussions helped identify the critical piece that was missing from these organizations.

Unfortunately, there wasn’t a business model with this crucial ingredient. Specifically, there was a need was for a company that served as the “engine” for developing and retaining new businesses. In order to be an engine, an organization’s survival had to be so closely linked to their clients’ that one could not succeed without the other. This forces them to constantly be proactive in seeking solutions for client needs instead of being reactive like the traditional business models (the SBDCs and BICs). In other words, this model had to be incentive based.

A hybrid company (TOHF) emerged pairing two philosophies that appear to be polar opposites:

We are first and foremost passionately rooted in social consciousness. We operate as a for-profit venture.

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Many consider “socially conscious” and “for-profit” incompatible for a business model. The steering committee discussed this intensely and ultimately concluded that not only was it a strategic advantage to combine these concepts but it was absolutely necessary for optimal results!

Contrast this model to how most programs for disadvantaged communities are structured. They make themselves into nonprofits like the SBDCs. True, these well-meaning nonprofits offer some services that are similar to TOHF’s, but their nonprofit status exposes some critical flaws. First, their staff doesn’t have a financial stake in what happens to their clients. A client can produce great results or no results at all and it won’t change how the direct services staff is paid.

More importantly, the key ingredient to grow a successful business is to have the best candidates run them. Nonprofits aren’t designed to even address this! Their sole purpose is to provide services. Employees are compensated to teach classes, provide training, and help identify funding options. While their commitment to service is commendable, it shouldn’t distract from the fact that nonprofits cannot offer their staff a financial stake in their clients’ results. Legally, they cannot mitigate the risks of entrepreneurship by identifying the best candidates to run a business.

These are serious flaws if the endgame is to create jobs and stimulate the economy in disadvantaged communities. Such a model will not consistently create successful businesses.

TOHF uses a different model. We have a vested interest because we ONLY fulfill our mission and commitment to the Sacramento Region if our clients achieve their case management plan outcomes. We aggressively support our clients during the course of a five-year service agreement. Our approach results in a win-win for clients, community investors, stakeholders and for TOHF’s mission.

Incentives

Staff IncentivesWe offer residual commission to our employees to augment their salary. This type of compensation increases their productivity which in turn positively impacts the clients and communities we are trying to serve.

Client IncentivesWe offer our clients incentive opportunities:

We offer no interest loans. If they generate a minimum amount of volume for a given month, we will waive

their loan payment. By paying off their loan early, they are rewarded financially. 4 bonus categories have been created to monetarily reward volume and

consistency.

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Top producing clients receive up to 10% of the total profit-sharing revenue TOHF generates from all clients in a given month.

Investor Benefits/IncentivesWe also have investment opportunities. Investors receive back their entire investment outlay in addition to a profit-sharing stake in each business they invest in.

Company Format

Tree of Hope Funding is an S Corporation based out of Sacramento, California.

Competitive Comparison

TOHF has the following competitive advantages:

We capitalize businesses that we strongly believe in. We are not offering a traditional loan, but an opportunity. Our clients only pay us back on the principal. Once they attain a certain level of revenue for a given month, they profit-share with us instead and have their monthly loan payment waived.

We have incentives and penalties to motivate clients to accurately report their revenue for a given month. We have devised a system where we actually make more money from a client who misrepresents their monthly revenue by underreporting it. This system strongly motivates clients to report as much income that they can.

We only make money if our clients make money. We provide capital and other resources, but we’re not venture capitalists.

We leave control of the business with the owner. TOHF definitely expects clients to be receptive to coaching and demonstrate a willingness to implement suggestions. Our clients own and control the direction of their company though. This is in stark contrast to many business situations where control often shifts to organizations that do the investing.

We make professional business training a requirement for clients we accept. The primary reason why 50% of all businesses fail (according to the SBA), in their first 5 years, is due to lack of business knowledge. Our clients are paired with professional business coaches who understand and teach proven strategies to build competitive, prosperous businesses.

We provide each of the businesses that we select with sufficient capital. This is the second leading cause of business failure according to the SBA. Many disadvantaged businesses are undercapitalized. They are often started with credit cards, micro loans or small business loans. To address this problem, we provide direct funding that will help the business owner focus on running their business and have sufficient resources to succeed.

We have a minimum five-year partnership with clients we invest in. The first five years of a business is the most critical in determining ultimate success. This is the time when our clients are learning how to run a business and get it launched with proper funding. After the five years is up, our clients walk away

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from us with their own vibrant business. They owe us nothing and have a solid business that they have been trained on how to run.

Every business we work with will reinvest 1/5 of their monthly profits to help grow their business. We instill in our clients that reinvestment is the lifeblood for a business to ultimately succeed. We have a built-in component in our program where clients must reinvest 1/5 of their monthly profits back into their business. This underscores our commitment to build strong businesses.

Cumulatively our idea has several innovative concepts that give us a competitive edge. As mentioned, it is unprecedented that SETA would allow a private for profit business to come in and take over one of their BICs. Our concept has turned many heads in our community and can be duplicated in every region of this country.

S.W.O.T. Analysis

Strengths- Tree of Hope Funding has several strengths that give this organization far-reaching potential. At the forefront is an unwavering commitment to provide economic empowerment in disenfranchised communities. Thriving communities need a strong and vibrant economic base and this consequently becomes an albatross for communities that don’t have this fully entrenched. There is a definite need and we are positioning ourselves in a way to address this problem.

Here are other strengths TOHF offers:1. We aggressively address the two primary reasons (lack of knowledge and capital)

the SBA cites as to why 50% of small businesses fail in this country. We provide 1-on-1 consultations, professional coaching, grant opportunities and no interest loans.

2. We assign coaches to our clients who have similar life experiences. They not only can relate to our clients, but they have the background to help them grow a successful business.

3. We offer huge incentives! The coaches that we hire have a compensation structure where they get paid anywhere from 20-36% of all the profit-sharing money they generate from each business they are working with.

4. Clients are offered no interest loans. Interest payments can often be staggering and this significantly helps alleviate some of the financial worries. If a client is unable to make the payment from their business account on the principal of the 0% interest loan for a given month, their service agreement is extended by a month. The loan payment for that month is made from their repayment account instead of their business account. The repayment account is a special account setup to make monthly loan payments for clients when they don’t generate enough volume to make the payment from their business account. The funds from this account consist of monies from the original funding for the loan.

5. Clients only pay us if they make money. This is determined by how much volume they create for a given month. Volume is calculated by taking the total revenue generated and then subtracting the preapproved bills that both TOHF and our client agree to.

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6. Clients own their own businesses. Even though we invest in them, we sign service agreements to help support the both educationally and financially, but they own their business. Once the service agreement ends, they walk away without owing us a thing.

7. We have built-in incentives for our clients on a monthly basis. These incentives give each client the opportunity to put an additional 30% of the profit-sharing monies into their pockets. Moreover, top producing clients have an opportunity to share in 10% of all profits TOHF takes in from all clients during a given month. They also have the opportunity to end their profit-sharing responsibility towards us. As soon as they can pay off their no interest loan, they no longer have to profit-share.

8. The potential for TOHF to help is unlimited. Our strategy to raise funds can be duplicated in a way that our paradigm can be franchised out and offer real hope in disadvantaged communities throughout this country.

9. Our greatest strength is how we distribute funds. Most corporations have a hierarchy in place where a few people make great profits. In other words, there is a true pyramid in place where the money trickles down. With TOHF the pyramid is inverted. 90% of all the money that comes into TOHF is earmarked directly back towards supporting clients and their businesses. We believe in sharing the wealth and are convinced that incentive packages that reward excellence for both coaches and clients will drive us to great heights.

10. There is untapped potential out there in disadvantaged communities. We already have seen incredible people with amazing ideas walk through our doors. The four clients that we have funded in the last month were just looking for a crack in the door to unleash their ideas.

11. This organization has components that are innovative. There isn’t an organization in Sacramento County that is specifically training and funding disadvantaged businesses in the way we are doing. We have a patent-pending concept.

Weaknesses- One possible weakness has to do with the limited equity that most clients bring to the table. One way of addressing this has been to put candidates in training first to access how coachable and committed they are toward building a business. Another safeguard is to develop an action plan that calls for incrementally funding clients according to this plan. If clients meet the parameters of a particular stage, then they are funded for the next one.

Another area of concern has to do with clients who are unable to meet their monthly payment on the 0% interest loan. We are not interested in going after clients who are struggling to make their monthly payment. This is especially true for those who are diligently addressing their action plan. We fund in 3 month increments and make sure that part of the funding includes the monthly loan payments that are placed in the repayment account for the upcoming 3 months. If they meet the minimum requirement of 3K in volume to waive the monthly loan payment, they still must deposit it in this account to help make future payments for a month they don’t qualify to have it waived.

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Clients who aren’t following the action plan or are doing improper things with their business can potentially present a major problem. To address this, our contracts with our clients authorize us to remove them from their business and put someone in their place.

Opportunities-TOHF is strategically placing itself in a position to create a model that can be universally applied in a way that McDonald’s and Starbucks already have. There is such a need in disenfranchised communities and there are so many of them that could greatly benefit from a program like TOHF. There is a tremendous buzz in the community with what we are doing, but we need the resources to give the training and startup materials that our clients so desperately need. The feedback that we are receiving validates that we are unique in our approach and that there is tremendous value in what we are offering.

Our goal is to bring this paradigm forward nationally within the next year or two. TOHF has the potential to revolutionize the way disadvantaged communities are incorporated into the fabric of our society economically. By building a vibrant economic infrastructure in communities throughout this country, it will help the overall economy of this country. The overall tax burden for all citizens of this country will be reduced because people in disadvantaged communities will have job opportunities that are too few and far between today. They will be getting a hand up and not a handout.

Threats- Our greatest strength is also our biggest threat. On average, we are funding businesses at $25,000. We have factors to consider that can undermine the long-term sustainability of our organization if they aren’t addressed. These factors include:

1. Monthly operating costs of approximately $12,000 monthly for a beginning branch (the clients and coaches working in unison out of an office) in a given city.

2. Factoring in outgoing businesses versus incoming businesses and making sure that there is always an opportunity for growth.

3. Building in a formula where guaranteed money will always offset operating costs.

Jim Hunter, a small business professor at Sacramento City College and an enthusiastic advocate for the TOHF model, gave a formula (see section 5.8) that he suggests is a very reasonable rate for TOHF to grow. It is based on the premise that as businesses mature, they will continue to generate higher rates of return each year.

On the other hand, these are very challenging economic times. What if Professor Hunter’s projections are only applicable for an economy on the uptick? We decided to analyze TOHF from a different standpoint. How viable is the concept during really difficult times? We crunched some numbers based on the following assumptions:

We only invest in clients who offer services that still had a fairly high demand These businesses didn’t show growth from year-to-year. Their profits remained

constant.

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Using these parameters, we clearly wouldn’t be able to grow in the exponential way that Professor Hunter predicted, but there would be growth for TOHF even if the clients themselves weren’t generating growth.

Investing in TOHF

TOHF is looking for socially conscious individuals who see the value in promoting entrepreneurship in disadvantaged communities. Our model also offers investors the opportunity to make a decent return on their investment. Here is some important information with respect to investing in TOHF:

Client information-Tree of Hope Funding (TOHF) invests in business ideas that are geared towards creating jobs and investment in disadvantaged communities. Clients sign 5 to 6 year service agreements with us. They receive no interest loans that can be waived if they hit $3,000 in volume for a given month. If this happens, they will profit-share with us instead. Volume is determined by taking all the revenue a business takes in for a given month and then subtracting pre-approved bills (the TOHF coaches and their client agree upon these) from that total. Clients who payoff their no interest loans early no longer have to profit-share with us. Profit-share monies that would have gone to TOHF are now invested on behalf of the client and they receive the same returns any investor would.

Investor Information-Investors in TOHF receive a monthly payment on the principal for the loan they provided until it is paid back. Moreover, investors are entitled to receive monthly profit-sharing revenue from the business they invest in (for any month it generates 3K or more in volume) until the principal is paid back.

The following gives the approximate payout totals an investor would receive on a $25,000 loan into a particular business based on an average monthly volume a client produced. This also assumes the client took the full 6 years to repay the loan:

$1,000 volumeMonthly payments to investor:Principal Payment: $347 + Profit-Sharing $0 = $347

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $0 = $25,000

This represents a 0% gain on their original investment.

$2,000 volume (based on client receiving a 4% incentive bonus)Monthly payments to investor: Principal Payment: $347 + Profit-Sharing $6 = $353

6 year returns to investor:

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Principal Payments: $25,000 + Profit-Sharing $432 = $25,432 This represents a 1.7% gain on their original investment.

$3,000 volume (based on a client receiving a 6% incentive bonus)Monthly payments to investor: Principal Payment: $347 + Profit-Sharing $20 = $367

6 year returns to investor: Principal Payments $25,000 + Profit-Sharing $1,440 = $26,440 This represents a 5.8% gain on their original investment.

$4,000 volume (based on a client receiving an 8% incentive bonus)Monthly payments to investor: Principal Payment: $347 + Profit-Sharing $34 = $369

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $2,448 = $27,448 This represents a 9.8% gain on their investment.

$5,000 volume (based on a client receiving a 10% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $46 = $393

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $3,312 = $28,312

This represents a 13.3% gain on their investment.

$6,000 volume (based on a client receiving a 12% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $60 = $407

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $4,320 = $29,320

This represents a 17.3% gain on their investment

$7,000 volume (based on a client receiving a 14% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $72 = $419

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6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $5,184 = $30,184

This represents a 20.7% gain on their investment

$8,000 volume (based on a client receiving a 16% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $83 = $430

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $5,976 = $30,976

This represents a 23.9% gain on their investment.

$9,000 volume (based on a client receiving an 18% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $93 = $440

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $6,696 = $31,696

This represents a 26.8% gain on their investment

$10,000 volume (based on a client receiving a 20% incentive bonus)Monthly payments to investor:Principal Payment: $347 + Profit-Sharing $103 = $450

6 year returns to investor: Principal Payments: $25,000 + Profit-Sharing $7,416 = $32,416

This represents a 29.7% gain on their investment

Future Services

TOHF is using Sacramento as a model for other communities to emulate. The following is a quote from the November 13, 2005 edition of the Sacramento Bee: “With the nation’s booming ethnic population, advocates say increasing diversity in the financial world and boosting investments in minority ventures and communities make good business and economic sense.” We agree with this assessment. Our commitment is for TOHF to be a beacon of light for the disadvantaged population in Sacramento.

Once we have firmly established our paradigm in Sacramento, we plan to open our vision up to other regions throughout this country. This will enable us to partner with communities everywhere and make a profound difference in the quality of life for many more people.

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Market Analysis Summary

In 2002, Time magazine deemed Sacramento as the most racially/ethnically integrated major city in the nation. However, there are some inequities that make it a good place to begin our operations. We have identified, through the Sacramento Housing and Rehabilitation Agency, several depressed areas of interest. These are regions with substantial disadvantaged populations (Please see section 5.0 for a breakdown on demographics). We have already begun working with several community leaders with like-minded development objectives. We have also formed several partnerships with some key organizations in Sacramento including the Sacramento Chapter of the NAACP, the City of Sacramento, the Maddbacker Foundation, the Sacramento Black Chamber of Commerce, the Sacramento Employment and Training Agency and several others.

Critical Need: Disenfranchised communities in the Greater Sacramento Area are suffering because there isn’t an economic component in the infrastructure. Business opportunities exist, but are being exploited by non-disadvantaged enterprises. This creates an ongoing economic crisis because dollars continue to flow outside these communities. Without the financial component, there aren’t enough jobs available in disadvantaged communities. A lack of jobs cuts the lifeblood out of a community. It is critical that a long-term economic paradigm be developed that focuses on disadvantaged business development. Keys for Success:  There are two fundamental issues that need to be addressed in order for disadvantaged businesses to thrive. They include:

1. The need to develop a program that directly addresses the primary reasons why small businesses don’t thrive in general. According to the Small Business Administration (SBA), over 50% of all small businesses fail with in the first 5 years. They cite lack of business knowledge along with under-capitalization as the primary reasons for this lack of success. http://usgovinfo.about.com/od/smallbusiness/a/whybusfail.htm

2. There are also factors that are unique to minorities that makes it more challenging for businesses to thrive. It is important that these issues are considered within any program so that economic solvency becomes a reality for disadvantaged communities in Sacramento. These factors include, but are not limited to:

 a. Spatial Displacement- It is more difficult for someone looking for work to have

to find it outside the community. Transportation issues become a concern and make it increasingly more challenging to get to work. Creating jobs within the community will go a long ways towards addressing this. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=252681

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b. Predatory Lending Practices- Minorities are often given interest rates that are above what others are paying. http://www.consumeraffairs.com/news04/2006/06/crl_predatory_study.htl

c. Insufficient Collateral- Minority property values are not comparable to their white counterparts. This makes it increasingly more difficult to secure the required capital to start a business up. http://www.allbusiness.com/business-planning/165177-1.html

d. Discrimination- Minorities are being denied funding avenues even when their credit situation is comparable to white clients who are being accepted. http://findarticles.com/p/articles/mi_qa5424/is_199803/ai_n21417166

e. Lack of Reinvestment- Citing African Americans as an example, we already mentioned that less than a nickel of every dollar earned by African Americans is reinvested in the community. This is economic genocide and options must be created so that African Americans can keep their resources within the community. http://www.gibbsmagazine.com/Black%20Economic%20Power.htm

    The Sacramento Market: Here is some statistical data with respect to disadvantaged individuals in Sacramento, California:

1. According to the 2000 census, 15.5% of the population in Sacramento is African American, 16.6% is Asian/Pacific Islander and 21.6% is Hispanic: http://sacramento.areaconnect.com/statistics.htm

2. In 2002, there were 90,876 businesses in Sacramento County. African Americans owned 4,362, Asian/Pacific Islanders owned 10,814 and Hispanics owned 7,906. The totals from these 3 groups comprised 25.4 http://quickfacts.census.gov/qfd/states/06/06067.html

3. The unemployment rate for the state of California has gone up 50% in the last year according to a Jan. 2009 KTVU news story. http://www.ktvu.com/news/18549201/detail.html

4. Based on information from the 2000 census, a document called the State of Black California was written. Here are some important facts about Sacramento:

Sacramento’s African American community was the only metropolitan area that grew significantly (more than 5%) other than Los Angeles from the previous decade. It grew 25.4%.

Sacramento had the lowest economic index for African Americans for any metropolitan area in the entire state. The report had this to say as the reason: The unusually low economic index was influenced “largely by their (African American) low rate of business ownership.”

The unemployment rate for African Americans in Sacramento was at 12.1%. This was higher than every metropolitan area in the state other than Los Angeles and Inland Empire.

5. Asian/Pacific Islanders in Sacramento have 50% less Business Participation Rate (BPR) than they do nationally. BPR is calculated by determining the number of businesses that are run by a particular ethnic group for every 1000 people in that group. The BPR for African Americans in Sacramento is 15. This is the lowest BPR rate for any group in Sacramento and 9 points lower than the national average for African Americans. Hispanics in Sacramento have a BPR of 26 which

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is 36.6% lower than their national average. The combined BPR for all ethnic groups, in Sacramento, is 60. This is 23.1% less than the national average.

Group MSA BPR: Sacramento

National BPR

All 60 78Non-Minority 78 91Minority 31 42African American 15 24Asian & Pacific Islander 46 90Hispanic 26 41American Indian & Alaska Native 122 85

http://www.mbda.gov/?section_id=6&bucket_id=659&content_id=3432&well=entire_page 6. Proposition 209 has severely compromised affirmative action programs. It has

negatively impacted the ability for many to secure business contracts. http://sacramento.bizjournals.com/sacramento/stories/2006/10/02/focus3.html

7. Below are some key statistics about minority businesses in Sacramento, California. Of particular note are these facts: 38.2% of the population is minority 19.9% of all businesses are minority owned 3.1% of all business revenue comes from minority owned business

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

% Population 38.32% 7.20% 11.68% 18.52% 0.91%

% Firms 19.85% 1.77% 9.07% 7.92% 1.86%

% Receipts 3.09% 0.21% 1.91% 0.79% 0.20%

Minority African American Asian & Pacif ic Islander HispanicAmerican Indian &

Alaska Native

Our Solution: Recent research indicates that individuals from disadvantaged communities are 50% more likely to start a business than someone that is not. Unfortunately, the failure rate of these businesses also outstrips those of their counterparts. Echoing what the SBA says, under-capitalization and lack of business knowledge are noted as primary reasons for these failures. http://www.bizjournals.com/memphis/stories/2004/05/24/story4.html   

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The number of minority enterprises in Sacramento, are relatively small as evidenced by the statistics.

Strategic Vision

Sacramento is the initial city to demonstrate our concept. We fully expect other regions of the country to express an interest in duplicating our success within the next few years. We plan to franchise out our idea and to have a step-by-step curriculum for implementation readily available. At this point we will layout some of the specifics of our paradigm.

HOW TOHF WORKS

When a potential client comes to TOHF, we use some of the same measurements traditional institutions use to gauge eligibility. That is why it is important to understand their credit situation, financial commitments and the potential collateral they possess. However, that is only part of our evaluation process. TOHF actually places more weight on the merits of the business idea and the entrepreneurial potential of the person submitting the idea. Entrepreneurial potential involves a person having certain characteristics essential for building a successful business.

These qualities would include, but are not limited to, the following from a candidate:

Creative Coachable Committed to a process Reliable Pleasing, customer friendly disposition Hard worker Self-starter Leadership Strong ethical and moral constitution Hits benchmarks consistently

Entrepreneurial potential is the point of reference that helps TOHF gauge whether someone is a not only a good fit to become a client, but also to remain one once accepted.

Potential clients can expect to see a brief overview of TOHF when they first come in to see us. Overviews generally last between 20-30 minutes. Potential clients are sent home with a packet containing information on what is needed to continue the process with TOHF. Candidates are walked through this packet so they fully understand what is needed from them. Included in this is an application to become a TOHF client. It is important to note that they won’t be asked to present their idea during this initial overview.

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For the process to continue, potential clients are asked to complete the application and bring it back to TOHF. They are also told to submit a formal business plan or a documented business idea. We provide resources to help them accomplish these requests if it is needed.

Some candidates start pushing for money just because they filled out an application and have a business plan. This is never a good idea. People who do this don’t really understand the TOHF concept and are usually rejected. While we do fund businesses, TOHF is primarily focused on business education. Whether we ultimately fund a business or not (some don’t really need the extra capital), it is important to understand that there are certain well-defined benchmarks we look for in all candidates as potential business owners. Here are some critical indicators we evaluate:

1. Not all businesses are economically viable, especially during times when the economy is struggling. Candidates will be asked to demonstrate, via research, that their business concept has a niche.

2. How much entrepreneurial potential a given candidate has. 3. Feedback from a business expert. An objective analysis of their business action

plan would be a prime example of this. 4. How quickly a candidate is able to assimilate new information.5. A candidate’s disposition.6. A candidate’s work ethic.7. How coachable a candidate is.8. A candidate’s employment history.

It is essential for all candidates to understand that suggestions given by TOHF are done to advance the business learning curve of potential clients. A candidate might be told that there is a good workshop or training session that will benefit them. For example, most people looking to start a business would benefit from a business basics course or a seminar on bookkeeping essentials. It is strictly up to the candidate if they attend or not. Even if TOHF chooses not to fund a candidate, the knowledge gained will be invaluable towards helping them move their business or business idea forward.

Entrepreneurial potential is the best gauge to evaluate whether or not someone will be funded. If candidates have a solid business idea and are hitting their benchmarks, showing the necessary leadership and demonstrating the proper work ethic, they’re probably going to be funded. This is especially true if they have strong people skills and are proving to be coachable.

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Competitive Edge

We have several competitive advantages we use to serve our clients. We have a concept that creates jobs in disadvantaged communities in ways that currently aren’t happening.

Here are some noteworthy highlights and objectives:

We aren’t venture capitalists that often want to take control of a business. We aren’t traditional lenders because we believe loan payments with high interest often cripple a business in their formative years. Our clients receive loans with no interest. Moreover, they can have the payments completely waived (while still being credited to their loan balance) by producing a minimum volume requirement.

We offer several other bonus and incentive opportunities based on pre-determined goals that reward consistency.

Since the primary reason businesses fail (according to the SBA) is attributed to inexperience, we provide professional training and education to assist our clients.

Since the second leading cause for business failure (according to the SBA) is under-capitalization, we provide the financial resources necessary to compete in the open market.

Reinvestment is essential for business success. We require our clients to reinvest 20% of their revenue back into their business every month.

Businesses we invest in must demonstrate a commitment to enhance disadvantaged communities. They accomplish this by providing jobs, services and reinvestment dollars that align with our mission.

Disadvantaged individuals have historically been gouged with predatory loan practices or outright rejection by most lending institutions. We are sending a strong message that we believe in these people. We’re not loaning money in a traditional manner; we’re investing in them and their dreams.

We are a support system to empower people. Once they have been with us for 5 to 6 years and we have helped them navigate their way through the vulnerable stages of infancy, they are on their own. They owe us nothing.

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Projected Revenue

We have already invested over half a million dollars into the TOHF organization. In order to operate at the level that we are, all potential financial streams must be considered. This includes exploring strategic partnerships for grant opportunities, corporate sponsorships, community reinvestment dollars and finding private investors.

It is very reasonable to expect a properly funded and trained business to return 20% of the original investment (after taxes) in the first year, 50% the second year, 70% the third year, 100% the fourth year and 130% the fifth year (e.g., a 10K investment would generate 2K in year 1, 5K in year 2, 7K in year 3, 10K in year 4 and 13K in year 5).

TOHF is committed to being transparent on how resources are distributed. After investors have been paid their cut and tithing has occurred, here is the breakdown of how TOHF’s monthly returns will be allocated:

50% is reinvested into new or current businesses. This includes bonus money paid to top producing clients.

30% is paid for coaching services.

10% is tithed back to disadvantaged communities for worthy causes. Tithing will begin once the business can fully support itself. The formative years of the business will designate this money to pay consultants.

10% is used for operational expenses, attorney fees, CPA’s, insurance, rent and advertising

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Financial Projections

Basing our estimates using Professor Hunter’s growth schedule outlined in section 5.8, here are projections for TOHF.

2009 Fiscal Year

INVESTMENT Client Funding (50 businesses)…..$1,250,000

EXPENSES Marketing……………...………….. $8,000 Clerical Staff………………...….... $15,600 Salaries………………………….…$104,000 Resource Center …………………..$38,900 Insurance………………..…………..$1,000 Equipment…………………………..$2,300 Networking Events…………......….....$500 Memberships to key organizations..…. $350 Computer Maintenance………….…....$700 Contractors……………………..…. $42,000

Corporate Fees………………………$1,000------------------------------------------------------------------ $214,350

INCOME50 businesses generating a 20% return……. $250,000 1 Resource Center revenue……………….. $75,000------------------------------------------------------------------ $325,000

2009 P&LIncome ……………………………………..$325,000Expenses……………………………………$214,350Profits ………………………………. $110,650

2010 Fiscal Year

INVESTMENT Client Funding (50 businesses)……$1,250,000

EXPENSES Marketing……………...………….. $10,000 Clerical Staff………………………. $60,000

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Salaries……………………………$150,000 2 Resource Centers …..……….…...$80,000 Insurance…………………………….$1,000 Equipment…………………………..$5,000 Networking Events…………….........$1,000 Memberships to key organizations…. $1,000 Computer Maintenance………….…..$1,500 Contractors………………………..$100,000

Corporate Fees…………………...…$1,000 ------------------------------------------------------- $380,500

INCOME 50 businesses funded in 2009 generating a 50% return. ….. $625,00050 businesses funded in 2010 generating a 20% return…… $250,000 2 Resource Centers revenue………………………..………$150,000------------------------------------------------------------------------------------------------------------ $1,025,000

2010 P&LIncome ……………………………………..$1,025,000Expenses……………………………………$380,500Total Revenue……………………………. $644,500

2011 Fiscal Year

INVESTMENT Client Funding (50 businesses)……$1,250,000

EXPENSES Marketing……………...………….. $12,000 Clerical Staff…………………….... $60,000 Salaries……………………………$200,000 3 Resource Centers …..……….…..$120,000 Insurance………………………….....$2,000 Equipment…………………………..$10,000 Networking Events………………......$2,000 Memberships to key organizations…. $1,500 Computer Maintenance………….…..$2,500 Contractors………………………..$125,000

Corporate Fees….………………...…$1,000 ------------------------------------------------------- $536,000

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INCOME50 businesses funded in 2009 generating a 70% return. ….. $875,00050 businesses funded in 2010 generating a 50% return…… $625,00050 businesses funded in 2011 generating a 20% return……..$250,000 3 Resource Centers revenue………………………..………$225,000--------------------------------------------------------------------------------------- $1,975,000

2011 P&LIncome ……………………………………..$1,975,000Expenses……………………………………..$536,000Total Revenue ……………………………. $1,439,000

P & L Summary:

2009---In the black $110,650 -- Note: this revenue represents 8.9% of the required $1,250,000 needed to invest in 50 new businesses for the next year.

2010 – In the black $644,500 -- Note: this revenue represents 51.6% of the required $1,250,000 needed to invest in 50 businesses for the next year. 2011 -- In the black $1,439,000 - Note: this revenue represents 115.1% of the required $1,250,000 needed to invest in 50 businesses for the next year.

Note: After a few years this paradigm provides us the opportunity to invest in more than 50 businesses per year if the need is there.

Milestones

Here are some noteworthy accomplishments of TOHF:

Featured on KCRA channel 3 with a link to our website placed on their website Interviews with team members and clients on Sacramento and Company and also

the KCRA channel 3 evening news Featured in several publications including Sacramento Magazine, Sactown

Magazine, The Hub Magazine and The Sacramento Observer Title sponsor for the Maddbacker’s charity basketball game coordinated by

former NFL professional football player Adrian Ross. Proceeds from the game went to an after school mentoring program for disadvantaged youth and their families at the Roberts Family Development Center in Del Paso Heights. This money was used to help pay for a program with an 800K annual budget.

Developed a partnership with the Sacramento chapter of the NAACP and their president Betty Williams. We helped increase community awareness of the NAACP and its programs by donating money for memberships.

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Developed a partnership with the Sacramento Black Chamber of Commerce and their president Azizza Davis-Goines. We sponsored a table at their annual fundraising event, in November of 2008, to help solidify our commitment towards a mutual interest in helping develop small businesses and to give our clients access to Chamber resources.

Developed a partnership with the city of Sacramento through Lyn Corbet who is the director of youth services.

Developed a partnership with the Sacramento Employment Training (SETA). This partnership includes TOHF managing one of the five Business Information Centers (BICs) in Sacramento, CA.

Awarded over $100,000, by SETA, based on a winning proposal submitted in their “Business Innovations” category authorized by President Obama’s and Congress’s American Recovery and Reinvestment Act.

Met with Sacramento councilwoman Lauren Hammond and proposed a matching funds agreement with the city of Sacramento. Councilwoman Hammond expressed interested in bringing the proposal to the entire Council.

Organizational Structure

TOHF has a 3 member executive committee that sets the entire agenda for the organization. They make their decisions based on a consensus building model.

Management Team

TOHF has 3 executive officers. They include:

Tonya Mack- She is a non-profit and small business consultant. Ms. Mack has spent over 17 years working with various non-profit and for profit organizations. Attended U.C. Berkeley.

Kenneth Fears- An original creator of our business concept, he is an expert in leadership, management, logistics, and organizational skills. Holds a B.S. in Criminal Justice.

Philip Givant-One of the original creators of our business concept. He has a BA in mathematics from CSU Sacramento and a MS in psychology from the University of LaVerne.

Linda Givant, an MBA from UC Davis, gives us technical input.

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