TOMS CLEANING COMPANY[1] Tom Willis is a 26-year-old ex-army man and a lifelong resident of Brockville, Ontario. Brockville is a beautiful summer resort area situated on the St. Lawrence in the Thousand Island region. The permanent population is about 20,000, and this more than triples in the summer months. Tom spent seven years in the Canadian Forces after high school graduation. Returning home in June 2000, Tom decided to go into business for himself because he couldn't find a good job in the Brockville area. He set up Tom's Cleaning Company. Tom felt that his savings would allow him to start the business without borrowing any money. His estimates of required expenditures were $3,900 for a used panel truck, $475 for a steam-cleaning machine adaptable to carpets and furniture, $330 for a heavy-duty commercial vacuum cleaner, $50 for special brushes and attachments, $75 for the initial supply of cleaning fluids and compounds, and $200 for insurance and other incidental expenses. This total of $5,030 still left Tom about $2,800 in savings to cover living expenses while getting started. One of the reasons Tom chose this line of work is his previous work experience. From the time he was 16, Tom had worked part-time for Joel Bidwell. Mr. Bidwell operated the only other successful carpet-cleaning company in Brockville. (One other company was in Brockville, but it was near bankruptcy.) Mr. Bidwell prided himself on quality work and had a loyal clientele. Specializing in residential carpet cleaning, Bidwell has been able to build a strong customer franchise. For 35 years, Bidwell's major source of new business has been retailer recommendations and satisfied customers who tell friends about the quality service received from Mr. Bidwell. He is so highly thought of that the leading carpet and furniture stores in Brockville always recommend Bidwell's for preventive maintenance in quality carpet and furniture care. Often Bidwell is trusted with the keys to Brockville's finest homes for months at a time when owners are out of town and want his services. Bidwell's customers are so loyal, in fact, that a national household carpet-cleaning franchise found it next to impossible to compete with him. Even price-cutting was not an effective weapon against Mr. Bidwell. Tom Willis felt that he knew the business as well as Mr. Bidwell, having worked for him for many years. Tom was anxious to reach his $40,000 per year sales goal because he thought this would provide him with a comfortable living in Brockville. While aware of opportunities for carpet cleaning in businesses, office buildings, motels, and so on, Tom felt that the sales volume available there was only about $20,000 because most businesses had their own cleaning staffs. As he saw it, his only opportunity was direct competition with Bidwell. To get started, he allocated $600 to advertise his business in the local newspaper. With this money he was able to purchase two half-page ads and have enough left over to buy daily three-line ads in the classified section, listed under Miscellaneous Residential Services, for 52 weeks. All that was left was to paint a sign on his truck and wait for business to catch on. Tom had a few customers and was able to gross about $200 a week during the first few months. These customers were usually Bidwell regulars who, for one reason or another (usually stains, spills, or house guests), weren't able to wait the two weeks required until Bidwell could work them in. While these people did admit that Tom's work was of the same quality as Mr. Bidwell's, they preferred Bidwell's quality-care image. During April and May Tom did get more work than he could handle when resort owners were preparing for summer openings and owners of summer homes were ready to open the cottage. The same rush occurred in September and October as resorts and homes were being closed for the winter: During these months, Tom was able to gross about $200-$250 a day working 10 hours per day. Toward the end of his first year in business. Tom began to think about quitting. While he hated to think of having to leave Brockville, he couldn't see any way of making a living in the carpet-and furniture-cleaning business in Brockville, Mr. Bidwell had the whole residential market sewed up except in the rush seasons and for people who needed fast cleaning. Go to to the questions sections below: 1. Evaluate Tom's approach to starting his carpet-cleaning business. 2. Why was he not able to reach his goal of $40,000 in sales? 3. Is there anything Tom could do to stay in business? 4. Develop a simple set of financial statements that support your answers.