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Architecture Firm for High-Rise Residential

Owner wants to build up the business – will roll 15% equity!

CASH FLOW
$326,464

Specifications

  • Price
    $925,000

  • Revenue
    $1,135,674

  • Cash Flow
    $326,464

  • Location
    Toronto

  • Service Area
    Greater Toronto Area

  • Employees
    6; 1 owner/architect, 2 architects, 2 architectural draftsmen, 1 intern

  • Profit Margin
    25%

  • Reason for Sale
    Owner wants to build up the business with a partner or owner

  • Intangible Assets
    Loyal client base, well-established name, word-of-mouth referrals

The owner of this GTA architecture firm would like to stay on board and grow the business! With growth in sales since 2017, this full-service architecture firm has been serving the greater Toronto area since 2000. The firm’s portfolio primarily consists of condominiums (80%), and includes commercial, industrial, institutional, and interiors. Working out of a 2,500 square foot office, the staff of 6 includes the owner, 2 architects, 2 architectural draftsmen, and 1 intern. The team is highly educated and experienced at their craft, allowing for solid word-of-mouth referrals and a loyal, recurring client base of developers, engineers, and general contractors. Their spectacular designs are well-known throughout the Toronto area.

 

The owner currently works 40 hours/week and would like to stay on board for 2-4 years to ensure a smooth transition and to work as a partner. By doing this, more work can be sought after and more projects brought into the fold, giving great potential for increased revenue and business expansion.

Business Highlights

  • Year Established: 2000
  • Location:  Toronto
  • Service Area:  Greater Toronto Area
  • Services: Full-service architecture firm, primarily specializing in condominiums (80%); industrial sector, retail, mid to high-rise residential, interiors
  • Clients: Developers, Engineers, General Contractors
  • Lease: 2,500 sq. ft. office
  • Reason for Selling: Owner wants to build up the business (will roll 15% equity if buyer allows)
  • Personnel: 6; 1 owner/architect, 2 architects, 2 architectural draftsmen, 1 intern
  • Seller Training Period: 2-4 years
  • Growth Opportunities: Expand the business by working as a partnership and increasing number of projects
  • Current Owner’s Responsibilities: Design & Execute projects, Business Development

Financial Highlights

  • List Price: $925,000
  • Gross Sales:
    • 2019: $1,135,674
    • 2018: $1,013,304
  • Cash Flow:
    • 2019: $326,464
    • 2018: $197,567
  • Assets Included in Purchase*
    • Equipment: Computers, printers, photocopiers
    • A/R: $36,979
    • Intangible Assets: Loyal client base, well-established name, word-of-mouth referrals

*amounts may vary, assets may be depreciated, replacement cost, or fair market value 

Cash Flow Analysis

Description of Financial StatementP&L StatementP&L StatementNotes
20192018
GROSS SALES$1,135,674$1,013,304
Net Income Shown on Financial Statement$341,944$244,989
ADDBACKS
Compensation to Owner$50,000$27,000Would like to stay on board
11% Tax on total W2 Salaries$5,500$2,970
Depreciation$23,620$17,208
Management Fees$0$0Paid to owner
Life Insurance$5,400$5,400$450/month for personal life insurance
Contributions/Donations$0$0Non-onward going expense
Interest$0$0
Salary$-100,000$-100,000To keep owner in place
TOTAL ADDBACKS$-15,480$-47,422
Seller's Cash Flow = Total Addbacks + Net Income$326,464$197,567
Profit Margin28.75 %19.50 %
  • 2019 Profit Margin: 29%

Clients

  • Developers
  • Engineers
  • General Contractors

Specific information regarding clients is available upon the receipt of a signed Non-Disclosure Agreement.

Services

  • Residential (primarily condominiums)
  • Commercial
  • Industrial
  • Institutional
  • Interiors

Personnel

  • 1 owner
  • 2 architects
  • 2 architectural draftsmen
  • 1 intern

Growth Opportunities

  • Expand the business by working as a partnership and increasing the number of projects

Valuation Details

The Firm used a cash flow valuation methodology to determine the purchase price of the business. 

The formula used is as follows:

Cash Flow       x          Prescribed Multiple     =          Fair Market Value

Cash flow is the sum of business net income plus any owner perks and any non-onward going expenses.

A prescribed multiple is determined by a 20 question, 100-point parameter ranking system that is used to analyze the current business health. Each question is based on a scale from 1 to 5: 1 being low, 2 below average, 3 average, 4 above average, 5 high. The average of the responses sum is the business’ prescribed multiplier.

For this business, the 2019 cash flow was used with a prescribed multiple of 2.8.  With this information, the computation is as follows:

$326,464         x          2.8       =          $914,100

The fair market value found above positions the business list price at $925,000.

Funding Example

Purchase Price:                             $925,000

  15%Buyer Down Payment:           $146,250

  15%Seller Financing / Equity Roll: $146,250

  70%Bank Loan:                               $682,500

Seller financing 5-year term at a rate of 4.50% equals a monthly loan payment of $2,587.

Bank loan 8-year term at a rate of 6% equals a monthly loan payment of $8,509.

After business expenses and loan payments, a buyer with a 15% down payment of $138,750 would retain a profit of $193,314, which results in a 139% return on investment in the first year.

A lender is required to have a minimum 1.5 coverage ratio for any business loans extended. At a proposed purchase price of $925,000 with the terms listed above, the coverage ratio is 2.45.

Please note that the decision of whether to extend a loan on any sale belongs to the bank, and this document does not guarantee specific terms or verify that financing is available. 

*The Firm is not a real estate brokerage and therefore the staff will not handle any aspect of the lease, sale or purchase of real estate.

Purchase Price:

$925,000

$
%
OR
$
%
OR
$
Years
%

Bank Loan Needed: $

Years
%
$
$
$
$
$

Funding Details

Business:

Offer Price: $

% Buyer Cash Down at Closing: $

% Seller Carry Back via Promissory Note: $

year term at a rate of %

% of Purchase Price secured by Buyer and Seller

Total Bank Loan Need: $

% of Purchase Price

Desired Loan Type:

Desired Bank Terms: year term at a rate of %

Total Business Assets, Inventory, and A/R: $

Total Undercollateralized Loan: $

Loan Payments

Monthly Payment to Bank: $
Yearly Payment to Bank: $
Monthly Payment to Seller: $
Yearly Payment to Seller: $
Total Monthly Debt Service: $
Total Yearly Debt Service: $

Conclusions

Fixed Charge Coverage Ratio

The bank will require a minimum ratio of 1.5 to be lendable.

Cash Flow:
2019 Cash Flow
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
2019 Cash Flow
$
Annual Debt Service: -$
NOI:

Buyer's Return on Investment (ROI)

The rate of return on the Buyer's down payment.

Down Payment: $
NOI:
ROI: %

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210 N 78th St. 2nd Floor
Omaha, NE 68114

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The Firm is not a real estate brokerage and therefore the staff will not handle any aspect of the lease, sale or purchase of real estate.