Architecture Firm for High-Rise Residential
Owner wants to build up the business – will roll 15% equity!
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.
- 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
- 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
Cash Flow Analysis
|Description of Financial Statement||P&L Statement||P&L Statement||Notes|
|Net Income Shown on Financial Statement||$341,944||$244,989|
|Compensation to Owner||$50,000||$27,000||Would like to stay on board|
|11% Tax on total W2 Salaries||$5,500||$2,970|
|Management Fees||$0||$0||Paid to owner|
|Life Insurance||$5,400||$5,400||$450/month for personal life insurance|
|Contributions/Donations||$0||$0||Non-onward going expense|
|Salary||$-100,000||$-100,000||To keep owner in place|
|Seller's Cash Flow = Total Addbacks + Net Income||$326,464||$197,567|
|Profit Margin||28.75 %||19.50 %|
- 2019 Profit Margin: 29%
- General Contractors
Specific information regarding clients is available upon the receipt of a signed Non-Disclosure Agreement.
- Residential (primarily condominiums)
- 1 owner
- 2 architects
- 2 architectural draftsmen
- 1 intern
- Expand the business by working as a partnership and increasing the number of projects
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.
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.
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: $
|Monthly Payment to Bank:||$|
|Yearly Payment to Bank:||$|
|Monthly Payment to Seller:||$|
|Yearly Payment to Seller:||$|
|Total Monthly Debt Service:||$|
|Total Yearly Debt Service:||$|
Fixed Charge Coverage Ratio
The bank will require a minimum ratio of 1.5 to be lendable.
2019 Cash Flow
|Annual Debt Service:||$|
Buyer's Net Operating Income (NOI)
The amount of money the Buyer will retain as profit.
2019 Cash Flow
|Annual Debt Service:||-$|
Buyer's Return on Investment (ROI)
The rate of return on the Buyer's down payment.
|Document Title / Description|
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