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Architecture Firm in Education & Tech Facilities

Owner will stay on for 2+ years and finance up to 20%!

CASH FLOW
$329,360

Specifications

  • Price
    $625,000

  • Revenue
    $2,595,550

  • Location
    Los Angeles, California

  • Employees
    15: Office manager, PT bookkeeper, technical staff, contracted associate architects

  • Reason for Sale
    Owner 1 has an illness. Owner 2 is planning to retire

  • Lease
    3,000 sq. ft.: Reception, private offices, conference room, large open drafting areas

  • Equipment
    $173,000

  • Intangible Assets
    Long-term relationships with clients, many long-term contracts in place, extended transition period available, positive reputation

 

Owner will stay on for 2+ years and finance up to 20%! This Los Angeles firm has a team of highly skilled designers and architects with years of experience. Over the years, this team has fostered many relationships by designing spaces for children and seniors alike, and have maintained lasting connections with customers, yielding long-term contracts.   They use top-notch software to create beautiful designs for educational institutions like colleges and K-12 schools, early childhood centers, senior living homes, and technical projects for communication or industrial companies.  Due to their focus on universal and sustainable designs, their plans take into consideration the environmental impact of the design.  The owners are dedicated to their work and both take on project management roles as well as business and financial management tasks. Due to one of the owners being ill, they will only be available to train for up to 6 months however the second owner can stay on for 2-3 years as negotiated.

 

The 3,000 square feet of space is well-suited to this company’s team.  A welcoming reception area greets visitors while private offices, conference rooms, and large open drafting areas are tailored to the staff.  The team of technical staff (8-9) and architects (2 owners and 2 contracted associates) are supported by the Office Manager and a bookkeeper. 

 

Growth in the Los Angeles area is great.  A focus on educational facilities alone could generate additional contracts for long-term development and modernization projects.  Working for entities with bonded projects is also an area for sustained work as these funds are less susceptible to economic fluctuations.

 

 

Business Highlights

  • Year Established: 1994
  • Location:  Los Angeles, California
  • Services: Design-build, facility design and planning, sustainable design, universal design,
  • Clients: Education facilities (75%), technical facilities, senior housing, child development, commercial properties
  • Lease: 3,000 sq. ft.: Reception, private offices, conference room, large open drafting areas
  • Reason for Selling: Owner 1 has an illness. Owner 2 is planning to retire. 
  • Personnel: 17: Office manager, PT bookkeeper, technical staff, contracted associate architects
  • Seller Training Period: Owner 1 will stay on up to 6 months. Owner 2 will stay on 2-3 years, as negotiated
  • Growth Opportunities: Expand work in senior living and educational institutions, build focus on government projects, grow the customer base to include additional school districts
  • Current Owners’ Responsibilities: Project and financial management, business development. Owners' salaries included in cashflow analysis of $110k each

Financial Highlights

  • List Price: $625,000
  • Gross Sales:
    • TTM: $2,595,550
    • 2019: $2,446,044
  • Cash Flow:
    • 2020: $329,360 annualized
    • TTM: $194,767
    • 5 Yr. Ave: $382,155
  • Assets Included in Purchase*
    • Equipment: $173,000: Computers, furniture, fixtures, machinery, equipment, software, telephone system
    • A/R: $152,000
    • Intangible Assets: Long-term relationships with clients, many long-term contracts in place, extended transition period available, positive reputation

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

Cash Flow Analysis

Description of Financial StatementP&L StatementP&L Statement
Jan-Mar
Tax ReturnP&L Statement
Jan-Mar
Tax ReturnTax ReturnTax ReturnNotes
TTM Apr 19' Mar 20'202020192019201820172016
GROSS SALES$2,595,550$496,335$2,446,044$346,829$4,164,082$2,605,252$2,292,207
Annualized$1,985,340$-86,939
Net Income Shown on Financial Statement$181,300$80,423$-1,668$0$876,163$226,994$237,994
ADDBACKS
Depreciation$0$0$24,848$0$24,676$14,448$237,994
Interest$0$0$0$62$0$15$0
Auto Expense$471$150$757$513$1,913$1,270$1,28710% is personal
Cell Phones$2,052$513$2,052$550$2,052$2,052$2,052$171/month for personal lines
Dues & Subscriptions$2,198$550$2,198$30$2,198$2,198$2,198$2,198 for rotary
Gifts$1,346$104$1,272$700$1,718$551$1,476
Contributions/Donations$7,400$600$0$0$0$0$0
Accrual to cash $0$0$11,101$0$36,196$0$0
TOTAL ADDBACKS$13,467$1,917$42,228$1,855$68,753$20,534$245,007
Seller's Cash Flow = Total Addbacks + Net Income$194,767$82,340$40,560$1,855$944,916$247,528$483,001
Annualized
Profit Margin7.50 %16.59 %1.66 %0.53 %22.69 %9.50 %21.07 %

2019 was the first bad year in 20 years (it was the first five months of the year). Looking at Q1 YR 2019 vs Q1 YR 2020 you will find a $167,000 growth in profit.

Reviewing the TTM, you will find the company has corrected itself.

Clients

  • Multi-family housing
  • Education facilities
  • Technical facilities
  • Senior housing
  • Child development centers
  • Commercial properties

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

Services

  • Design-build
  • Facility design and planning
  • Sustainable design
  • Universal design
  • Modernizations
  • New builds

Personnel

Total personnel: 15

  • Office manager
  • Part-time bookkeeper
  • Technical staff
  • Contracted associate architects

Growth Opportunities

  • Expand work in senior living and educational institutions
  • Build focus on government projects
  • Grow the customer base to include additional school districts

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 5-year average cash flow was used with a prescribed multiple is 1.65.  With this information, the computation is as follows:

$382,154         x          1.65          =          $630,556

 

Funding Example

 

Purchase Price:                             $625,000

15%Buyer Down Payment:        $93,750

20%Seller Financing:                 $125,000

65%Bank Loan:                           $406,250

Seller financing 5-year term at a rate of 4.50% equals a monthly loan payment of $2,330.

Bank loan 8-year term at a rate of 6% equals a monthly loan payment of $4,510.

A lender is required to have a minimum 1.25 coverage ratio for any business loans extended. At a proposed purchase price of $625,000 with the terms listed above, the coverage ratio is 4.66. 

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:

$625,000

$
%
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:
5 year average Cash Flow
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
5 year average 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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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.