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Niche Architecture Firm: Clubhouses, Golf Courses, Spas, & Other High-End Clientele

95% of all business is from referrals, resulting in pipeline of 10.3M!

CASH FLOW
$1,350,038

Specifications

  • Price
    $5,600,000

  • Revenue
    $4,103,743

  • Cash Flow
    $1,350,038

  • Location
    Ontario, Canada

  • Service Area
    Primarily Greater Toronto Area

  • Reason for Sale
    Retirement planning

  • Employees
    28: 14 staff, including 2 registered architects, 10 architectural technologists, 1 CFO/Personal Assistant, and 1 PT secretary

  • Profit Margin
    38%

  • Intangible Assets

95% of all of the business at this full-service architecture firm is from referrals, resulting in pipeline of 10.3M. This firm has 3 years’ worth of signed contracts already in place and has a profit margin of 38%! They are in the top 3 in Ontario and has a highly experienced team that works out of a 7,500 sq. ft. leased space and includes 1 CFO, plus 2 registered architects on staff and 10 architectural technologists, all highly skilled in the technical side of the full design process. Their projects range in size from small boutique hotels to grand golf course clubhouses throughout Canada, each one customized to fit their clients’ vision. The residential work includes high-end custom estate type homes up to $40M in value. The owners are willing to stay on for 2 to 3 years to assist in the transition and will finance or roll equity of 22.5% as a sign of faith and vested interest.

 

The firm is renowned for their work at private public clubhouses and boutique hotels. Their comprehensive services include conceptual and schematic design, design development and construction documentation, permits and approvals, contractor bidding and/or negotiating, and construction contract administration. They have fixed fees for their clients, which helps bring in a tremendous number of commercial projects. One owner does large-scale project management and financials, while the other does small-scale project management. Both are accounted for in the cash flow analysis

 

Currently, this business has $3M worth of active contracts and $10M worth of contracts waiting to proceed. They have seen steady growth in sales and profitability in the past 4 years; increasing marketing and promotional materials, focusing on high-end small boutique hotels throughout Canada, and expanding current client relationships would certainly lead to continued growth. The company’s owner and 2 on staff are members of the Ontario Association of Architects, and the owner holds licenses with British Columbia and Nova Scotia, as well as NCARB licensing in New York and Arizona.

Business Highlights

  • Year Established: 1980
  • Location: Ontario, Canada
  • Service Area/Clients: Full-service architectural and interior design for golf courses across Canada, hospitality, multi-family, commercial and boutique hotels 
  • Clients: Multi-unit residential, commercial, & golf courses across Canada, as well as a large number of corporate clients
  • Lease: 7,500 sq. ft. space (part of a 15,000 sq. ft. building)
  • Reason for Selling: Retirement planning
  • Personnel: 28: 14 staff, including 2 registered architects, 10 architectural technologists, 1 CFO/Personal Assistant, and 1 PT secretary
  • Seller Training Period: 2-3 years
  • Growth Opportunities: Increase marketing/promotional efforts, focus on high-end small boutique hotels, expand current client relationships
  • Current Owners' Responsibilities: Owner 1: Large-scale project management, financials; Owner 2: Small-scale project management. Both owners are accounted for in the cash flow analysis

Financial Highlights

  • List Price: $5,600,000 CAD
  • Gross Sales:
    • 2019: $4,103,743
    • 2018: $3,787,453
  • Cash Flow:
    • 2020: $1,350,042Annualized
    • 2019: $1,661,580
    •  2018: $1,337,138
    • 2017: $1,536,701
  • Pipeline:
    • $10.3M with over 40 different clients over the next three years 

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

Cash Flow Analysis

Description of Financial StatementP&L Statement
October 2019-August 2020
P&L StatementP&L StatementP&L StatementP&L StatementNotes
20202019201820172016
GROSS SALES$3,248,896$4,103,743$3,787,453$3,820,702$2,998,211
Annualized$3,544,250
Net Income Shown on Financial Statement$983,831$486,152$480,273$481,422$479,932
ADDBACKS
Amortization$0$15,876$13,041$16,726$9,418
Travel & Vehicle$9,684$68,746$61,532$29,819$46,508100% Personal
Management Salary$444,690$1,310,806$1,002,292$1,228,735$720,777
Retain/Replace$-201,666$-220,000$-220,000$-220,000$-220,0002 owners (110k each)
Donations$1,000$0$0$0$0
TOTAL ADDBACKS$253,708$1,175,428$856,865$1,055,280$556,703
Seller's Cash Flow = Total Addbacks + Net Income$1,237,539$1,661,580$1,337,138$1,536,702$1,036,635
Annualized
Profit Margin38.09 %40.49 %35.30 %40.22 %34.58 %
  • Profit Margin 2019: 40%

Clients

  • Hotels, Bars, Spas, and Golf Courses
  • Clubhouses
  • Homeowners
    • Few select residential (homes valued between 2 and 15 million)
  • Multi-unit residential

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

Services

  • Conceptual & schematic design
    • Ex: hotels on a lake, condo towers, a private hockey arena, an airplane hanger
  • Design development & construction documentation
  • Permits & approvals
  • Contractor bidding and/or negotiating
  • Construction contract administration
  • Fees are higher than competition, but fair

Personnel

  • 2 owners
    • Owner 1: Large-scale project management, financial/promotional management
    • Owner 2: Single-family residential/small scale project management
  • 2 Registered Architects
  • 1 CFO/Personal Assistant
  • 10 Architectural Technologists
  • 1 PT Secretary

Growth Opportunities

  • Increase marketing/promotional efforts
  • Expand on current client relationships
  • Focus on high-end small boutique hotels throughout Canada

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, a 4-year average Cash Flow was used with a prescribed multiple of 3.8.  With this information, the computation is as follows:

$1,471,366      x          3.8       =          $5,591,191

The fair market value found above positions the business list price at $5,600,000 CAD.

Funding Example

Purchase Price:                $5,600,000 CAD

     22.5%Buyer Down Payment: $1,260,000

     22.5%Seller Financing:          $1,260,000

     55%Bank Loan:                       $3,080,000

Seller financing 5-year term at a rate of 5% equals a monthly loan payment of $23,778.

Bank loan 5-year term at a rate of 6% equals a monthly loan payment of $59,545.

A lender is required to have a minimum 1.25 coverage ratio for any business loans extended. At a proposed purchase price of $5,600,000 with the terms listed above, the coverage ratio is 1.47.

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:

$5,600,000

$
%
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:
4-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:
4-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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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.