Opportunities
Structural Engineering Firm with 36% Profit Margin
With a 90% recurring customer base!
Specifications
This Oklahoma City structural engineering firm has a 90% recurring client base! There are three engineers and one CAD technician on staff, and the owner is willing to stay on for 2 years. They also work in partnership with a contracted firm that has five to six drafters and five to six engineers at any one time. This remote team is wholly dedicated to the work of the primary company. Their clients are 100% commercial, with their work including institutional buildings, warehouses, retail shopping centers, schools, gymnasiums, churches, and retirement & nursing homes. Well-established for nearly 15 years, the firm has $200,000 in their pipeline. A 12% down payment of $113,400 returns $189,916 in the first year after debt payments – a 167% return on investment!
Most of this company’s clients are in Oklahoma (95%), but those companies have multiple locations throughout the United States and due to their long-term relationships, the firm handles work for many of those projects. The owner manages the partnership with the contracted firm, as well as client relationships, general oversight, and has final approval for all plans before they are submitted to the customer. The company utilizes 2,600 square feet of space in a local office building. This space features private offices, an open work area, and a conference room. There is room within the building for expansion, if desired. Assets include office equipment, standard office furniture, and drafting and technical software.
Priced at $945,000 at an incredibly low 3 multiple, this firm has tremendous growth opportunities. Expansion may be found in expanding the local customer base, building clients who need an engineering firm with experience working on projects through the US. Additionally, one could maximize the utilization of the contracted firm to increase capacity and improve margins.
Business Highlights
- Year Established: 2006
- Location: Oklahoma City area, Oklahoma
- Service Area: 95% of clients are located in Oklahoma, but projects are completed in 27+ states
- Services: Structural engineering
- Clients: Commercial clients including offices, industrial spaces, educational facilities, convenience stores
- Lease: 2,600 sq. ft.: Private offices, open work area, conference room, room for expansion, if desired
- Reason for Selling: Strategic exit planning
- Personnel: 4: 3 Engineers, 1 CAD technician; 5-6 drafters at contracted firm
- Seller Training Period: 1-2 years
- Growth Opportunities: Maximize utilization of sister firm to increase capacity while maintaining positive margins, build client base in the OKC area, expand to additional states
- Current Owner’s Responsibilities: Oversight and final approval of plans
Financial Highlights
- List Price: $945,000
- Cash Flow:
- 2020: $308,112 Annualized
- 2019: $327,086
- Assets Included in Purchase*
- Equipment: $73,000: Office equipment, furniture, large format printers, drafting and other software
- Pipeline: $200,000
- Intangible Assets: Long-term client base, wide variety of client projects, experienced employees with long tenures, extended partnership with sister firm that is positive for high-quality work and the bottom line
*amounts may vary, assets may be depreciated, replacement cost, or fair market value
Cash Flow Analysis
| Description of Financial Statement | P&L Statement January-July 2020 | Tax Return | Tax Return | Tax Return | Tax Return | Notes |
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| GROSS SALES | $497,836 | $924,208 | $849,634 | $768,211 | $906,260 | |
| Annualized | $853,433 | |||||
| Net Income Shown on Financial Statement | $175,314 | $281,009 | $166,436 | $-42,590 | $187,796 | |
| ADDBACKS | ||||||
| Depreciation | $0 | $136 | $4,018 | $6,885 | $16,010 | |
| Interest | $47 | $17,407 | $0 | $20,743 | $2,251 | |
| Amortization | $0 | $6,666 | $6,666 | $6,666 | $6,666 | |
| Meals & Entertainment | $0 | $1,093 | $838 | $697 | $0 | |
| Contributions/Donations | $0 | $0 | $0 | $0 | $0 | |
| Owner's Life Insurance | $414 | $829 | $829 | $829 | $0 | |
| Cell Phone | $576 | $1,152 | $1,152 | $1,152 | $1,152 | $96/month |
| Travel | $446 | $2,896 | $1,178 | $2,176 | $3,512 | 15% PErsonal |
| Owner's Simple IRA | $2,935 | $4,910 | $2,184 | $3,276 | $0 | |
| TOTAL ADDBACKS | $4,418 | $35,089 | $16,865 | $42,424 | $29,591 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $179,732 | $316,098 | $183,301 | $-166 | $217,387 | |
| Annualized | ||||||
| Profit Margin | 36.10 % | 34.20 % | 21.57 % | -0.02 % | 23.99 % |
- Profit margin: 36%
Clients
Providing structural engineering services for general contractors, architects, and property owners on commercial projects such as:
- Office buildings
- Industrial spaces and warehouses
- Educational facilities
- Convenience stores
- And more
Specific information regarding clients is available upon the receipt of a signed Non-Disclosure Agreement.
Personnel
Personnel: 4 Aside from the owner
- 3 Engineers
- 1 CAD technician
- Contracted firm:
- 5-6 Drafters
Growth Opportunities
- Maximize utilization of sister firm to increase capacity while maintaining positive margins
- Grow the client base in the OKC area
- Expand to additional states
- Build client base who have locations in multiple states
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 3. With this information, the computation is as follows:
Cash Flow x Prescribed Multiple = Fair Market Value
With this information, the computation is as follows:
$316,098 x 3 = $948,294
Funding Example
Purchase Price: $920,000
| 12%Buyer Down Payment | $113,400 | Must be unborrowed funds |
| 18%Seller Financing or Equity | $170,100 | 5-year term at a rate of 4.50% = a monthly loan payment of $3,171 |
| 70%Bank Loan | $661,500 | 10-year term at a rate of 6% = a monthly loan payment of $7,344 |
- Cash Flow: $316,098
- Annual Payment:
- To Seller: $38,054
- To Bank: $88,128
- Net Profit (after expenses and loan payment): $189,916
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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