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Fire Protection Design w/ $1MM in Sales

CASH FLOW
$653,117

Specifications

  • Price
    $1,815,000

  • Revenue
    $1,191,127

  • Equipment
    $197,000

  • Profit Margin
    43%

  • Location
    Kansas City, MO area

  • Service Area
    Kansas City area (60%), licensed in 7 other states (40%)

  • Account Receivable
    $271,000

  • Reason for Sale
    Retirement exit strategy

  • Valuation
    $1,815,596

  • Lease
    1,500 sq. ft.: Reception, cubicles, private office, kitchenette

  • Employees
    6 FT: 4 designers, 1 design manager, 1 junior engineer

  • Intangible Assets
    Well-regarded specialists in the industry, years of specialized-hazard experience, knowledgeable team, existing 9-state territory

Licensed in nine states, this fire protection design team can accomplish projects from simple retail sprinklers to high-hazard specialty suppressant systems.  Consistently earning over $1MM, this group works mainly with sprinkler contractors to survey, analyze, and design fire sprinkler systems.  Over their 40 years in business the team has developed a distinct specialization in developing schematics for high-hazard fire sprinkler systems and is frequently sought out for this expertise.  Completing projects for a highly diversified client base, the six design team tackles plans for hospitals, manufacturers, retail outlets, government buildings, and so much more. 

 

The efficient team of four designers, a design lead, and a junior engineer can accomplish complex calculations, estimations, bidding, and task oversight.  Little travel is required, but occasionally trips are taken as required by contract or due to the complexity of an undertaking. 

 

The current owners are involved in the day-to-day operations of this company.  Their responsibilities include office management, oversight, and business development.  One owner is the only professional engineer on staff and will remain on staff until the buyer can step into that role or hire a suitable replacement.

 

 

Business Highlights

  • Year Established: 1974
  • Location:  Kansas City, MO area
  • Service Area:  Kansas City area (60%), licensed in 7 other states (40%)
  • Clients: Fire sprinkler installation contractors
  • Services: Fire suppressant system design: water, dry, pre-action, and foam
  • Sites:  Hospitality, retail, multi-family housing, industrial, manufacturing, military, and more!
  • Lease: 1,500 sq. ft.:  Reception, cubicles, private office, kitchenette
  • Reason for Selling: Retirement exit strategy
  • Employees: 6 FT: 4 designers, 1 design manager, 1 junior engineer
  • Hours: M-F 8-5
  • Seller Training Period: 90 days transition, but the owner can stay on as negotiated
  • Growth Opportunities: Work directly with property and business owners, expand government work, increase service area, increase consulting work
  • Current Owners’ Responsibilities: Office management, business oversight and development

Financial Highlights

  • List Price: $1,815,000
  • Gross Sales:
    • 2018: $1,191,127 Annualized
    • 2017: $1,044,810
    • 2016: $1,212,057
    • 2015: $1,206,701
  • Cash Flow:
    • 2018: $653,117 Annualized
    • 2017: $453,899
    • 2016: $589,966
    • 2015: $608,997
  • Assets Included in Purchase*
    • Equipment: $197,000: Furniture, fixtures, computers, wide format plotter, two vehicles
    • A/R:  $271,000
    • Intangible Assets: Well-regarded specialists in the industry, years of high-hazard experience, knowledgeable team, existing 9-state territory

*amounts may vary

Cash Flow Analysis

Description of Financial StatementP&L StatementTax ReturnTax ReturnTax ReturnNotes
2018201720162015
GROSS SALES$694,824$1,044,810$1,212,057$1,206,701
Annualized$1,191,127
Net Income Shown on Financial Statement$308,837$280,038$433,606$453,139
ADDBACKS
Compensation to Owner$60,237$127,865$129,711$131,660
11% Tax on total W2 Salaries$6,626$14,065$14,268$14,483
Depreciation$4,700$21,785$3,650$3,650
Meals & Entertainment$0$715$1,335$1,52175% is personal
Travel$185$8,831$6,796$3,94475% is personal
Non-Business Telephone$350$600$600$600$50/month for personal line
Contributions/Donations$50$0$0$0
TOTAL ADDBACKS$72,148$173,861$156,360$155,858
Seller's Cash Flow = Total Addbacks + Net Income$380,985$453,899$589,966$608,997
Annualized$380,985
Profit Margin54.83 %43.44 %48.67 %50.47 %
  • 43% profit margin in 2017 with a projected 55% margin in 2018!

Typical Clients and Sites

Typical Clients:

  • General contractors

Typical Sites:

  • Hospitality
  • Retail
  • Multi-family housing
  • Industrial
  • Manufacturing
  • Military buildings
  • Restaurants
  • Health care
  • And much more!

 

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

Services

  • Fire sprinkler system design services include, but are not limited to the following:
    • Survey
    • Analyze
    • Design
    • Project management
    • Modeling and 3D designs
  • Systems
    • Water
    • Dry
    • Pre-action
    • Foam

Employees

  • 6 FT
    • 4 designers
    • 1 design manager
    • 1 project manager

Growth Opportunities

  • Work directly with property and business owners 
  • Expand government work 
  • Increase consulting work 
  • Market to the base of contracting customers as well as potential new direct customers 
  • Increase service area to include additional states 
  • Focus efforts on specialized projects

Valuation Details

The Firm Business Brokerage 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 multiple is prescribed 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 multiple.

For this business, a 2017 cash flow was used with a prescribed multiple is 4.  With this information, the computation is as follows:

$453,899         x          4          =          $1,815,596

The fair market value found above positions the business list price at $1,815,000.

Funding Example

Purchase Price:                             $1,815,000

12.5% Buyer Down Payment:          $226,875

12.5% Seller Financing:                   $226,875

75% Bank Loan:                             $1,361,250

Seller financing 5-year term at a rate of 4.50% equals a monthly loan payment of $4,203.

Bank loan 8-year term at a rate of 6% equals a monthly loan payment of $17,889.

After business expenses and loan payments, a buyer with a 12.5% down payment of $226,875 would retain a profit of $187,579, which results in a 83% 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 $1,815,000 with the terms listed above, the coverage ratio is 1.71. 

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. 

Purchase Price:

$1,815,000

$
%
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:
2017 Cash Flow
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
2017 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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