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Flooring & Installation – Absentee Owner

CASH FLOW
$1,089,012

Specifications

  • Price
    $4,900,000

  • Revenue
    $8,266,876

  • Location
    Maricopa County, AZ

  • Equipment
    $265,000

  • Inventory
    $400,000

  • Lease
    10,000 sq. ft.: Office, showroom, warehouse

  • Employees
    11: Sales Director (1), General Manager (1), Controller (1), Administration (2), Sales (3), QA (1), Warehouse (2), 1099 Contractors as needed

  • Intangible Assets
    Excellent social media reviews, superb name recognition, well-trained and long-term staff, values-focused sales, excellent referrals

  • Reason for Sale
    Divestment

Earning over $1MM in profit, this company is dominating the flooring sales and installation market in Maricopa County, Arizona.  This small team operates efficiently and very effectively, selling and installing over $7MM in flooring in 2017 alone!  With over $400,000 in inventory and $265,000 in equipment and vehicles, this company has nearly everything it needs to maintain growth. 

 

Residential homeowners and contractors account for roughly 75% of purchases and commercial clients make up the remaining 25%.  The leading product is currently carpeting (40%) followed by tile (30%).  Hardwood, laminate, and stone flooring are additional options for customers to choose from.  Offering wholesale pricing, installation as well as next-day installation for select items, this company works with their customers to ensure the flooring meets their expectations, budget, and timeline. 

 

Located in sunny Maricopa County, this business is perfectly situated in a highly-trafficked area, with excellent street visibility and ease of access.  If a buyer is looking to expand, a second location could reach a new demographic and could increase sales if the same operational formula is applied.  With residential customers the focus of sales, commercial accounts could be improved to produce additional growth as well.

Business Highlights

  • Year Established: 2009
  • Location and Service Area: Maricopa County, AZ
  • Products: Flooring: Carpet (40%), tile (30%), laminate, stone, and hardwood (30%) 
  • Services: Installation
  • Customers: Residential home owners and contractors (75%), commercial clients (25%)
  • Lease: 10,000 sq. ft.: Office, showroom, warehouse
  • Reason for Selling: Divestment
  • Employees: 9: Sales Director (1), General Manager (1), Controller (1), Administration (2), Sales (3), QA (1), 1099 Contractors as needed
  • Hours: M-F 9-6 with Saturday hours
  • Seller Training Period: 90 days transition, extended transition negotiable
  • Growth Opportunities: Increase national chain options, build commercial clientele, add online sales and showroom, increase social media engagement, add second location
  • Current Owner’s Responsibilities: Absentee

Financial Highlights

  • List Price: $4,900,000
  • Gross Sales:
    • 2018: $8,266,876 Annualized
    • 2017: $7,180,006
    • 2016: $6,781,774
  • Cash Flow:
    • 2017: $1,089,012
    • 2016: $1,241,479
  • Assets Included in Purchase*
    • Equipment: $149,000: Equipment, furniture, fixtures, forklift
    • Vehicles: $116,000: Vans (4), box delivery truck (1)
    • Inventory:  $400,000
    • Intangible Assets: Excellent social media reviews, superb name recognition, well-trained and long-term staff, values-focused sales, excellent referrals

*amounts may vary

Cash Flow Analysis

Description of Financial StatementP&L Statement
Jan. - Sept
Tax ReturnTax ReturnNotes
201820172016
GROSS SALES$6,200,157$7,180,006$6,781,774
Annualized$8,266,876
Net Income Shown on Financial Statement$824,333$910,430$1,059,382
ADDBACKS
Compensation to Owner$0$62,400$88,040
Other unrelated Salaries$0$0$0
11% Tax on total W2 Salaries$0$6,864$9,684
Depreciation$0$20,467$8,990
Interest$0$53$24
Meals & Entertainment$4,817$21,898$18,959
Cell Phone$1,800$2,400$2,400$200/month
Consulting Fee$0$10,500$0Not onward going
Non-Onward Going Expense$40,500$54,000$54,000Not onward going expense - paid home office a management fee of $4,500/month
Contributions/Donations$720$0$0
TOTAL ADDBACKS$47,837$178,582$182,097
Seller's Cash Flow = Total Addbacks + Net Income$872,170$1,089,012$1,241,479
Annualized$1,162,893
Profit Margin14.07 %15.17 %18.30 %
  • Continued growth year-over-year!
  • 2017 profit margin: 15%

Typical Customers

  • Residential (75%)
    • Home owners
    • Contractors
    • Remodelers

 

  • Commercial (25%)
    • Property managers
    • Property owners
    • Water and restoration contractors
    • Realtors
    • Designers

Products

  • Flooring: Carpet (40%) 
  • Tile (30%) 
  • Laminate, stone, and hardwood (30%)  
  • 30% of total sales are completed through a nationwide major retailer

Employees

Total Employees 11:

  • Sales Director (1)
  • General Manager (1)
  • Controller (1)
  • Administration (2)
  • Sales (3)
  • QA (1)
  • Warehouse (2)
  • 1099 Contractors as needed

Growth Opportunities

  • Increase national chain options 
  • Build commercial clientele 
  • Add online sales and showroom 
  • Increase social media engagement 
  • Add second location

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 4.5.  With this information, the computation is as follows:

$1,089,012      x          4.5       =          $4,900,554

The fair market value found above positions the business list price at $4,900,000.

Funding Example

Purchase Price:                             $4,900,000

12.5% Buyer Down Payment:          $612,500

12.5% Seller Financing:                   $612,500

75% Bank Loan:                             $3,675,000

Seller financing 5-year term at a rate of 4.50% equals a monthly loan payment of $11,419.

Bank loan 10-year term at a rate of 6% equals a monthly loan payment of $40,800.

After business expenses and loan payments, a buyer with a 12.5% down payment of $612,500 would retain a profit of $462,385, which results in a 75% 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 $4,900,000 with the terms listed above, the coverage ratio is 1.74. 

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:

$4,900,000

$
%
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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