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Kitchen Design & Cabinet Remodeling: Franchise and Non-Franchise Options

CASH FLOW
$234,236

Specifications

  • Price
    $635,000

  • Revenue
    $1,459,295

  • Location
    Omaha

  • Profit Margin
    16%

  • Reason for Sale
    Owner is franchising

  • Employees
    8 Laborers, 1 Project Manager, 1 Office Support, 1 Bookkeeping, 1 PT Sales. Company also uses 6 – 7 subcontractors for carpentry, countertops, electrical and plumbing needs

  • Lease
    2 offices, 3 cabinet refinishing rooms, 2 spray booth rooms, shared bathrooms, use of a showroom, conference room, and kitchen

  • Intangible Assets
    Franchise: $325,000 Franchise Fee: 8% Franchise 2017 Cash Flow: $117,492

  • Down Payment
    15%

Averaging year-over-year growth of 20% with roughly 12 projects per month has helped this designer kitchen & cabinet remodeling company gather a good share of the Omaha market. In 3 years’ time, the company has seen a 66% increase in Gross Sales and a 196% increase in Cash Flow. Focusing on re-facing, refinishing, and repainting existing kitchen cabinetry, the average project ranges from $4,000 - $15,000.

The client base is made up of 30 to 60-year-olds with some wealth. Most projects are cabinet re-facing and re-dooring, with many being upsold to include extras such as new countertops. Between 50 – 75% of projects require carpentry and countertop work

The company employs 8 Laborers who each handle their own project. Also on staff is a full-time Project Manager, a Bookkeeper, one Office Support person, and one-part-time Salesperson. The seller focuses on bids and sales, and also aggressively markets the company.

Growth exists in working with new builds, which continue to be a good share of the Omaha housing market. The seller has rights to two prefabricated cabinet lines, which are not currently being utilized and are a great asset for new builds. This is a perfect opportunity for a business-minded individual to take a growing company to the next level.

Business highlights

  • Years in Business: 5
  • Location and Service Area: Omaha
  • Services: Cabinet refinishing, repainting, re-dooring, replacement, and reconstruct elements. Kitchen backsplashes, granite & quartz countertops, minor remodeling, and designer kitchen finishes.
  • Projects: About 12/month ranging from $4,000 to $15,000
  • Building: 2 offices, 3 cabinet refinishing rooms, 2 spray booth rooms, shared bathrooms, use of a showroom, conference room, and kitchen
  • Employees: 8 Laborers, 1 Project Manager, 1 Office Support, 1 Bookkeeping, 1 PT Sales. Company also uses 6 – 7 subcontractors for carpentry, countertops, electrical and plumbing needs
  • Seller Training Period: 3 – 6 months
  • Growth Opportunities: New builds. Cabinet shop finishes. Prefabricated cabinets. Hire interior designers.
  • Current Owner’s Responsibilities: Bids and sales.

Financial Highlights

  • Non-Franchise List Price: $635,000
  • Franchise List Price: $325,000
  • Gross Sales
    • 2017: $1,459,295
    • 2016: $1,317,645
    • 2015: $909,547
    • 2014: $869,042
  • Owner Profit/Cash Flow
    • 2017: $234,236
    • 2016: $138,004
    • 2015: $97,535
    • 2014: $76,555
  • Franchise Fee: 8%
  • Franchise Cash Flow 2017: $117,492
  • YOY Growth Trends: 66% increase in Gross Sales between 2014 – 2017
  • Assets Included in Purchase:
    • Office Equipment: Desks, laptops, catalogs, and more
    • Shop/Field Equipment: Exhaust systems, rack shelves, shop vacs, paint sprayers, and more
    • Vehicles:  2 cargo vans

Cash Flow Analysis

Description of Financial StatementTax ReturnTax ReturnTax ReturnTax ReturnNotes
2017201620152014
GROSS SALES$1,459,295$1,317,645$909,547$869,042
Net Income Shown on Financial Statement$159,961$67,528$32,307$16,360
ADDBACKS
Compensation to Owner$36,000$36,000$36,000$0
11% Tax on total W2 Salaries$3,960$3,960$3,960$0
Depreciation$407$714$1,331$0Non-cash item
Interest$10,339$7,138$1,276$0Non-onward going expense
Health Insurance$9,261$9,261$9,261$0Personal health insurance for owner
Auto Insurance$3,451$3,451$3,451$0Personal auto insurance for owner
Meals & Entertainment$1,417$512$509$050% of meals are personal
401K for Owner$1,260$1,260$1,260$0
Auto-Personal Use$8,180$8,180$8,180$0Auto lease and fuel for owner
TOTAL ADDBACKS$74,275$70,476$65,228$0
Seller's Cash Flow = Total Addbacks + Net Income$234,236$138,004$97,535$16,360
Profit Margin16.05 %10.47 %10.72 %1.88 %

 

  • Non-Franchise Cash Flow Shown (Franchise Cash Flow located in Business Introductory Document)
  • YOY, the average increase in Gross Sales is 20%
  • Seller attributes the great increase in sales to more countertop sales, cabinet refinishing, and more reconstruction/remodeling of kitchens

Services

  • Re-facing & re-dooring
  • New cabinet door and drawer faces
  • Application of solid wood facing over existing boxes
  • Install new hardware, hinges, and crown molding 
  • Refinishing & repainting
  • Changing the stain of existing cabinetry or woodwork
  • Painting over existing woodwork or cabinetry 
  • Cabinet replacement
  • Granite & quartz countertops
  • Kitchen backsplashes
  • Designer kitchen finishes
  • Antique Glazed, Contemporary and Modern Glazed, Transitional Finished, Metallic and Metallic Glazed, Distressed, Country French, Old Word, Antique Chipped, Shabby Chic, Rustic, Clay Composition Applied Moldings, Gilded, and more! 
  • Kitchen remodeling

 

 

  • Refinishing and repainting (a combined 65% of sales) are the biggest earners
  • Countertop sales ($218,041) are 28% higher in 2017 than in 2016 ($169,677)

Job Process

  • First, the customer’s kitchen is measured for a free estimate
  • Finish consultations are offered 
  • Work with design styles, fabrics, tile, hard surfaces, etc. to determine the possibilities 
  • Then, the customer is invited to the showroom to learn about the process
  • Includes finish options, pricing, and timeline 
  • For refinishing and refacing, the doors and drawers are removed and brought to the studio
  • The remainder of the cabinetry will be finished in the customer’s home, including the reinstallation of doors, drawers, and any hardware changes

Client Demographics & Projects

  • Typical client is 30 to 60-years old with some wealth
  • Projects range from $4,000 - $15,000 in general
  • Cabinet refinishing projects are on the lower end, but many clients can be upsold 
  • About 12 projects can be completed each month
  • The number of projects per year range between 100 – 120
  • Projects are single-worker (i.e., 1 Laborer will handle a project on his/her own)
  • Between 50 – 75% of jobs require countertop and/or carpentry work

Employees

  • 8 FT Laborers
  • 6 do field work
  • 1 does field and shop work
  • 1 is a floater
  • Laborers fluctuate between 6 – 10, with a steady number of 8 – 9 Laborers at any one time
  • 1 Laborer is assigned to 1 project 
  • 1 FT Project Management Lead
  • 1 FT Office Support
  • 1 FT Bookkeeper
  • 1 PT Sales
  • Company also works with 6 – 7 subcontractors for carpentry, countertops installations, electrical, and plumbing needs

Seller handles bids and some sales. A typical week consists of bidding on Tuesdays and Thursdays (about 8 kitchens can be bid in a day), and presenting bids on Wednesdays in the company office.

Growth Opportunities

  • New builds
  • Current client base is kitchen remodels of existing homes 
  • Omaha and the larger metro area is still in the midst of a large housing boom with many new builds constantly occurring, opening up a great opportunity to work with General Contractors on new home builds
  • Remodels
    • Many homes built in Omaha over the last 25 years have outdated oak and arched door styles, leaving a massive opportunity for grown simply in the refinish sector.
    • With most new builds being done in a more modern style, designer finishes are imperative for changing outdated finishes and updating them with modern finishes to bring older homes in line with new home styles
    • It’s less expensive to offer new custom door styles to replace existing doors without tearing out existing cabinets. This leaves a very wide-open marketing in Omaha, as most real estate agents are faced with buyers wanting existing homes to have modern looks.
  • Prefabricated cabinets
  • The company has rights to 2 prefabricated lines that could be advertised
  • Would fit nicely into new home builds

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          Multiplier          =          Price

“Cash flow” is the sum of net income plus any owner perks and non-onward going expenses.

“Multiplier” is a prescribed number between 1 and 5 determined by a 100-point, 20-question rating system used to determine the business valuation (average is 3).

 

Non-Franchise:

The Cash Flow for 2017 is $235,128 and the prescribed multiplier is 2.75.

With this information, the computation result follows:

$234,236         x          2.75     =          $644,149

 

The List Price for the business is set at $635,000.

 

Franchise:

The Cash Flow for 2017 is $117,492 and the prescribed multiplier is 2.77.

With this information, the computation result follows:

$117,492         x          2.77     =          $325,45.

 

The List Price for the business is set at $325,000.

Funding Example

Non-Franchise

Purchase Price:                       $635,000

15%Buyer Down Payment:     $92,250

15%Seller Financing:               $92,250

70%Bank Loan:                      $444,500

Seller Financing 5-year term at a rate of 4.50% equals a monthly loan payment of $1,776.

Bank Loan 7-year term at a rate of 6% equals a monthly loan payment of $6,494.

After business expenses and loan payments, a buyer with a 15% down payment of $92,250 would retain a profit of $135,005, which results in an 142% 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 $635,000 with the terms listed above, the coverage ratio is 2.36. 

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. 

 

Franchise

Purchase Price:                       $325,000

15%Buyer Down Payment:     $48,750

15%Seller Financing:               $48,750

70%Bank Loan:                      $227,500

Seller Financing 5-year term at a rate of 4.50% equals a monthly loan payment of $909.

Bank Loan 7-year term at a rate of 6% equals a monthly loan payment of $3,323.

After business expenses and loan payments, a buyer with a 15% down payment of $48,750 would retain a profit of $66,704, which results in an 137% 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 $325,000 with the terms listed above, the coverage ratio is 2.31. 

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:

$635,000

$
%
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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