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Kitchen and Bath Cabinetry Earning 240k

CASH FLOW
$241,356

Specifications

  • Price
    $560,000

  • Cash Flow
    $241,356

  • Revenue
    $684,600

  • Equipment
    $148,292

  • Intangible Assets
    Reputation and working relationships within the building community

  • Down Payment
    10%

  • Profit Margin
    35%

  • Lease
    $4,100

  • Employees
    4 FT employees - "jack-of-all trades"

With general contractors and architects as their clients, this business has been in operation for 25 years.  This frameless cabinet design and installation business with a 35% profit margin includes a 6,800-sq. ft. space containing a workshop and showroom.  Located in Omaha and serving the entire Metro area, business is comprised of 30% remodels and 70% new construction.  While a majority of jobs are residential, commercial projects for law and medical offices are an occasional revenue stream.

Sales have increased by 24% from 2015 to 2016, with the seller’s cash flow rising by 35% during the same period.  Very little is done in advertising, with most customers coming in as referrals.  Occasionally the seller will reach out to builders to express interest in specific projects.  Currently there are 4 employees, all of whom are “jack-of-all trades” and able to work in carpentry and installation.

Materials are mostly sourced from local vendors, but exceptions can be made depending on the customer’s requirements.  Invoices range from $2,000 to $90,000, with the average invoice priced at roughly $22,000.  Customers pay 50% before the project begins, and the remainder is billed after completion.  Jobs are not necessarily done one at a time, but rather many are worked on at the same time and in different stages.

Growth exists in adding hardware services and using CAD drawing for projects, as well as increasing the number of commercial jobs done.  This would be a great business for a custom home builder to add as part of their services.

Business Highlights

  • Year in Business: 25
  • Location and Service Area: Omaha
  • Job Demographics: 30% remodels, 70% new construction
  • Services: custom-built cabinetry for kitchens, bathrooms, living areas, offices
  • Lease: $4,100/month for 6,800 sq. ft. – includes workshop (~5,000 sq. ft.) and showroom (~1,800 sq. ft.)
  • Reason for Selling: Retirement
  • Employees: 4 – all employees are “jack-of-all trades”, able to handle carpentry and installation
  • Hours: Mon – Fri 8am – 5pm, showroom by appointment
  • Seller Training Period: 3 – 6 months as desired by buyer
  • Growth Opportunities: hardware, CAD drawing, more commercial projects
  • Current Owner’s Responsibilities: front end bids, work with architects, designers & contractors; as well as drawing, scheduling, builds & installations

Financial Highlights

  • List Price: $560,000
  • 2017 Gross Sales: $684,600
  • 2016 Gross Sales: $672,230
  • 2015 Gross Sales: $507,297
  • 2017 Cash Flow: $241,356
  • 2016 Cash Flow: $204,479
  • YOY Growth Trend: 24% increase in sales from 2015 to 2016
  • Assets Included in Purchase Price: $148,292
    • Equipment: $128,092 – double boring machine, dust collection machine, edgebanders, saws, forklift
    • Vehicles: $20,200 – 2002 Chevy tool van, 1993 Ryder truck
    • Intangible Assets: reputation and working relationships within the building community
    • A/R: clients pay 50% down to start and the remaining after the project is completed – average invoice is $22,000

Cash Flow Analysis

Description of Financial StatementP&L StatementTax ReturnTax ReturnTax ReturnTax ReturnTax ReturnNotes
201720162015201420132012
GROSS SALES$684,600$627,230$507,297$390,511$395,760$484,799
Net Income Shown on Financial Statement$159,070$139,889$97,411$33,254$-4,803$53,978
ADDBACKS
Compensation to Owner$36,000$52,038$27,000$21,500$30,000$32,500
11% Tax on total W2 Salaries$0$5,724$2,970$2,365$3,300$3,575
Depreciation$0$0$545$3,441$4,154$5,974Non-cash item
Interest$147$46$124$444$794$2,369Non-onward going expense
Non-Business Telephone$2,600$540$540$540$540$540Personal telephone use unrelated to business
Insurance Premiums for Owners: Disability$1,083$1,200$1,200$1,200$1,200$1,084Owner's personal insurance expense
Travel$761$3,682$2,347$56$2,487$2,009Travel expense unrelated to business
Meals & Entertainment$2,318$1,360$1,003$984$1,138$1,463Meals & entertainment expense unrelated to business
Health Insurance$16,037$0$0$0$0$0Owner's health insurance premiums
Fuel$4,059$0$0$0$0$050% Personal
Vehicle Payment$19,281$0$0$0$0$0Paid off at Closing
TOTAL ADDBACKS$82,286$64,590$35,729$30,530$43,613$49,514
Seller's Cash Flow = Total Addbacks + Net Income$241,356$204,479$133,140$63,784$38,810$103,492
Profit Margin35.25 %32.60 %26.23 %16.32 %9.81 %21.35 %
  • 35% profit margin in 2017, and 33% profit margin in 2016
  • 24% increase in gross sales from 2015 to 2016

Location & Services

  • Showroom and workshop are in Omaha in a 6,800-sq. ft. building
  • Space is rented for $4,100/month ($49,200/year)
  • Workshop houses $128,092 in equipment
    • Pieces are cut and built in the workshop, but are constructed and installed on-site
  • The showroom is open by appointment only, but 95% of clients do take the time to visit the showroom and get consultations and design assistance
  • Custom cabinetry and installation is done for kitchens, bathrooms, living rooms, home offices, commercial offices, and anywhere cabinetry is needed in the home or office
    • Entertainment centers
    • Home theater systems
    • Bars
    • Vanities
    • Closets and storage
    • Custom pieces
  • Pricing is determined by blueprint specifications, and materials are priced at a multiple of 3

Employees

  • Currently there are 4 employees who assist in all aspects of the process
  • Employees are not assigned specific duties, but assist when and where needed:
    • Cutting & building of pieces for projects
    • Installation of cabinetry
  • Tenure and pay:
    • Newest employee – 6 months employed, earning $15-$16/hour
    • 2 employees retained for roughly 7 years, earning $18/hour
    • 1 employee retained for 10-12 years, earning $22/hour
      • Completes most of material parts lists for cutting and building of project pieces
  • Seller handles frontend bids and works with architects, designers and contractors; as well as drawing, scheduling, builds & installations

Assets

  • Equipment - $128,092
    • Double boring machine
    • Dust collection machine
    • Edgebanders
    • Saws
    • Forklift
  • Vehicles - $39,908
    • 2009 Chevy Silverado
    • 2002 Chevy tool van
    • 1993 Ryder truck

Clients

  • Most projects are residential
    • 30% remodels
    • 70% new construction
  • The current owner does not actively advertise, and instead relies on reputation and referrals
  • If the owner desires different projects, he will call contractors on specific products and share the company’s services
  • 95% of clients make appointments to visit the showroom, either for ideas or for an understanding of the company’s capabilities
  • Seller will occasionally complete office projects for lawyers, doctors and other professionals

Work Samples

   

   

   

Process

  • Initial Consultation
    • This includes an appointment to view the showroom in order to view samples of project expectations
  • Proposal
    • Blueprints or sketches provided by the customer
    • Pricing is derived from the blueprint specifications
  • Construction Approval
  • Production Time
    • Based on drawings, a parts list is made, cut and built for installation
  • Installation
    • Cabinets constructed on-site and customized to fit the space (i.e., cabinets are not pre-assembled before installation)

Growth Opportunities

  • Add hardware options for cabinetry
  • CAD software
    • Will assist in 3D design, industrial and concept design to help give customers an even better picture of what their space will look like
  • Increase commercial work
    • Most work is residential, but occasionally some commercial spaces are worked on
    • The Omaha Metro continues to grow, and new commercial spaces are always in need of cabinetry as well as older spaces in need of remodeling

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:

2-Year Average 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 2-year average Cash Flow was used.  The prescribed multiple is 2.52.  With this information, the computation is as follows:

$222,917         x          2.52     =          $561,751

The Fair Market Value found above positions the business List Price at $560,000.

Funding Example

Purchase Price:                             $560,000

10%Buyer Down Payment:            $56,000

10%Seller Financing:                     $56,000

80%Bank Loan:                             $448,000

Seller Financing 5-year term at a rate of 4.50% equals a monthly loan payment of $1,044.

Bank Loan 8-year term at a rate of 6% equals a monthly loan payment of $5,887.

After business expenses and loan payments, a buyer with a 10% down payment of $56,000 would retain a profit of $121,303, which results in a 217% 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 $560,000 with the terms listed above, the coverage ratio is 2.46. 

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:

$560,000

$
%
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:
2-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:
2-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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