Municipal Architecture Firm w/$1.9M in Scheduled Contracts
Even with 2017 being a rough year for Houston, this Municipal Architecture Firm still had its best year yet – and is set to keep growing. Showing a 34% profit margin due to the company cutting internal costs to improve the bottom line, sales have also increased by 20% since 2016, and the profit margin increased by 10% from 2016-2017. In business for 33 years, this firm is still strong and growing every year.
Located in Houston and also serving Dallas, projects are 80% K-12 and 10% municipal, with the remaining 10% comprised of retail, healthcare, transit and more. Projects range in size from 6 months in length to 2+ years, with staff continuously working on 14 projects each month. Beyond architectural design, this firm also offers project and construction management, cost estimation, interiors, specifications and more.
Staff includes 1 Architect who mostly handles QA, 1 Office Manager, 2 Project Managers and 4 Interns. The seller is an Architect, and will remain at the firm for a period of 3 to 6 months as part of the transition.
This is a great chance for an architectural firm to add a K-12 arm, or to expand into the Houston and Dallas markets. Priced at $1,150,000 with 6-figure profits, a buyer should expect a first year’s cash flow of $125,352.
- Years in Business: 33
- Location: Houston
- Service Area: Houston & Dallas
- Projects: 80% K-12 / 10% Municipal / 10% Other
- 14 projects/month
- Services: Architectural design, 3D imaging, project management, cost estimates, construction management, interiors, specifications and more
- Lease: $2,900/mo in office space
- Reason for Selling: Relocating to South America
- Employees: 1 Licensed Architect, 1 Office Manager, 2 Project Managers, 4 Interns (2 ready to sit for qualifications)
- Seller Training Period: 3 – 6 months
- Growth Opportunities: $1B worth of Texas school projects coming up. Task order contracts.
- Current Owner’s Responsibilities: Architect
- List Price: $1,150,000
- Gross Sales:
- 2017 - $1,668,276
- 2016 - $1,335,528
- 2015 - $838,018
- Cash Flow:
- 2017 - $568,597
- 2016 - $314,478
- 2015 - $173,776
- YOY Growth: 20% increase in sales since 2006
- Profit Margin: 34%
Cash Flow Analysis
|Description of Financial Statement||P&L Statement||Tax Return||Tax Return||Notes|
|Net Income Shown on Financial Statement||$341,297||$3,120||$3,120|
|Compensation to Owner||$160,000||$134,700||$123,618|
|11% Tax on total W2 Salaries||$32,780||$14,817||$13,598|
|Contributions/Donations||$11,593||$1,945||$0||Non-onward going expense|
|Meals & Entertainment||$6,673||$3,044||$1,762||Personal expenses run through the business|
|Personal Auto||$10,399||$20,400||$20,400||$1,700/mo in lease payments|
|Health Insurance||$2,999||$3,000||$3,000||$250/mo for owner's premiums|
|Cell Phone||$1,500||$1,500||$1,500||2 lines at $125/mo|
|Personal Expenses||$0||$76,620||$0||Non-onward going expense|
|Credit Cards||$0||$38,815||$0||One-time, non-onward going expense|
|Seller's Cash Flow = Total Addbacks + Net Income||$568,597||$314,478||$173,776|
|Profit Margin||34.08 %||23.55 %||20.74 %|
- Sales have jumped by over 90% over a 2-year period
- Between 2015 and 2016, the seller made internal changes to improve the firm’s profitability
- Office space was cut to reduce rent and a partner was removed
|Architectural Design||Construction Documents||Programming|
|BIM Technology||Virtual Tours||Graphics|
|Project Management||Cost Estimating and Control||Construction Management|
|Bond / Pre-Bond Assistance||Facility Assessments||Master Planning|
|Program Management||Ed Specs / Standards||Code Analysis|
Clients & Projects
|Texas laws regarding public work:|
- 1 Architect
- Handles most QA needs
- Analyzes constructability and reviews plans
- Has been with the firm for 5 years
- 1 Office Manager
- Handles all administrative duties and schedules
- Project assistant
- 2 Project Managers
- 4 Interns
- Production process
- Not yet licensed architects, but still billable
- Have been with the firm for between 6 months and 4 years
- $1B of upcoming K-12 & higher education work coming
- Plenty of work on which to bid
- Task order contracts
- Not much of this is currently being done by the firm but could be a growth opportunity if desired
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).
The average Cash Flow for the past two years is $441,537. The prescribed multiplier is 2.6.
With this information, the computation result follows:
$441,537 x 2.6 = $1,147,996
The List Price for the business is set at $1,150,000.
Purchase Price: $1,150,000
10%Buyer Down Payment: $115,000
20%Seller Financing: $230,000
70%Bank Loan: $805,000
Seller Financing 5-year term at a rate of 4.50% equals a monthly loan payment of $4,288.
Bank Loan 7-year term at a rate of 5.25% equals a monthly loan payment of $11,473.
After business expenses and loan payments, a buyer with a 10% down payment of $115,000 would retain a profit of $125,352, which results in an 109% 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 $1,150,000 with the terms listed above, the coverage ratio is 1.66.
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.
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: $
|Monthly Payment to Bank:||$|
|Yearly Payment to Bank:||$|
|Monthly Payment to Seller:||$|
|Yearly Payment to Seller:||$|
|Total Monthly Debt Service:||$|
|Total Yearly Debt Service:||$|
Fixed Charge Coverage Ratio
The bank will require a minimum ratio of 1.5 to be lendable.
2017 Cash Flow
|Annual Debt Service:||$|
Buyer's Net Operating Income (NOI)
The amount of money the Buyer will retain as profit.
2017 Cash Flow
|Annual Debt Service:||-$|
Buyer's Return on Investment (ROI)
The rate of return on the Buyer's down payment.
|Document Title / Description|
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