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Opportunities

Municipal Architecture Firm w/$1.9M in Scheduled Contracts

Pending

CASH FLOW
$572,150

Specifications

  • Price
    $1,150,000

  • Revenue
    $1,668,433

  • Cash Flow
    $572,150

  • Location
    Houston

  • Profit Margin
    34%

  • Employees
    1 Architect, 1 Office Manager, 2 Project Managers, 4 Interns

  • Down Payment
    10%

  • Service Area
    Houston & Dallas

  • Reason for Sale
    Relocating to South America

 

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 $383,024.

 

Business Highlights

  • 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

Financial Highlights

  • List Price: $1,150,000
  • Gross Sales:
    • 2017 - $1,668,433
    • 2016 - $1,335,528
    • 2015 - $838,018
  • Cash Flow:
    • 2017 - $572,150
    • 2016 - $314,478
    • 2015 - $173,776
  • YOY Growth: 20% increase in sales since 2006
  • Profit Margin: 34%

Cash Flow Analysis

Description of Financial StatementTax ReturnTax ReturnTax ReturnNotes
201720162015
GROSS SALES$1,668,433$1,335,528$838,0187011230
Net Income Shown on Financial Statement$308,812$3,120$3,120
ADDBACKS
Compensation to Owner$160,000$134,700$123,618
11% Tax on total W2 Salaries$32,780$14,817$13,598
Depreciation$2,370$11,650$4,423Non-cash item
Contributions/Donations$34,312$1,945$0Non-onward going expense
Meals & Entertainment$6,512$3,044$1,762Personal expenses run through the business
Personal Auto$14,539$20,400$20,400$1,700/mo in lease payments
Health Insurance$2,999$3,000$3,000$250/mo for owner's premiums
Travel$8,326$4,867$2,35540% personal
Cell Phone$1,500$1,500$1,5002 lines at $125/mo
Personal Expenses$0$76,620$0Non-onward going expense
Credit Cards$0$38,815$0One-time, non-onward going expense
TOTAL ADDBACKS$263,338$311,358$170,656
Seller's Cash Flow = Total Addbacks + Net Income$572,150$314,478$173,776
Profit Margin34.29 %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

Services

Architectural Design Construction Documents Programming
Interiors Specifications 3D Imaging
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

Concentration Duration
  • 80% K-12 & Higher Education
  • 10% Municipal
  • 10% Other
    • Healthcare, retail/commercial, religious/residential, transit/aviation
  • 14 projects in process during a 1-month period
  • Range from 6 months to 2+years
   
Texas laws regarding public work:  
  • Architects cannot be chosen based on fee
  • "Select on qualification"
    • Fees are removed from the bidding process
 
   
Fees  
  • For K-12 work – 6% to 7% of budget
  • For Municipal work - 7.5% t0 8% of budget
 

Employees

  • 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

Project Hierarchy

  1. Seller takes the lead on a project and ultimately oversees the process as a whole
  2. A Project Manager is assigned to orchestrate and takes over the project from the seller
  3. The Project Manager forms a team that consists of an Intern and help from the Project Assistant

Growth Opportunities

  • $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

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).

The average Cash Flow for the past two years is $443,314. The prescribed multiplier is 2.6.

With this information, the computation result follows:

$443,314         x          2.6       =          $1,152,616

The List Price for the business is set at $1,150,000.

Funding Example

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 $383,024, which results in an 333% 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 3.03. 

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:

$1,150,000

$
%
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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