Telecommunication & Data Installation with Hospital Contracts
This data & telephone installation & service business has been open for over 50 years! The current owner has been there for almost 20 years and does not do any install or service. The core of this business is installing voice and data networks in businesses of all sizes. They also install digital and IP telephone systems, fiber optic cabling, voice mail systems, as well as call accounting systems. Located in Omaha, this telecommunications company has completed work in 20 different states.
Between 2014 and 2016, sales increased by 110%, and 2017 surpassed 2016 by 33%. In conjunction with sales, cash flow has grown each year. Costs are maintained partially by keeping minimal inventory, as the company utilizes Graybar for supplies.
The seller employs 9 techs, many of whom are currently working for the largest client under a recently-renewed 3-year contract that has been reoccurring for 30 years. While the seller manages employees and sales, there are 3 PT office staff to assist with billing, mailing and receptionist duties.
This business already has $400,000 in purchase orders for 2018!
- Years in Business: Over 50; under current owner for 18
- Location and Service Area: Omaha
- Clients: Company has a long-standing, reoccurring contract with a local organization undergoing infrastructure revamps over the next several years
- Services: Voice and data cabling, digital telephone systems, IP telephone systems, paging systems, fiber optic systems, call accounting systems, video cameras, recorders and voice mail systems
- Building: 2,000 sq. ft.
- Reason for Selling: Retirement
- Employees: 9 Techs, 3 PT Office Staff
- Seller Training Period: 90 days
- Growth Opportunities: New phone systems (requires training techs on systems first). Power over ethernet. Maintenance contracts.
- Current Owner’s Responsibilities: Employee management & sales. Owner does not do installs or service.
- List Price: $675,000
- Gross Sales:
- 2017: $1,106,342
- 2016: $830,243
- 2015: $588,027
- 2014: $394,559
- Cash Flow:
- 2017: $226,194
- 2016: $186,175
- 2015: $111,206
- YOY Growth/Sales Trends: 110% increase in sales between 2014 and 2016
- Profit Margin: 20%
- Assets Included in the Purchase:
- Equipment: $20,049 in furniture, fixtures and tools
- Vehicles: Company truck used by a Tech for deliveries
- Inventory: Minimal inventory is kept – company utilizes Graybar for supplies
- A/R: $69,858
- Backlog: $500,000
*amounts may vary
Cash Flow Analysis
|Description of Financial Statement||P&L Statement||Tax Return||Tax Return||Tax Return||Notes|
|Net Income Shown on Financial Statement||$90,163||$63,932||$30,187||$-62,498|
|Compensation to Owner||$91,589||$99,939||$65,804||$62,019|
|11% Tax on total W2 Salaries||$10,075||$10,993||$7,238||$6,822|
|Interest||$5,765||$5,487||$5,680||$4,996||Non-onward going expense|
|Meals & Entertainment||$964||$818||$452||$684||Personal expenses|
|Amortization||$0||$0||$0||$2,513||Non-onward going expense|
|Pension & Profit Sharing||$1,857||$3,578||$0||$0||To owner|
|Insurance Premiums for Owners: Health, Life, Auto||$17,148||$0||$0||$0||Personal expenses|
|Seller's Cash Flow = Total Addbacks + Net Income||$226,194||$186,175||$111,206||$17,166|
|Profit Margin||20.45 %||22.42 %||18.91 %||4.35 %|
- 180% increase in sales between 2014 and 2017
Installation and Service
- Voice and data cabling
- Digital telephone systems
- IP telephone systems
- Voice Mail systems
- Paging systems
- Fiber optic systems
- Call accounting systems
- Video cameras
25% of clients are small business owners.
Currently, services are 90% new installations / 10% service. As new cabling and technology comes to market, many clients with older systems require revamps. A buyer looking to increase service sales could introduce maintenance contracts.
Telephone Systems Products
- Company is a top Iwatsu Voice Networks distributor in the U.S.
- Estech telephone Systems
- Icon Voice Networks
- Digital and IP telephone systems
- ESNA Unified Communications Systems
- Voicemail and unified messaging systems
- Call recording and call account systems
- Valcom paging
- Labor sales, as expected, are over half of sales each year
- 2017 grossed over $1.1M
- 9 Techs
- 7 are currently working at for the company’s largest contract
- 3 PT Office Staff
- Answer phones
- General administrative work
Seller manages employees and handles sales.
- New phone systems
- Installation and service of new phone systems on the market
- Techs would need to be trained on servicing them, but this is a great way to grow
- Power Over Ethernet (PoE)
- This is a rapidly growing technology that increasing flexibility and cuts time and cost
- The company currently does some work in this area, but advertising it more is a plus
- Maintenance contracts
- 10% of sales comes from service, but introducing maintenance contracts should boost those numbers
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 3. With this information, the computation is as follows:
$226,194 x 3 = $678,582
The Fair Market Value found above positions the business List Price at $675,000.
Purchase Price: $675,000
10%Buyer Down Payment: $67,500
25%Seller Financing: $168,750
65%Bank Loan: $438,750
Seller Financing 5-year term at a rate of 4.50% equals a monthly loan payment of $3,146.
Bank Loan 7-year term at a rate of 6% equals a monthly loan payment of $6,410.
After business expenses and loan payments, a buyer with a 10% down payment of $67,500 would retain a profit of $111,528, which results in a 165% 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 $675,500 with the terms listed above, the coverage ratio is 1.97.
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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