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Western Iowa Electrical Company

CASH FLOW
$227,531

Specifications

  • Price
    $796,000

  • Revenue
    $764,299

  • Equipment
    $84,270

  • Inventory
    $93,657

  • Cash Flow
    $227,531

  • Account Receivable
    $51,960

  • Service Area
    20-mile radius of location

  • Profit Margin
    32%

  • Employees
    6: Journeymen (2), Apprentices (2), Administration (2 PT)

Providing excellent electrical services in Western Iowa to both residential and commercial clients, this well-regarded company is ready to continue its strategic growth.  This team earned over $760,000 in revenue in 2017 working on projects from lamp repairs to large remodel projects.  With over $220,000 in equipment and vehicles to install solar arrays, electrify new additions, repair lighting, or wire agricultural projects, the team of 6 is a lean, but effective organization. 

This electrical company completes work in their home town (50%) and within a 20-mile radius of their office (50%) due to their proximity to Interstate 80, the main thoroughfare in Iowa.  Continually busy throughout the year, over 100 jobs are currently in progress or in the pipeline. 

Working from a customized building, this business operates from about 7,900 square feet of space.  With both heated and unheated spaces, the building contains workshops, storage areas, a reception area, an office, and a large receiving bay.  The structure is located on a good-sized yard, with plenty of room for large trucks to navigate. 

Business Highlights

  • Year Established: 2012
  • Location:  Council Bluffs, IA
  • Service Area: 20-miles radius of location
  • Services: Residential & commercial electrical services, electric motor repair, trenching, inspections
  • Customers: Residential and commercial
  • Building: ~7,900 sq. ft.: ~3,500 heated (storage, office, reception, workshops, break room) ~4,400 unheated (receiving bay, storage)
  • Reason for Selling: Exploring opportunities
  • Employees: 6: Journeymen (2), Apprentices (2), Administration (2 PT)
  • Hours: M-F 8-4
  • Seller Training Period: 90 days transition
  • Growth Opportunities: Increase commercial clients, include security and fire alarm services
  • Current Owner’s Responsibilities: Owner/operator

Financial Highlights

  • List Price: $796,000
  • Gross Sales:
    • 2018: $716,375 Annualized
    • 2017: $764,299
    • 2016: $642,911
    • 2015: $581,245
  • Cash Flow:
    • 2018: $241,304 Annualized
    • 2017: $227,531
    • 2016: $169,164
    • 2015: $168,013
  • Assets Included in Purchase*: $365,887
    • Equipment: $84,270: ladders, trade specific tools, trailers, and lifts
    • Vehicles: $136,000: Trucks (6)
    • Inventory: $93,657
    • A/R: $51,960
    • Intangible Assets: Wide range of services, well-respected, positive social media reviews, few competitors in the area, diverse client base

*amounts may vary


Cash Flow Anaysis

Description of Financial StatementP&L Statement
Jan. - Aug.
Tax ReturnTax ReturnTax ReturnNotes
2018201720162015
GROSS SALES$477,583$764,299$642,911$581,245
Annualized$716,375
Net Income Shown on Financial Statement$122,950$185,028$113,992$109,229
ADDBACKS
Compensation to Owner$30,184$42,000$36,000$36,000
Other unrelated Salaries$0$0$0$0
11% Tax on total W2 Salaries$3,320$4,620$3,960$3,960
Depreciation$0$6,476$8,914$12,963
Interest$1,484$4,863$4,954$4,517
Contributions/Donations$2,035$0$0$0
Cell Phone$896$1,344$1,344$1,344$112/month for personal cell phone
Rent$0$-16,800$0$0Rent is $1400/month onward going
TOTAL ADDBACKS$37,919$42,503$55,172$58,784
Seller's Cash Flow = Total Addbacks + Net Income$160,869$227,531$169,164$168,013
Annualized$160,869
Profit Margin33.68 %29.77 %26.31 %28.91 %
  • 32% Profit Margin

Typical Customers and Services

  • Residential and commercial
  • General electrical services
  • Electric motor repair
  • Trenching
  • Inspections

Employees

Total Employees: 6

  • Journeymen (2)
  • Apprentices (2)
  • Administration (2 PT)

Growth Opportunities

  • Increase commercial clients
  • Include security and fire alarm services
  • Increase team to increase capacity

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          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 3.5.  With this information, the computation is as follows:

$227,531         x          3.5       =          $796,359

The fair market value found above positions the business list price at $796,000.

Funding Example

Purchase Price:                             $796,000

15% Buyer Down Payment:          $119,400

15% Seller Financing:                   $119,400

70% Bank Loan:                             $557,200

Seller financing 5-year term at a rate of 4.50% equals a monthly loan payment of $2,226.

Bank loan 8-year term at a rate of 6% equals a monthly loan payment of $7,322.

After business expenses and loan payments, a buyer with a 15% down payment of $119,400 would retain a profit of $112,950, which results in a 95% 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 $796,000 with the terms listed above, the coverage ratio is 1.99. 

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. 

Attachments

  • Business Summary
    • Identifies important business information in an organized, quick-reference format 
  • Cash Flow Analysis
    • The owner’s profit is the sum of business net income, any owner’s perks, & any non-onward going expenses (cash flow)

Purchase Price:

$796,000

$
%
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: %

Attachments

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