Opportunities
Engineering with 70+ Recurring Clients – Owners Will Stay On for 3 Years
Majority of clients have been with them for a minimum of 5-10 years!
Specifications
The majority of clients for this engineering firm have been with them for a minimum of 5-10 years! With a 5-year average profit margin of 58% and a 97% recurring client base, the owners of this well-established structural engineering firm will stay on board for up to 5 years. A new owner would not need to be a licensed engineer; there would just need to be one on staff to stamp the drawings, designs, plans, etc. Established since 2006, this company boasts a client base of over 70 clients comprised of contractors, developers, architects, engineers, and owner-builders, approximate sale size ranges from $20k-$60k for residential projects and $2k-$3k for the offsite civil structures. The hot residential market in Las Vegas has propelled this firm’s business to focus and specialize in custom, tract, and multifamily homes, as well as offsite civil structures. The team includes the 3 owners, who are licensed professional engineers (CE), 1 Senior Project Manager, 1 Drafter, and 2 regular professionals subcontracted as needed.
The firm works out of a 4,000 sq. ft. building with 7 offices, a conference room, meeting room, IT room, and a bullpen with 6-cubicle workstations and a production area. The owners of the business also own the building (through a separate entity) and lease it to themselves for $7,000/month. (A fair market rate for rent would be in the $4,000/month range.)
Priced at $6,950,000, the growth potential for this firm is substantial. With the constant influx of population, the Las Vegas construction market is booming with design demand in every sector. This demand yields several untapped markets in the region that this firm simply does not currently have the manpower to explore. A larger firm looking to expand into this hot market, or an existing firm that offers different services, could seamlessly merge with this versatile and well-recognized company to increase market share, and exponentially boost revenue. Having established a great reputation, this firm’s current marketing practice consists entirely of word-of-mouth advertising. So, updating their website, creating a social media presence, and implementing a marketing strategy could also lead to continued growth.
Business Highlights
Year Established: 2006
Location: Las Vegas, Nevada
Service Area: Primarily Las Vegas (93%) and California (7%)
Services: Structural engineering (custom homes, residential tract housing, multi-family miscellaneous structures, etc.) and offsite civil structures (retaining walls)
Clients: 70+ recurring clients: Contractors, Developers, Architectural Engineers, Owner-Builders; 80% residential, 20% commercial; majority of clients have been with them for a minimum of 5-10 years
Average Sale Size:: Ranges from $20k-$60k for residential projects and $2k-$3k for the civil retaining walls
Lease: 4,000 sq. ft. building, renovated in 2018 - $7,000/month
Reason for Selling: Industry consolidation
Personnel: 7; includes a Senior Project Manager & a Drafter
Seller Training Period: 2-5 years
Growth Opportunities: Expand services to include other engineering disciplines, implement marketing strategy, pursue untapped markets in the area such as warehouse, manufacturing, increase commercial client base
Current Owners’ Responsibilities: They manage their own individual projects and share the responsibilities for the non-billable hours. A new owner would not need to be a licensed engineer; as long as there is one on staff to stamp the drawings, designs, plans, etc.
Employees
3 Owners
- All 3 are licensed professional engineers (CE) and manage their own individual projects with clients. They share the responsibilities for the non-billable hours.
- 1 FT Senior Project Manager
- Not licensed, but completely autonomous; the owners juts have to stamp his work
1 PT Drafter (went to PT during Covid – expected to return to FT)
10 owner family members are PT W2 employees for tax purposes (would not need replaced)
2 professionals subcontracted as needed
Service Breakdown
Profit Margin
- The company has an average profit margin of 58% over the last 5 years!
Financial Highlights
- List Price: $6,950,000
- 2019 Cash Flow: $1,614,434
- Average Monthly Working Capital: $50,000
*amounts may vary
Cash Flow Analysis
| Description of Financial Statement | P&L Statement Jan-Dec 2020 - Cash | Tax Return Cash | Tax Return Cash | Tax Return Cash | Tax Return Cash | Notes |
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
| GROSS SALES | $1,970,895 | $2,606,294 | $2,236,105 | $1,510,144 | $1,344,875 | |
| Net Income Shown on Financial Statement | $1,319,940 | $1,744,046 | $1,305,363 | $1,065,218 | $865,104 | |
| ADDBACKS | ||||||
| Compensation to Owner | $202,436 | $271,326 | $216,000 | $238,611 | $251,267 | 3 owners - all active - replacement costs below |
| 11% Tax on total W2 Salaries | $22,268 | $29,846 | $23,760 | $26,247 | $27,639 | |
| Depreciation | $0 | $4,092 | $5,415 | $5,415 | $8,950 | |
| Interest | $0 | $312 | $0 | $3,252 | $1,742 | |
| Auto Expense | $3,858 | $4,000 | $4,000 | $4,000 | $4,000 | Personal Expense |
| Meals & Entertainment | $3,290 | $4,000 | $4,000 | $4,000 | $4,000 | Personal Expense |
| Cell Phone | $4,800 | $4,800 | $4,800 | $4,800 | $4,800 | Personal Expense |
| Travel Expense | $610 | $2,012 | $528 | $0 | $0 | Personal Expense |
| Season Tickets | $0 | $0 | $140,000 | $0 | $0 | One-time cost |
| Rent | $27,750 | $0 | $41,500 | $-18,250 | $-5,000 | FMV is $46k |
| Replacement/Retainage Salary | $-450,000 | $-450,000 | $-450,000 | $-450,000 | $-450,000 | $150k per owner to either keep on board or replace |
| TOTAL ADDBACKS | $-184,988 | $-129,612 | $-9,997 | $-181,925 | $-152,602 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $1,134,952 | $1,614,434 | $1,295,366 | $883,293 | $712,502 | |
| Profit Margin | 57.59 % | 61.94 % | 57.93 % | 58.49 % | 52.97 % |
5-Year Average Profit Margin: 58%
- 2020 was down due to COVID-19.
- The 2019 Cash Flow is being used for the valuation, as 2020 was an anomaly/pandemic year.
- 2021 will be greater than or equal to 2019.
- Sellers are willing to finance or roll equity of 30% to show good faith.
Owner Profit / Cash Flows
Valuation
Funding Example
Growth Opportunities
- Expand services to include mechanical engineering or other disciplines.
- Implement marketing strategy
- Pursue untapped markets in the area
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: 2019 Cash Flow |
$ |
| Annual Debt Service: | $ |
| RATIO: |
Buyer's Net Operating Income (NOI)
The amount of money the Buyer will retain as profit.
|
Cash Flow: 2019 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
| Document Title / Description |
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