Five Tips to Increase the Value of Your HVAC Business before you Sell
Successful entrepreneurs understand the importance of planning for the future. Building or growing an HVAC business creates financial security and a proud sense of accomplishment, and the owner usually takes the time to carefully balance the risk/reward equation. This includes meticulous planning for anticipated trends, cycles and financial needs. Still, it’s astonishing how many experienced business owners fail to develop a strategy for optimizing the value of their business prior to putting it up for sale.
HVAC service companies are highly sought after businesses that qualified buyers are often seeking to acquire. While the HVAC industry is seasonal to an extent, revenue streams can be highly diverse, and the industry is relatively protected since it’s generally too technical for handymen and the do-it-yourself market.
Numerous HVAC companies are sold every year, but too many are sold below maximum value. If you’re looking to get the most out of your company, here are five tips that can help increase the value of your HVAC business.
- Get Your Financials in Order: Sloppy financials degrade the value of your business and convey a sense of disorganization the buyer may assume carries over to other parts of the company. Tighten up your balance sheet by eliminating dead inventory, writing off bad debts and selling obsolete equipment.
- Sell More Maintenance Contracts: Service maintenance contracts represent a dependable source of income that’s relatively immune to fluctuations in the economy. Many contractors rely on service agreements to remain profitable when the new construction and replacement markets are down. Additionally, prepayments for service contracts can help build reserves and enhance cash flow, which is very attractive to prospective buyers.
- Create a Viable Succession Plan: Many small HVAC companies are entirely dependent on the owner. Savvy buyers consider this a negative and may reduce their offer to compensate for what they perceive as a serious vulnerability. As a seller, it’s important to create seamless processes and routines that will allow the company to operate effectively even when you are no longer involved.
- Protect Key Employees: While discussing the potential sale of your business with the staff is usually inadvisable, steps can be taken to protect key employees during the transition. This can include extending employment contracts, wage increases or promotions. When the sale becomes public knowledge, key personnel should be assured that their jobs are safe, and the new owners should demonstrate a commitment to maintaining employment continuity.
- Tidy up the Premises: Contracting is a dirty business, and many shops and attached offices become filthy over time. In most cases, no one really notices because it happens gradually. However, a prospective buyer who is unfamiliar with the business may make a negative judgment based on how the place looks. A fresh coat of paint and new carpeting in the office can project a vibrant, progressive image. If nothing else, clean the supply and return registers. After all, it’s a heating and air conditioning business that you’re trying to sell!
Your HVAC business represents a valuable asset, and optimizing its structure, financials and operations will help you add value and secure a higher price when it comes time to sell the company Implementing better practices can also improve profits and provide an environment for an easier transition in the event of an unexpected life-changing event.
🔥Warehouse Optimization Specialist
8yExcellent points Kyle. As someone who helps companies optimize their Warehousing Operations I often see companies "sitting" on excess/obsolete inventory that was inherited from previous owners.
Mergers & Acquistion Advisor, SCA and Sunbelt Business Brokers, Business Valuations in Texas. Doing deals since 1996. #ExitPlan, #donedeal, #businessbroker, #businessbrokers, and #sellingabusiness #HVAC #MPE
8yOther than #2 all points apply to all businesses. HVAC biz value is driven by market segment focus. Here are a couple of more points specifically for HVAC. Get your WIP accounting rock solid. Don't underwrite your own warranties beyond labor warranties. Make sure your techs aren't providing services they aren't licensed for (electrical? Plg?) Stop selling your scrap for cash and somehow accidentally missing booking it in your financials as income. Make sure your refrigerant recapture procedures are bullet proof. Keep a seperate inventory for every truck. There are more but that's a start.
M&AMI, CBI, Broker/Owner at Business Sales & Valuations; Fellow of the IBBA, Fellow of the M&A Source
8yGreat article Kyle.
Associate Broker. REALTOR, MRP, Team Leader of Atlanta Concierge Team at Maximum One Greater Atlanta
8yGood basic info! Tight financials and a management team in place are critical elements to a good valuation. If the company is profitable without the owner being up to his neck in the details of running the business every day, you actually broaden the pool of buyers, avoid discounting the price for risk and make the transition smoother when it comes.
Owner, DAPierceCompany, retired
8yVery good ideas, most of which probably apply to any business. On the HVAC businesses though, a fairly new market many are getting into is, #SmartHome and #SmartBuilding systems for energy management; and considering how everything seems to be headed toward connected devices... appliances in the home... security systems for Business and Consumers, those could be areas for potential future growth that could possibly add value to a deal.