9 Things Buyers Need To Look For In HVAC Businesses For Sale - National HVAC Brokers

9 Things Buyers Need To Look For In HVAC Businesses For Sale

This piece is a work in progress.

The first 5 have to do with Operational Infrastructure. As a buyer the primary concern should be that you understand how things get done and what you will need to do.

What Does The Owner Do?

Is the owner responsible for getting the crews out the door in the morning or do they spend most of their time tucked away in the back office? … or not even in the asset at all?

Figuring out what the owner does and how in-grained in operations they are will determine whether you are buying an asset, or a job.

HVAC businesses for sale that have a heavily in-grained owner are not necessarily a bad thing; actually sometimes the opposite. Consider a business where the owner is a control freak and simply does not know how to properly manage. In those businesses there are often many capable employees that with proper guidance could fill higher level roles. In these cases, the businesses sell for lower multiples and with just a little refinement can be transformed into an asset that has a higher multiple valuation.

Is There A license Holder?

Generally no matter where you are are looking to buy an HVAC business, licensing will be required. It is common place for a prior owner to hold the license for a period of time after the acquisition and that has satisfied the SBA lender in the past.

However, since 2019 the SBA has tightened their lending requirements around licensing. They are no longer happy lending to a business with a prior owner holding the license and look to see the new owner having a license already or a non-equity employee holding the license.

Aside from lending it is good practice to have another license holder on staff if you wish to build a true asset.

Who is responsible For Getting Staff Out The Door In The Morning?

The first hours of the day, between when operations staff arrive at the shop, and when they depart for their first job site is crucial in any HVAC business.

Operations staff tend to ‘drag their feet’ in leaving the facility. They might forget the right materials. They might not be clear on what and where they need to go for the day.

Whom ever holds this roll, which can be highly stressful, and ‘game winning/losing’ for the business holds a key roll.

Is it the current owner? Do they have a non-compete? Are they someone you could work with?

Nothing reveals more about the true operational structure and active role of the owner of an HVAC business than the question “who is responsible getting staff out the door in the morning?”

Field Service Management Software

Field service management software is the cloud based back bone of a modern HVAC business. It provides centralized app for scheduling, job management, estimate recording, employee time logging, and in some cases a lot more.

Not all HVAC businesses use a proper software. Some still operate with carbon paper while others hack their way around using a mix-mash of apps and calendars.

Understanding what system the business currently uses is an insight into how accurate quoted data really is, and how much work you might need to do as a new owner to implement proper software.

Documented Systems & Procedures

It is uncommon to find small HVAC businesses (typically for sale at an asking price below $3,000,000 to have documented systems and procedures but a business that does have everyting mapped out on paper would be worth more to a new buyer than one that does not.

Pricing Structure

HVAC businesses of all size should have a documented pricing structure. This ensures that suitable quotes have been giving out and that technicians and sales people are held to a standard when quoting.

As a potential buyer this also gives you the ability to review the structure. Is pricing above or below the local market?

Financial Performance

HVAC businesses are valued primarily on the value of their cashflow and likelihood that it will continue; therefore financial performance is crucial.

For maximum valuation, HVAC businesses should have a healthy margin, and consistent numbers over the past 3 years.

Growth is good, but rapid growth can be a bit of a crux. Businesses experiencing rapid growth shouldn’t expect compensation for the growth, as buyers are skeptical that same growth rate will continute.

Similar principle applies to net income margin. We occasionally see sellers with businesses generating a 20% or high net income margin, expecting to be valued at a premium for this. Unfortunately, that is generally not the case as buyers view that margin as unsustainable in the long run because…

A) Market competition is likely to increase.

B) Staff are underpaid.

C) The owner/spouse is handling multiple roles.

Condition of Assets

Will assets need to be replaced or upgraded quickly. This is something that needs to be budgeted for prior to making an acquisition.

Diversification of Customer Base

This doesn’t come up often in the residential sector, but often HVAC businesses with in the commercial sector rely heavily on a single client. This is a negative position for nearly any buyer. If that one customer is lost as result of the intangible relationship when the current owner exits, revenue and profit take a hit.

We recommend that no single customer accounts for more than 10% of revenue.

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