How to Sell Your HVAC Business
Have you thought about selling your HVAC business? Before you begin the process, there are several things you should consider. Only 20-30% of companies that go on the market actually end up selling, and many of them are sold for less than what they’re worth.
How can you make sure that you successfully sell your HVAC business for the highest price possible?
Here are some tips, best practices, and the steps you need to follow to sell your HVAC business successfully.
The HVAC Industry
HVAC businesses are unique in many ways. They have a high demand because everyone needs heating, ventilation, and air conditioning. However, it’s a high-cost industry to operate in, and finding qualified technicians can be tough. Plus, there can be wide variations in income depending on the season.
The unprecedented COVID pandemic has added new challenges to an already challenging industry. Manufacturing has stalled, and the way HVAC businesses interact with customers has had to change dramatically.
Still, despite all these uphill battles, the HVAC industry is poised for significant growth. According to recent data, the industry is expected to be valued at $367.5 billion by 2030, up from $240.8 billion in 2019.
This projection illustrates a couple of noteworthy points:
- The HVAC industry will survive the pandemic and bounce back with impressive growth.
- HVAC businesses are still highly valuable assets.
So, even if your business has slowed as a result of the COVID pandemic, your company still holds value.
What Is My HVAC Company Worth?
Several factors go into pricing a business. Some of the popular metrics for determining value include:
- Total Sales (Revenue)
- Total Profit
- Average Growth Rate
- Where do the customers come from? (And is there potential for more?)
- What is your position in the market? (How do you compare to your competitors?)
- Do you have a good physical location?
- Can your business continue to run without you?
- What internal structures and staff already exist in the company?
The value of HVAC businesses varies dramatically. A quick search on a popular business marketplace site currently shows HVAC businesses listed from $37,500 – $16,000,000.
There are countless ways to value your HVAC business. Generally, valuation depends on a combination of cash flow, assets, and projected future profit potential. Accountants use a variety of formulas to determine value. A business valuation is the easiest way to know exactly what your business is worth.
(Want to know the value of your HVAC business? Consider getting a free valuation now.)
How Can I Increase My HVAC Business’s Worth Before Selling?
If you want to make sure to get the most for your HVAC business, there are several things you can do.
There are two phases to this:
- Phase One: Preparing and Organizing
- Phase Two: Improving What’s There
Let’s consider the steps in each of these two phases.
Phase One: Preparation And Organization
To get the most for your business, you need to be organized so you can show prospective buyers why your business is worth what you’re asking.
1. Organize Your Books — This includes everything from contracts, inventory lists, taxes, revenue, etc. You need to make sure that your books for the last three years are in order before you sell.
2. Perfect Your Processes — All of your daily operations need to be in order, and it needs to be clear how your business runs from day to day.
3. Create an Exit Strategy — Design and create an exit strategy for yourself, your staff, and your prospective buyers. This will show everyone that your business can transition to new owners seamlessly.
4. Make Sure Your Receivables look Good — If you have any outstanding invoices, work to get them paid. You don’t want buyers to think that you have unreliable customers.
5. Eliminate Your Debts — If you have any outstanding business debts for equipment or for business operations, work to get those paid down. It is much more challenging to sell a business that is in debt.
6. Prepare Your Team — Make sure you have a highly skilled team and good employees. They become assets in a business deal. You also want to keep your staff informed about your plans to sell so they’re on board and not fighting against the change.
7. Offer a Growth Strategy — In addition to an exit strategy, consider creating a growth path to present to buyers, as well. If you’re able to show that your business still has room to grow, and you can lay out how to do that, your HVAC company becomes much more valuable.
Taking these seven steps puts you in a great position to sell your HVAC business. While organizing the backend processes can be a lot of work — it’s essential for making sure your business gets the proper valuation and price.
Now, what if you want to increase your value?
Phase Two: Improving What’s There To Increase Value
Only around 5% of HVAC companies earn more than 10% profit before taxes. On average, the profit margin is usually closer to 2.5-3.5% of revenue.
Your goal should be to get your profit percentage as high as possible to make your business attractive to potential buyers. You should also focus on other areas that improve value.
Some ways to improve your operations and increase value include:
1. Rethink your pricing methods to increase profits.
2. Charge more for quick priority service.
3. Offer and promote service agreements to increase recurring income.
4. Consider promotions and discounts to boost sales on less popular services.
5. Keep up with customers who have patch repairs done; follow up a few weeks later with an offer to credit the repair against a new system. This method works well to sell new systems.
6. If your unmotivated techs are hurting your bottom line, consider performance pay to increase their output.
7. Transition your advertising to digital platforms. This is important during the COVID era because billboard ads and other traditional media are no longer as effective.
These seven methods are surefire ways to improve your profitability and growth. However, your growth and improvement strategy will be unique. Ultimately, your goal is to have the most attractive HVAC business possible for potential buyers.
Take a step back and find the areas where your company lacks strength and work to improve those. Often, a quick fix or a change in procedure can make the most significant difference.
What’s the Process: How to Sell My HVAC Business
Once you’re ready to sell, you’ll want to pull in the experts. A business broker can ensure that you get the most for your business. A broker also does the due diligence needed to find the best buyer and negotiate the sale.
A broker will give you an accurate appraisal of your business and craft a sales proposal to potential buyers. Then, he or she will do the marketing and vetting and choose the best buyer for your HVAC business, as well as handle the paperwork, offers, funding, and handover process.
So, your job is to get your HVAC business in the best position to sell using the steps from phase one and phase two (above), and then enlist the help of a trusted, reputable broker to make sure that you’re part of the 20% of businesses who end up selling.
Final Notes About Selling Your HVAC Business
Selling a business takes time, usually around 12 months, but it varies dramatically, depending on market conditions and the state of your business. Given the current COVID environment, it can be more challenging to find buyers — but not impossible.
Just know that selling your business is a long game that will take time. Don’t expect it to happen overnight.
Whether you’re selling because you’re retiring, burned out, tight on cash, or excited to try something new — it’s an excellent time to sell your HVAC business. The market is stable and projected to grow, which means you have the opportunity to make a decent profit.
Here at Raincatcher, we’re experts at selling businesses. We value our sellers’ best interests and work diligently to ensure that they get the best price for their companies. If you’re ready to begin the process or want to learn more — get in contact with us today.
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