How to Sell an HVAC Business

How do you sell the HVAC company you've dedicated years of hard work and investment into? The sale of specialised service businesses, like an HVAC business, involves unique challenges, including getting a fair valuation and finding a buyer who appreciates the company's staff and reputation. To navigate this process smoothly and safeguard your business legacy, follow these steps to sell your HVAC business. 

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1. Keep accurate records
2. Accounting software
3. Find the best time to sell
4. Get an accurate business appraisal
5. Calculate your seller’s discretionary earnings
6. Create an exit strategy

1. Keep accurate records 

A streamlined financial management system that encompasses invoicing, payroll, and accounting simplifies both your day-to-day operations and the eventual sale of your HVAC business. Using Tradify ensures that when the time comes to sell your business you can show your revenue stream, expenses, client base, and jobs in detail to potential buyers

For free tools to straighten up your business records, try: 

• Cash flow forecasting and profitability for trade businesses
• Small business break-even analysis for tradespeople
• Small business sales forecasting for tradespeople 

2. Use an accounting software 

Ensuring your HVAC business's accounting, payroll, and invoicing systems are organised not only saves time but also positions your business as an attractive acquisition. Luckily, Tradify integrates with your favourite accounting software, making it much easier to generate financial statements and track your ongoing costs. 

• Xero
• Sage
• MYOB
• QuickBooks

Payroll 

Keep accurate records of your business's payroll through Tradify! You can generate reports, pulled from your teams' timesheets, into your accounting system.

Invoices

You will likely need to present several years' worth of invoices to prove your business' profits before selling. Using Tradify to generate invoices and to track incoming payments helps present a clear snapshot of your current finances to prospective buyers and is much easier to review than a box full of paper receipts. Having an accurate record of invoices also helps to predict future earnings.  

3. Find the best time to sell  

Even though you might feel prepared to part with your HVAC business, most experts recommend at least 2 years of solid preparation before placing a business on the market. The objective should be to elevate profitability and demonstrate steady growth. Aim to sell your HVAC business at its profitability peak, as this is when it will appear most appealing to buyers and the most likely to earn you a premium!

4. Get an accurate business appraisal 

The first official step towards selling your business, regardless of your approach, is to obtain an accurate third-party business appraisal. While the idea of selling a business without professional help to avoid middleman fees and retain more profits may seem appealing, it's crucial to consider the complexities involved. Selling a business involves significant legal and administrative work, and overlooking these aspects can lead to challenges. Professional brokers, valuation experts, accountants, and legal advisors can each play a vital role in the process. Their expertise can help in setting the best price, finding qualified buyers, and ensuring legal compliance, potentially driving a higher sell price than managing the sale independently.

Regardless of your choice, the first step towards selling your business is to get an accurate third-party business appraisal. 

What is factored into your service business appraisal 

The estimation of future revenue is key to your appraisal and will come from :

• The average number of jobs.
• Your profit margin per job.
• The number of customers in your database.
• Revenue from repeat business.

These factors will determine your business's overall market value and are another reason why keeping accurate records of jobs is crucial. 

This appraisal will also consider your physical assets: 

• Vehicles
• Tools
• Equipment
• Real estate

as well as intangible assets, like:

• A loyal customer base
• Experienced staff
• Licenses
• Branding & marketing
  • Do you have an established marketing plan in place or rely on personal contacts and word of mouth? 
• Specialisation
  
  • Is there something that sets you apart from the competition? If so, this will help your business carve out its niche and become more valuable. 
• Founder involvement
  
  • The less you are involved in your business, the more attractive it will seem to prospective buyers. If your day-to-day operations require your oversight, this may become a complication for new owners who may not share your expertise. 

It's your HVAC business’s systems and processes that have value, allowing you to turn the keys over to a buyer with a system they can follow that makes you unique and better than your competition. Documenting and showcasing these systems to potential buyers can significantly enhance your business's appeal. 

5. Calculate your seller’s discretionary earnings 

Calculating SDE is crucial for understanding the true profitability of your HVAC business, especially when preparing for a sale. SDE adjusts for non-essential expenses, offering a more accurate representation of a business's earning power.

Start with the net income as reported to the government on your business's tax return. This figure represents the profit after all operating expenses have been subtracted from total revenue. To the net income, add back expenses that are not essential to business operations, such as:

• Interest: Payments on business loans or credit lines.
• Depreciation: Value reduction of tangible assets like equipment.
• Amortisation: Cost spreading of intangible assets.
• Operational adjustments: Correct for any unusual operational expenses to reflect ongoing costs under new ownership.

To give the new owner a more accurate portrayal of what the business expenses and profits will be once you leave, make adjustments for: 

• Owner compensation: Salary, healthcare, retirement benefits, and personal expenses run through the business.
• Discretionary expenses: Non-operational expenses, like non-active family members on the payroll.
• Rent: Factor in fair market rent if you own the property but haven’t been charging rent, or adjust for overcharged rent.
• Personal vehicle expenses: Exclude business-paid personal vehicle expenses, like interest and insurance.
• Taxes: Specify adjustments for taxes other than income tax if necessary.
• Benefits: Adjust for owner or family benefits not necessary for operations.

6. Create an exit strategy 

When selling your business, it's important to plan how you'll pass it on to the new owner. Usually, you don't just sell and leave immediately. Instead, you spend some time teaching the new owners and their team about the business to make sure they're ready to take over smoothly once you're gone. Check the following factors before you sail into the sunset: 

• Future purchases: Will the new owner need to hire additional staff, purchase new equipment, or train the existing workforce?
• Management: Can the remaining management staff manage the business during the transition and after your departure? 
• Staff: Are your staff prepared for a change in ownership? 
• Finances: Are your current charge-out rate and profit margin properly set up to ensure future profits?
• Plan: Do you have a clear business plan for the new owner to follow?

6. Find buyers 

Using a business broker means you can leverage your industry knowledge and networks to find the right buyer, negotiate the best deal, and facilitate a smooth, and legal, transaction.

Individual buyers 

Typically, these are professionals looking to start their businesses and looking for suitable service businesses with less than $1 million in earnings. Often, these professionals are likely to secure financing through the SBA, seller financing, or both and use Small Business Administration (SBA) loans, seller financing, or a combination of both.

Strategic buyers

Businesses within or adjacent to the service industry typically show interest in acquiring companies that have earnings over $1 million. This interest is often driven by the desire to complement existing services and expand their customer base. Such acquisitions are particularly attractive for businesses in a growth stage that can offer strategic value to the buyer's operations. This could include expanding market reach or enhancing service offerings, providing a significant advantage due to the strategic benefits it introduces.

Private equity buyers 

Private equity buyers primarily concentrate on acquiring businesses with the intent to nurture their growth and subsequently sell them for a profit. These buyers are particularly attracted to service businesses that boast earnings exceeding $1 million. While they might be less prevalent compared to other types of buyers, private equity firms represent a significant opportunity for larger operations looking to sell. Their approach is strategic and focused, often aiming to leverage their expertise and resources to enhance the business’s value over time. 

Get your admin sorted and start experiencing the benefits of an organised business. To run a successful HVAC business, try Tradify free for 14 days. Or, pop into one of our free walkthroughs for a demonstration.