What’s the difference?
I’ve been selling HVAC businesses for years. While I love what I do the part I don’t like is delivering bad news. Many times I’ll begin a conversation with an HVAC owner thinking of selling their business. After an analysis, I have to say “I’m sorry, your business is only worth $XXXX.XX.” I can see the pain on their faces when they realize retirement isn’t as close as they hoped. It’s tough to hear that your largest asset isn’t worth what you thought, or worse, isn’t sellable at all. Why would this be?
It’s because, for years, the owners were focused on making a sale versus building wealth.
In the HVAC world, “making a sale” might mean advertising in the coupon books for a bargain price. Or it might be installing new units for a home builder who’s on a hot streak. While there is nothing wrong with either of these strategies, wealth building occurs when you focus on lifetime customer value.
Exceeding customer expectations and keeping a relationship with them means you get the call when they have a problem or need a unit replacement next time. Once you’ve earned their trust and respect, the customer will repay you with their loyalty.
When eventual business buyers evaluate your financial performance, they will want to know how much of your revenues are guaranteed through preventive maintenance agreements (PMA’s). If you don’t have these, or it doesn’t total to a significant percentage of your overall revenue, your business will be heavily discounted, if it’s sellable at all.
In today’s market buyers are looking for recurring revenue. It’s not just in the HVAC industry either. All of the service trades such as plumbing and electrical are hot for the same reason. Selling a PMA might be a one-time sell, but it brings value year over year. One simple conversation with a customer might net $10,000 or more over the next few years. Plus, it keeps you close to the customer when they have other service needs like a second property. Better yet, the business buyer will pay you yet again on that PMA 2-4 times its value. When you multiply that by hundreds or even thousands of PMA’s – that’s building significant wealth!
The conclusion? Keep making those new unit sales when you can, but don’t let the opportunity pass without also selling a maintenance plan. Get good at servicing them and don’t give the customer a reason to cancel.
Your comfortable retirement depends on it.
About the author:
Patrick Lange is an experienced HVAC-specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last 12 months and is currently the Vice President of the Business Brokers of Florida (North Florida District.)