Buying & Selling an HVAC Business FAQs

You can get an SBA loan through participating banks, credit unions, and other financial institutions. The U.S. Small Business Administration (SBA) guarantees these loans to reduce the risk for lenders. This makes it easier for small businesses to qualify for financing. They often come with better terms or lower interest rates when compared to conventional loans.

A multiple in buying or selling an HVAC business is the multiplied amount the business is earning that someone is willing to pay for it. For example, if you are making $100,000, a two-time multiple would sell the company for $200,000, and a four-time multiple would sell for $400,000 for the same earnings.

Buyers use multiples to determine how long it will take to recoup their investment, considering annual earnings.

Co-brokering in HVAC business brokerage is similar to the concept in real estate, where different brokers collaborate to sell a property. It refers to multiple brokers working together to sell a business. However, some brokers may choose not to co-broker for reasons like confidentiality or doubts about others’ professionalism.

However, co-brokering can be beneficial for sellers because it increases the exposure of their business to a wider audience, potentially leading to a faster and more profitable sale. Buyers should ensure their chosen broker is open to co-brokering to have representation, and sellers should consider brokers willing to cooperate for better results.

In short, your business assets. Most owners are selling their business assets instead of their corporation. You cannot transfer the title of an asset if you have an outstanding loan or still owe money on it. So you must pay it off before selling, even if it happens at the closing table. These assets can include:

  • Vehicles such as trucks or vans
  • Trailers
  • Any other equipment

In the HVAC business, the concept of beer can cold is a good indicator of everything functioning correctly. However, you will still use gauges to check what the system is doing and the pressures.

Similarly, using the “industry standard” metric that an HVAC business should only sell a certain multiple oversimplifies the valuation. Yes, the multiple impacts valuation, but other factors affect your business’s actual value, like:

  • How much business is commercial?
  • How many clients are residential?
  • How much business stems from new construction?
  • How much is from maintenance?

It’s not a one-size-fits-all scenario, so consulting with experts can help you have a more accurate valuation based on your business’s specific attributes.

In general, it should take around 60 days. But it comes down to who you partner with. Brokers often have preferred SBA lenders that will expedite the process with pre-approvals. The actual timeframe will vary depending on the lender and other factors; partner with a reputable lender who understands the HVAC industry to ensure a smooth, timely process.

In short, there isn’t one. Buyers no longer allocate pricing based on the number of maintenance agreements when selling your HVAC business. In today’s market, buyers are looking at gross and net income.

However, consistent maintenance agreements will show in the numbers of your business. They lead to better staff retention, improved customer relationships, and more opportunities for additional sales. Generally, the larger the percentage of maintenance agreements, the higher the net income. But there is no magic number for selling your business.

Net income. While how much time the owner spends in the field, maintenance agreements, percentage of business in new construction, and commercial versus residential business are important, they all factor into net income.

Net income is critical for determining how quickly you can repay a loan and how much profit you will make annually. Look at least three years back to see any trends or red flags, ensuring you get a realistic valuation.

Gross sales numbers don’t accurately represent what you are taking away from your HVAC business, and most owners don’t clearly understand their takeaways. How much are you taking out of the business, and what is it paying for? Your health and car insurance? Company meals and business meetings? Knowing this is crucial when considering selling to help you determine the right sale price to maintain your lifestyle after the sale.

A franchise can be an excellent model, but it’s not for everyone. It can limit your buyer pool somewhat, as the franchise agreement can prevent buyers from owning multiple HVAC businesses in the area. However, with the right marketing approach (and the right broker), you can sell your business at an ideal price to the right buyer.

The main two are gross sales and net income. You should look at these over the last three years. Have they been growing over time? Is there an opportunity to improve these numbers? These figures will provide insights into your business’s financial health and growth potential for you and potential buyers.

There’s a misconception that spring is ideal since it’s just before the summer rush. However, one time isn’t better than another when you have a quality business and get it in front of the right potential buyers. The timing of the sale won’t significantly influence the outcome, even during the rush or holiday seasons. It’s all about finding the right buyer for your HVAC business.

The three cornerstones you should address before listing your business are:

  1. Price: Having supporting facts for your asking price is crucial. You need to determine a realistic fair market price for your business to attract buyers without listing too high or too low.
  2. Promotion: Confidentially promoting your business to the general public is crucial. Utilize non-disclosure agreements (NDAs) to target specific buyer groups without revealing your business’s identity to your customers, employees, or competitors.
  3. Process: Before listing, have a process ready to handle the sale. Whether it’s a broker or you’ve already taken care of everything personally with your banks, attorneys, and other parties, you want to have a process to ensure you get your business to the closing table.

By addressing these three elements before listing, you will have a much better and likely more profitable sale.

No, the HVAC industry has two main types of PE buyers. Understanding which type you are dealing with is crucial as it often affects the transition period and terms of sale.

First, there are purely financial buyers. They have no prior experience and aim to invest and sell the HVAC business for profit. They excel in managing people, processes, systems, or finances without actively running businesses themselves.

The second type of PE buyers are industry-experienced buyers. They have extensive HVAC experience and have either received an investment from a PE firm or sold a portion of their business to one. This partnership allows them to gain the capital to expand their HVAC business’s size and operations rapidly.

You should know the type of buyer to understand their motives, determining the best fit for your situation when fielding offers.

Most states require an HVAC license to operate a business, whether it’s the owner or an employee who holds it. For cash buyers, you can often retain the seller as the license-holding employee.

However, if you plan to purchase with financing, SBA loans require the seller to be gone under 11 months. You need to resolve the licensing issues before seeking financing typically. Always address this issue early to ensure a smooth transaction and prevent delays or deal disruptions when looking to purchase an HVAC business.

Connect with your local supply house. They talk to everyone daily, have the pulse on everybody’s business and sales numbers, and essentially hold the keys to the kingdom. Engaging with the supply house staff will turn into quality leads as they often hear about potential sellers before anyone else.

Typically, you settle maintenance agreements by giving the buyer credit for any pending maintenance visits that the seller hasn’t completed yet. For example, if the seller charged $200 for a maintenance agreement with two visits and one is still pending, the buyer would get $100 in credit. You would deduct each credit from the sale price. Before accepting an offer, sellers need to understand how their outstanding maintenance agreements impact their net income.

Holding extended warranties in-house can pose some risks and complications during the sale of your HVAC business. Buyers and sellers often don’t agree on the true cost and risk of the warranties. What’s fair to the buyer and to the seller? Buyers can perceive unlimited risk, while sellers may not see the same risk since they are confident in their own installation work. To prevent disagreements and deal-breakers, outsourcing the extended warranties to a third-party provider will separate the liability and ensure a smoother transition.

Beyond the negotiable commission for a broker, there are six main expenses for selling your HVAC business. You should understand these upfront to streamline the selling process and determine your net proceeds from any sale.

  1. Uncompleted Maintenance Agreements. See “How Are Maintenace Agreements Handled During An HVAC Business Sale?” for more information.
  2. In-House Warranties. See “How Do Extended Warranties Impact My HVAC Business Sale?” for more information.
  3. Outstanding Asset Payments. See “What Do I Have To Pay Off Before Selling My HVAC Business?” for more information.
  4. Accounts Payable: You don’t include your outstanding bills in the transaction, and you should settle before selling.
  5. Attorney Fees and Closing Costs: The cost of representation and closing expenses are often shared between buyer and seller unless there’s a complex deal with particular circumstances.
  6. Taxes: You may need to account for taxes, so consult a tax advisor to understand your potential expenses.

When dealing with a broker, they list the business with a guaranteed minimum inventory level. The buyer needs to compensate the seller for anything above that. Conversely, the seller must pay the buyer for anything below that level.

The buyer and seller must discuss the inventory upfront to prevent any deal disruptions if it’s an independent sale. Failure to have an inventory agreement upfront can lead to a misunderstanding and a deal delay or cancellation.

Other brokers can have agreements anywhere from six months to three years. With Business Modification Group, you can cancel the listing agreement anytime, at no charge. We take all the risk with the transaction. We want you to stay with us because we are doing a good job, as it should be. You can walk away if we don’t, and that’s a fair deal. There’s no fixed-term commitment. Ever.

If you are considering selling in the next five years, then yes. The interest in the HVAC space is incredible. There is high buyer interest, favorable market conditions, market resilience, and future tax implications that could cut into your profits.

However, your business circumstances may vary, so you should assess your situation and get your ducks in a row before trying to wrangle a sale quickly.

No, the size of your business doesn’t always determine your ability to sell. You can sell your business at any size with the correct valuation and price point, getting it in front of the right buyers and having realistic expectations about the sale. Don’t discount your business because you think it’s too small. There’s likely more value in it than you realize.

Especially if you’re purely a financial buyer, you may make a few mistakes during purchase negotiations. You may be asking reasonable financial questions, but they can seem like a critique or criticism of the seller’s business they’ve built their entire life. This will move you to the bottom of their consideration list.

Even if you don’t hold the same beliefs, approach the seller with respect and appreciation for what they’ve accomplished and achieved to increase your chances of a successful deal.

If you are selling your business, it’s crucial to keep it confidential to prevent employees from leaving and customers from switching providers. This will also protect you from competitors. It’s tough to do this if you are listing independently. You can utilize non-disclosure agreements (NDAs), but you cannot get as many eyes on your business to drive interest and a favorable sale.

However, this is very easy if you list through a broker. Brokerage firms will use NDAs, but they can also send the listing out to thousands of potential buyers, increasing eyes on your business without disclosing details your name alone would give away if listing independently.

Specifying what you’re including in the sale and what’s not is crucial. For example, most brokers determine the seller will not include accounts receivable and cash on hand in the sale. However, many buyers assume certain assets are included by default, so clarify this from the beginning to prevent complications and loss of time and money on both sides of the sale.

An LOI shows the potential buyer’s interest in purchasing an HVAC business, especially private equity firms. It takes your business off the market and grants the buyer time for due diligence. It’s important to know that it’s non-binding but will also list the main terms and conditions you agree to from the onset. Keep an LOI short, 30 days, for example, so both parties don’t invest too much time before a sale is guaranteed.

An LOI isn’t necessarily needed for smaller transactions, as lengthy delays can be detrimental to the seller’s interest. But you should send or accept one for a larger business sale.

When selling to a PE firm, receiving a letter of intent (LOI) is just the beginning. You may get a favorable multiple for your business, but it will take some hard work. They offer attractive multiples after they do extensive due diligence. They will closely scrutinize your company’s financials for the last three years or more. You must maintain confidentiality with your staff, get the PE firm all the necessary information, and continue to run your business. It can be stressful, but the reward is great if you can get through the stress and extra work initially.

Honestly, it’s very straightforward and anticlimactic. Closing is a brief phone call where both parties agree to move forward, release signatures, and the deal is done. Closing isn’t a big event, which can be difficult to handle after the stress, hard work, and heartache. Don’t be afraid to plan your own celebration after closing.

Honestly, it’s up to you whether you want to sell it. If you want to sell, you should package it both ways so the buyer knows their options. They can often get a better SBA deal or terms with financing if the real estate is included in the transaction.

Whatever you decide, you should always be willing to rent the property for a short term at least. You don’t want to sell and then evict the new buyer immediately. Ultimately, it comes down to whatever you’re comfortable with and to make it easy for buyers to do business with you.

It’s best practice to inform your employees about the sale after closing, and the check has cleared. If you tell them earlier, you could be in breach of contract terms. Even if you can tell them earlier, it can cause them unnecessary worry. By waiting, you ensure a smoother transition for you, your staff, and the new buyer.

Because the market is favorable, HVAC businesses aren’t selling because of a lack of interest. Here are several contributing factors to why an HVAC business may not be selling:

  • Overpricing
  • Unrealistic seller expectations
  • Poor books or financial records
  • Unrealistic buyer expectations

If you’re selling with a broker, ensure they know the HVAC industry to improve your odds for a successful sale. If you’re selling without the help of a broker, ensure your books are clean, your pricing is fair, and you’ve got a sale process in place. See “What Are The Three P’s Of Selling My HVAC Business?” for more preparation tips.