Before you get too excited about an offer to buy your business, understand how much you’ll put in your pocket. Here’s what to include when you determine how much will you net from your HVAC business Sale?
Other than taxes, you get to keep all of the money offered for your business, right? Not exactly. So how much will you net from your HVAC business sale? Patrick Lange, a business broker with Business Modification Group lays out the six major expenses that relate to any HVAC business sale.
Maintenance agreements and prepaid in-house warranties
If you’ve been listening to industry experts, you understand how important it is to sell as many maintenance agreements as you can. It creates a predictable revenue stream and builds value in your business. But you don’t get to keep all the revenue collected if you haven’t performed all of the services.
For example, If you sell a $200 annual maintenance agreement that includes two service visits and you only perform one, then the business buyer will get a $100 credit.
Depending on how many maintenance agreements you have with customers, that could be a sizable figure.
The same concept applies to in-house warranties. Although rare for HVAC companies to hold their own warranty risk, buyers will want to negotiate how much of a credit they deserve per warranty exposure. There is no standard rule of thumb here.
Every HVAC deal has some associated attorney fees. It is customary for the buyer and seller to split these costs. However, if the deal is particularly complex with things like land transfers and leasebacks, the seller could be on the hook for additional costs.
Outstanding vehicle loans
Before you run out and buy that shiny new F-150 for the business, understand that all vehicle loans will need to be paid off (with proceeds) before the deal can close. This is why Lange advises to hold off on any major purchases if you think you might be selling soon. The only exception is if new equipment is needed to keep business performance from slipping.
Outstanding bills will need to be paid before closing. You can’t expect the buyer to take on your debt. If you don’t have the cash before the closing, it will come out of the deal in the form of a credit back to the buyer.
When you’re determining how much you’ll net from your HVAC business sale don’t forget about taxes. Uncle Sam is going to get his! Lange suggests speaking with your CPA about tax minimization strategies, but it’s a certainty that at the end of the year, a portion of your sale proceeds will go back to the government.
A quality business broker is compensated for their time spent making the deal happen. The broker will incur risk and sometimes invest hundreds of hours and thousands of dollars before they get paid. Just like in a real estate transaction, they get paid at the time of closing.
Selling a business can be exciting and potentially bring life-changing money. Make sure you understand all of your costs involved so you can make the appropriate plans. Lange concludes, “My number one goal other than getting a client’s business sold is to make sure to set realistic expectations. When there is no ambiguity, everyone walks away from the closing table happy. That’s how it should be.”
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.)