Business valuation refers to estimating the market value of a company. This value estimation is the price point that most buyers would be willing to pay for a business in the current local market. There are many factors that go into valuation for an HVAC business, including current income, licensing, assets, staff and technicians, and market research.
The HVAC industry has grown rapidly over recent years. An increase in the number of HVAC business buyers and purchases has driven up the value of many HVAC companies. If you are a business owner that is considering selling, it is vital to have a good understanding of the value of your company.
What is an HVAC Business Valuation Calculator?
An HVAC business valuation calculator is used as a tool to determine the value of a company in the HVAC industry. While not all brokers recognize one specific formula or calculator, some standard methods are used to calculate the valuation for an HVAC business. These methods include:
1. The Business’s Assets
The asset-based method of valuation considers the net asset value of an HVAC business to calculate its worth. You start with the total value of a business’s intangible and tangible assets, and then subtract any liabilities.
A broker will look at the books to determine a company’s assets. However, the balance sheet may not be the most reliable value account. Instead, the assets should be adjusted to the market value to determine a more precise valuation.
2. Current and Potential Income
Calculating the valuation for an HVAC business using an income method involves estimating the possible future income of the company. These methods work well for businesses that are currently profitable and have a high potential for future growth.
Income-driven methods to get a valuation for an HVAC business consider historical cash flow data. The capitalization of cash flow (CCF) method uses the current business net income and return on investment to determine the company’s worth over time.
Not only are the business’s potential and current cash flow weighed during these calculations, but the risk of investment is also considered. An HVAC business buyer will pay less for a riskier business. These risks can include any current liabilities, the spread of the company’s customer list, staff turnover, and current owner involvement.
3. The Local HVAC Market
A market valuation method compares the HVAC business to others of similar size, revenue, customer base, profitability, and market share in the local area. The parameters used to calculate value include revenue, net income after taxes, number of employees, seller’s earnings, etc.
There are two primary advantages to using the market method to calculate the valuation of an HVAC business. First of all, this approach is relatively easy to do. Most of a business’s revenue and net income data are available in public records. Secondly, you are not making assumptions with this method, as it is based on numbers and hard data.
What Is My HVAC Business Worth?
Deciding to sell your HVAC business is a big decision. You’ve likely spent years building up your customer base and revenue, and it can be challenging to know when is the best time to sell and move on. Business Modification Group offers HVAC business valuation services at no cost and with no obligation to sell. Valuation can provide you with the information you need to make an informed decision, and it takes just minutes to do.
Many factors can impact the value of your business, but here are a few of the big ones to keep in mind.
Source of Earnings
When determining an HVAC business value, it is not only important to calculate the business’s earnings but also to know the source of those earnings. During an HVAC broker’s due diligence on a company, they will conduct a quality of earnings analysis.
Figuring out the source of a business’s earnings indicates to the buyer which of the company’s services make up most of the profit. If, for example, the most significant percentage of HVAC business value comes from new construction, this may result in lower offers on the business. Profits made working on new construction projects can fluctuate wildly and businesses that depend on these profits can be less stable. Consider diversifying your customer base if your HVAC business deals mainly in new construction. Contracts for annual maintenance, for instance, promise consistent recurring revenue.
HVAC business buyers will be more interested in companies with solid organizational structures and systems already in place. These organizational systems include accounting, customer communications, inventory, and scheduling.
A well-managed business is very attractive to potential buyers. When a new owner takes over, they want to know that the transition will be smooth and that little will need to be done for the company to keep running as usual.
Staff and Technicians
The number of qualified technicians and employees at an HVAC company will impact the value of the business. A well-run, quality team helps guarantee that the company will continue to succeed and even grow after an ownership transition. The prospect is more enticing if the HVAC business purchase comes with highly qualified, loyal staff.
When an HVAC business buyer purchases an established company, they can save on licensing and certification fees for the business and existing technicians. Licensing for HVAC technicians is crucial for safety assurance, regulatory and legal compliance, professionalism, and credibility. It ensures that technicians have had the training needed to handle systems safely and perform top quality work.
Employing licensed technicians reduces the likelihood of subpar installations and mistakes. When you list your HVAC business for sale, you are more likely to see higher offers if the purchase comes with all up-to-date licensing and certifications for the company and technicians.
Level of Owner Involvement
The level of owner involvement in an HVAC business can affect the prospects of a sale. Buyers are more likely to be interested in a company with minimal owner involvement. This increase in interest is because most HVAC business buyers want to invest in a business that will continue to run and bring in income as normal throughout the owner transition process.
When business owners are too involved in the day-to-day operations, the company may suffer when they leave. If your HVAC business is heavily reliant on you, it may be time to start delegating responsibilities to some trusted employees.
The geographic location of your HVAC business can have a significant impact on the sale. Companies in highly populated or growing areas will be able to attract a higher purchase price. With a higher market potential, your HVAC business value will be higher.
Your area’s climate can also impact your business’s value and the need for HVAC services. HVAC businesses will be more valuable in geographic areas that see extreme temperatures or higher fluctuations.
Brand Recognition and Reputation
Any business’s branding, recognition, and reputation are crucial for success. For HVAC businesses, these factors are critical. HVAC installers and technicians often enter customers’ homes and places of business, which means that customers have to have a high level of trust in the company’s positive reputation.
A business’s reputation is not built overnight but takes years to establish. Reputation is another reason why HVAC business buyers look to purchase established businesses rather than start from scratch. If you can demonstrate that your business is well-known and trusted in the community, it will increase your company’s value.
Valuation with Business Modification Group
If you want to sell your HVAC business, you will want to ensure the best sale price possible. Selling a business can be complicated, but working with an experienced business broker like Business Modification Group will simplify the process. We have years of experience in the HVAC industry and can provide you with expert insight, strong industry connections, and a smooth and confidential process.
No Obligation to Sell
With complimentary valuation services at Business Modification Group, we can give you a clear understanding of your company’s value against others recently sold in the area. With solid industry knowledge and connections, you can expect an accurate appraisal and no obligation to sell.
At Business Modification Group, we understand that deciding to sell your HVAC business can be a sensitive matter. We provide confidential services for every company we work with. Keeping the process quiet until you are ready to announce the sale to your customers will ensure a smoother transition, keep your reputation intact, and keep any staff concerns at bay.
Vast Network of Buyers
At Business Modification Group, we are HVAC business brokers working with sellers and buyers. We have a vast network of qualified buyers to connect you to once you’ve decided to sell. Each buyer has gone through a thorough evaluation process to determine their financial standing.
In addition to connecting you with this network of business buyers, Business Modification Group can help you develop an effective sales marketing plan. We have proven marketing strategies to pull from. This additional assistance will make the process of advertising and selling your HVAC business much less overwhelming.
Whether you are an experienced seller or this is your first time, we can help you sort through every step of the due diligence and closing process. Everything will be handled with Business Modification Group as your broker, from lease transfers, accounting of assets and inventory, contract negotiations, and more.
Is it Time to Sell?
While making the final decision to sell your HVAC business is up to you, the experts at Business Modification Group can give you the information and industry insight to help you make that decision. We have partnered with sellers and buyers in the HVAC industry for years, making our perspective invaluable. If you are still determining whether you are ready to sell, reach out to get a free HVAC business valuation and consultation.