I tell all my clients this: if you’re within a 2-year window to sell, your focus should remain squarely on your bottom line. Your profitability—Seller’s Discretionary Earnings, Owner’s Benefit, or other valuation term—is what a buyer is really buying. Never forget that when you get an offer for your company, SDE/EBITDA is what’s being multiplied.
All that to say, EVERY dollar counts.
Many HVAC owners have seen their margins drop over the last year or two. Inflation has eaten into every aspect of their business. From equipment to parts to vehicles, fuel, and labor, costs have risen steadily over the past four years – as much as 20% for most businesses. Interest rates are high, meaning many consumers can’t afford to finance new systems. Many of your customers will decide to repair their older units rather than purchase new ones.
All this takes a toll on profitability (as if I needed to tell you this.) If you want your business to retain its value, you’ll need to pay close attention to the costs you can control and the prices you’re charging.
First, a word about the costs you probably can’t control. One of them is labor. Both competition and legislation in some states have put pressure on wages up and down the board. Every time you pay more for a new hire, you’re likely to have to increase wages for your senior staff at their next performance review. Talent is your company’s most important asset, and you can’t afford to lose the expertise and experience you’ve invested in over the years to a competitor. You also need to be able to recruit the best new talent available; salary isn’t the only thing that attracts workers, but it’s an essential part of the formula.
You also have limited control over equipment and component costs. If you don’t already, you might be able to diversify your offerings to include options from some mid-priced manufacturers. Your customers may not be able to afford a top-of-the-line unit or replacement part, but if you can offer them quality at a lower price point, they’ll appreciate it. You might also shop around for a financing company offering better terms for large purchases.
What to do
Assuming you’ve already declared war on rising costs, it’s time to raise your prices. I’m fully aware that’s easier said than done, but what choice do you have? Your competitors are in the same situation you are in, so they have to as well. The point is, don’t fall behind and become the low-cost leader of your market. It’s a race to the bottom and a great way to destroy all the value in your company when it’s time to sell.
What happens when you charge what you’re worth?
*You can afford to pay techs what they are worth so they remain loyal and stable
*You can make better equipment-buying decisions, perhaps making larger orders for a manufacturer discount
*You put more money in your pocket
*You sell your business one day for a bigger number. Remember, every dollar you put toward profit will yield you $3-4 or more when you sell.
It’s been a rough few years for business owners, but there will always be a market for well-run companies that manage their income and expenses. Invest in what matters and keep an eye out for slipping margins.
