Lori Greiner of ABC networks “Shark Tank” famously said “Entrepreneurs are willing to work 80 hours a week to avoid working 40 hours a week.”
So if you’re going to bust your tail in your business anyway, why wouldn’t you want to build as much value as possible when it comes time to sell it?
That’s the question Patrick Lange regularly asks HVAC business owners. Lange is the lead business broker at Business Modification Group, a consulting firm that specializes in selling HVAC related businesses. The one detail he shares with us can make the difference between a $100,000 bank account boost or a 5 million dollar life-changing transaction.
So what is it?
“Maintenance Agreements” Lange says confidently. Now before you click onto another article, hear how his first-hand experiences have created millions of dollars of wealth from such a simple business model change.
Lange, a former HVAC business owner himself and broker for nearly 100 sold businesses approaches the topic from a saleability perspective. He understands that there are some in the industry that have an ethical dilemma with pre-charging clients for services, but he’s clear that he’s not judging, just stating the facts that have been proven in the marketplace.
“What buyers really want is a predictable cash flow they can plan around. In short, they want to know where the next dollar is coming from. Without maintenance agreements, that can be hard to answer with any certainty,” Lange shares
The problem with the lack of significant maintenance agreements is that you are always “reinventing the wheel” as he puts it. By surviving on new installations you leave a lot of money on the table because your volume is directly tied to your advertising. And we all know reliance on advertising is the most expensive way to run a business. You find yourself in this impossible and deceptive game of who is willing to discount more to win customers. “It becomes a race to the bottom” Lange says.
However when those new sales are viewed as an opportunity to win a maintenance agreement customer, the margins get better, you keep a customer longer and you give yourself a chance to create customer loyalty. That builds enormous value and your someday buyer will reward you handsomely.
He suggests focusing on new metrics including lifetime customer value and customer profitability. If you can accurately predict cash flow 24 months in advance, you have a very sellable business. And one that will have multiple competing buyers.
Still not convinced? Ask any HVAC business owner about finding and retaining talent, and watch them break into a sweat. It’s tough! In the summer or winter months, crews are kept busy, but in the fall and spring, the phone isn’t ringing nearly as much and you have expensive talent sitting around looking for something to do. When you can’t afford to keep them, they leave for your competitors after you trained them up. Ouch! But companies with maintenance agreement business can retain their talent and keep them billable all – year- long. Long term agreements keep your business from ever being slow.