While a little luck is always welcomed, It’s someone’s hard work and tenacity that creates a great HVAC service business. And while it took an enormous effort to get the business where it is today, it’s just as much work or more to expand it. There are no economies of scale when it comes to labor.
While the confident and capable HVAC business owner has already proven they can build and expand their business, doing so means more 50+ hour workweeks, a major investment in equipment, and perhaps the most painful. The hiring of hard to find technicians.
Still, it can be done. But is there a better way to scale your business, and ultimately, your paycheck?
The painful reality
It would be nice if expanding your business was a linear experience, but any business owner will tell you, when you take two steps forward, be prepared to get knocked backward by receiving bad news like employees quitting, losing an important customer, or having major equipment failures. Sadly, the uphill road to success is paved with unintentional bad decisions and lessons learned, but if you have enough emotional and physical energy left, you’ll get to where you’re going. However, there’s no guarantees and things out of your control can thwart your success.
A better way?
Patrick Lange, Business Broker with Business Modification Group thinks he has a better way. He’s been an HVAC business owner himself and now sells more HVAC businesses than anyone else in the United States.
“In any business, time is literally money, and with unlimited amounts of both, you can expand your business. However, some of the most successful HVAC owners I know have grown by putting their existing cash flow to work by acquiring someone else’s HVAC business.”
Most HVAC owners in the industry haven’t thought of this option, but it remains the fastest way to expand your business, make more money, and keep what hair you have left.” He says with a smile.
The numbers seem to match his claim. When adding up how much capital is needed to invest in a facility, buy the needed trucks and equipment, pay salaries, and get started doing all the little things, you can burn through $100,000 or more even if you’re on a strict budget. And all of that has to be done before you have the customer base to pay for it.
Putting that same capital or less to work when you buy a business may be a smarter move.
“When you look at the time, money, and effort it takes to acquire 2500 maintenance agreements, and a 20-year-old phone number from your competitors, buying that business makes a whole lot more sense.” Says Lange.
“If you have more money than patience, you should buy a business. A well-run acquisition company can pay back the debt in as little as two years.” – Patrick Lange
Finding the money
Brandon Bolen, Vice President of Service Contractor lending at Live Oak Bank works only with service contractors giving them access to capital needed to buy businesses. When asked about the process, he responds “We love to lend to existing HVAC businesses. Provided personal credit, character and experience are within our guidelines, we start by looking at the cash flow of the existing business. We need to see that the business is in good shape, profitable, can meet its debt obligations and can pay the owner a comfortable salary. Next, we look at the proposed business to buy and that it’s priced appropriately. Ultimately, we want to make sure that the combined cash flow of both businesses can service all debt, plus a cushion for if there is a bump in the night.”
With Small Business Administration (SBA) guaranteed loans, banks are eager to lend to existing companies growing through acquisition and offers them the possibility of no money down when acquiring another HVAC business. This is the case if just business assets or real estate are being purchased, or both.
Bolen adds “Most people have only experienced the home mortgage process, where it’s very formula-driven and very black and white. In the HVAC lending business, the process is more grey. The owner’s background and experience mean something. We look at a variety of factors, which all contribute to the approval process.”
Where to find HVAC businesses for sale
There are HVAC businesses for sale right now for legitimate reasons. It could be because of impending retirement, health, or just loss of interest. A comprehensive list of companies can be found here. Even if you don’t see one in your desired area, it doesn’t mean that one doesn’t exist. Lange, an HVAC only broker, also serves as an intermediary that strategically approaches businesses about selling on the behalf of a confidential buyer.
It’s important to note to not go it alone when acquiring a business. Work with an industry-specific broker consultant that can evaluate opportunities that match your goals and align well with your existing business. Merging processes and cultures can be challenging, but with a little self-induced “luck” you may be able to double your business in 2020.
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