When you’re ready to sell your HVAC business, the last thing you want is to start working with a potential buyer and then have the deal fall apart. Fixing issues in your company before you put it on the market can help you avoid wasting time and resources.
Here are the top four problems that will stop a deal dead in its tracks:
Not having clean books and records. There are two concerns here. One is getting organized – making sure you have all your documentation up to date and that you can easily locate records a buyer will want to examine. When a buyer sees a disorganized (or non-existent) system, they know it will take an enormous amount of time and energy to ensure they understand the business’s details. Many buyers will simply move on to the next opportunity.
The second issue is having all kinds of personal expenses on the company books. Business owners almost always employ a tax mitigation strategy, running as many expenses as they can through the company to reduce their profit and tax burden. But when it comes time to sell, a buyer will make an offer based on profitability. You should clean up, organize, and modernize your recordkeeping so it’s easy for a buyer and a lender to see the true bottom line. You can save 30 cents in taxes on every dollar you make now, or you can make 3X on every dollar of revenue when you sell.
Having a company that relies on the owner to keep it running every day. One of the most important issues for any buyer is owner involvement. They’re not buying a job, especially one that involves hours in the field every day and hours keeping books every night. If your field staff need your input on every problem and every decision, you’re the lead tech, not the CEO. Buyers look for companies with a management structure in place to run daily operations, so they can focus on growing the business. If you don’t have a reliable and knowledgeable second-in-command, you’ll need to identify (or hire) one and train them to take on more responsibility.
If you’re wondering if you’re too involved in the business, here’s the litmus test: could you take a two-week vacation with complete confidence that everything will run smoothly while you’re gone? If not, this is a critical issue to fix before you list your business for sale.
Staff turnover and reliability issues. If one of the reasons you don’t have a strong management structure in place is the quality of your talent, it will be a deal killer for almost any buyer. They are buying your workforce along with your other assets, and they want to know they can count on your employees as they learn the business.
Staff turnover is a deal-breaker in any industry, but failing to retain experienced technicians can cost you both money and reputation. If you have a turnover problem, it usually points to one of two things: culture or pay. If you’re paying below-average wages for your market, you’ll need to fix that to hire and retain the best talent. If you’ve let a toxic employee or poor management practices into your workplace culture, you’re going to lose good people no matter how well you pay. Ask your most trusted employee(s) to speak frankly on what’s causing people to leave. Then fix it.
Customer concentration issues. If more than 20 percent of your revenue comes from just a couple of large customers, most buyers will see it as a red flag. Companies that specialize in new construction, for example, are not attractive to buyers, even if they’re very profitable. Construction companies aren’t loyal. They make decisions based on keeping costs low. I’ve written about this before; they almost always order the bottom of the line, except for custom homes. There’s almost no repeat business, and new construction companies carry much higher accounts receivable. Especially in residential construction, payment for installations can take a long time to arrive, making cash flow more challenging.
Fixing these issues may take months, even years, which is why I recommend that owners consult a broker two to three years before they intend to sell the business. An experienced business broker can tell you what your company is worth in the current market and what factors are affecting that value for better or worse. They may even offer advice on how other sellers increased the value of their business by fixing issues so the company attracts a larger pool of buyers and higher offers.
