“In growing industries, the best time to buy a business was yesterday. The next best time is now.”
Many entrepreneurs find the heating and cooling business attractive – and for good reason. No matter what the economy is doing, everyone needs to control their home climate. A/C and heating systems are essential to quality of life; when they break, they need to be repaired quickly. Both residential and commercial business is growing in most parts of the country, so there’s plenty of room for expansion.
If you’re considering buying a business, here are some things to look for.
I try to steer buyers to smaller to mid-sized companies with plenty of opportunity for growth. Smaller companies have quick win opportunities for a new owner. They often provide on-demand service only; when a unit needs service or replacement, they get the first call. In smaller communities, they likely have a large market share and a loyal customer base. Many, though, are family owned and operated, and already working at full capacity. An infusion of capital, energy, and strategy creates the potential for quick and profitable growth.
If you’re already in the industry, acquisition is a proven way to expand your business. You’ll gain economies of scale through administrative and marketing consolidation. You may have technology such as Customer Relationship Management systems (CRMs) that will make it easier to be proactive in meeting customer needs.
You’ll have the opportunity to expand offerings to that loyal customer base. Recurring maintenance agreements are a strategic way to increase business. Customers get the peace of mind knowing that their systems are being monitored yearly. They appreciate the priority service and discounts on repair calls and replacements. This is an area that many smaller companies ignore because they do not believe they are profitable or do not have the manpower to handle them.
Maintenance agreements also benefit the company. They keep your techs busy in the field during low-demand periods, which helps you manage your workflow. They’re a great way to train new employees and get them experience in both system maintenance and customer service. And they’re profitable; they provide a guaranteed annual income stream that can provide up to 50% of your company’s gross revenue. You’ll be proactive in making sales, suggesting needed repairs and replacements you identify in your regular service calls.
All that provides a great opportunity and plenty of upside. Here are some ways to determine if a company is the right fit for you.
- Size: Does the company have room to grow the business and increase profitability? Will the cash flow be enough to run and improve the business – and cover your debt service? How much more profit can you achieve by decreasing costs and increasing efficiency?
- Geographic location: Does this business grow your local market share or give you entry into an attractive and high-potential new market? Do you have the capacity (or staff) to stretch into this new territory and provide a high level of service?
- Customer base: Does the company have the right mix of business: residential and commercial, recurring maintenance and effective marketing for on-demand calls?
- Price: Do the numbers make sense for your financial position? Do the books reflect everything you need to know? Are they in good order and in accordance with the tax returns? Are the company’s revenue and profitability trending on the right trajectory?
These are complex issues, and the market is changing every day. An experienced broker can help you work the numbers, provide reliable and relevant comps for the industry, and point you toward opportunities you might not be aware of.