Successful entrepreneurs understand the importance of planning for the future. Building or growing an HVAC business creates financial security and a proud sense of accomplishment, and the owner usually takes the time to carefully balance the risk/reward equation. This includes meticulous planning for anticipated trends, cycles and financial needs. Still, it’s astonishing how many experienced business owners fail to develop a strategy for optimizing the value of their business prior to putting it up for sale.
HVAC service companies are highly sought after businesses that qualified buyers are often seeking to acquire. While the HVAC industry is seasonal to an extent, revenue streams can be highly diverse, and the industry is relatively protected since it’s generally too technical for handymen and the do-it-yourself market.
Numerous HVAC companies are sold every year, but too many are sold below maximum value. If you’re looking to get the most out of your company, here are five tips that can help increase the value of your HVAC business.
- Get Your Financials in Order: Sloppy financials degrade the value of your business and convey a sense of disorganization the buyer may assume carries over to other parts of the company. Tighten up your balance sheet by eliminating dead inventory, writing off bad debts and selling obsolete equipment.
- Sell More Maintenance Contracts: Service maintenance contracts represent a dependable source of income that’s relatively immune to fluctuations in the economy. Many contractors rely on service agreements to remain profitable when the new construction and replacement markets are down. Additionally, prepayments for service contracts can help build reserves and enhance cash flow, which is very attractive to prospective buyers.
- Create a Viable Succession Plan: Many small HVAC companies are entirely dependent on the owner. Savvy buyers consider this a negative and may reduce their offer to compensate for what they perceive as a serious vulnerability. As a seller, it’s important to create seamless processes and routines that will allow the company to operate effectively even when you are no longer involved.
- Protect Key Employees: While discussing the potential sale of your business with the staff is usually inadvisable, steps can be taken to protect key employees during the transition. This can include extending employment contracts, wage increases or promotions. When the sale becomes public knowledge, key personnel should be assured that their jobs are safe, and the new owners should demonstrate a commitment to maintaining employment continuity.
- Tidy up the Premises: Contracting is a dirty business, and many shops and attached offices become filthy over time. In most cases, no one really notices because it happens gradually. However, a prospective buyer who is unfamiliar with the business may make a negative judgment based on how the place looks. A fresh coat of paint and new carpeting in the office can project a vibrant, progressive image. If nothing else, clean the supply and return registers. After all, it’s a heating and air conditioning business that you’re trying to sell!
Your HVAC business represents a valuable asset, and optimizing its structure, financials and operations will help you add value and secure a higher price when it comes time to sell the company Implementing better practices can also improve profits and provide an environment for an easier transition in the event of an unexpected life-changing event.