01 May 6 Key Mistakes to Avoid When Selling Your HVAC Business
Every company has a natural lifecycle. Although the name on the business may remain the same, the philosophy, goals, and objectives of the business change as the ownership changes. Unfortunately, many owners unwittingly sabotage the value of their HVAC business by failing to plan for its eventual sale far in advance.
Selling your HVAC business may be the furthest thing from your mind right now, but time waits for no one. At some point, your company will be passed on to the next generation, closed or sold. If you envision selling anytime in the future, it’s important to avoid some common pitfalls that undermine the value of your business during negotiations.
Avoid These 6 Pitfalls When Selling Your HVAC Business
1. Failing to Train Your Replacement
Many HVAC companies are run by an owner/operator. From a buyer’s perspective, this is a significant weakness. While you may experience a sense of satisfaction knowing your business can’t operate without you, it will severely diminish its value to a buyer. To enhance intrinsic value and ensure all your employees’ jobs are secure, train a key member of your team to handle every phase of the operations side of your business in your absence.
2. Failing to Diversify
Many HVAC business owners rarely venture outside of their comfort zone when pursuing business opportunities. While it’s easy to ignore other revenue sources when the business is making money, lack of diversity can negatively impact the worth of your company. (Forbes magazine) Obviously, if your business is centered on new construction, there’s a risk involved in entering unfamiliar markets. However, diversity provides protection from economic downturns, and buyers value companies that aren’t dependent on a single source of revenue.
3. Failing to Keep Accurate Financials
Accredited buyers will always ask to see five years of tax returns and five years of financial statements. If your financials aren’t in order, the buyer has nothing to use as a basis for establishing the worth of the business. This is especially true if you want to be compensated for “goodwill.” Inaccurate or missing financials also affect your credibility from the buyer’s perspective. Without an accurate and complete set of financials, you should expect a significantly lower offer.
4. Failing to Develop a 5-year Plan
Always anticipate that a buyer knows nothing about the HVAC industry. A well-conceived 5-year plan offers a valuable blueprint that the prospective buyer can use to guide the business going forward. If you don’t end up selling, the exercise itself has intrinsic value for charting a course into the future.
5. Failing to Establish Authentic Receivables
Too many small business owners tend to ignore past due receivables until they turn into bad debts. Savvy buyers won’t be fooled into paying for debts that are over 90 days old. A healthy days-to-collect average of less than 45 days shows a buyer that your receivables and customers are legitimate.
6. Failing to Ensure Your “Team” Remains Intact
Long before you’re ready to sell, it’s important to lay the groundwork with your HVAC business partners. This includes key employees, suppliers and your professional team. If you want to sell your HVAC business for the highest price, eliminate uncertainty. When your entire team is committed to working with the new owner, that confidence will be reflected in the offer you receive.
Plan for the Sale of Your HVAC Business
The HVAC industry is populated by small, family-owned businesses. There are far too many heartbreaking stories of heating and cooling companies sold at fire sale prices because of sudden illness, death, or retirement. If you fail to plan for the sale of your HVAC business years before you’re actually ready to sell, you’re almost guaranteed to receive a lower offer. Many small business buyers are professionals, and they love a distressed sale.
You’ve spent a lifetime building equity into your business, so don’t let it slip away due to poor planning. Take the time to develop a strategy for selling your HVAC business to benefit yourself and your family.
Kyle Griffith, CBI – New York Business Brokerage
New York Business Brokerage (NYBB) specializes in the confidential sale, acquisition and valuation of small to mid-sized privately held businesses. Since 2003, NYBB has been dedicated to serving clients with professionalism, integrity and confidentiality. As an innovative leader in the business brokerage industry, NYBB continues to raise the bar by establishing itself as one of the most trusted and respected names in the business buy/sell marketplace.