Every HVAC business has a lifespan. The key to success in any business is knowing how to manage that life cycle to exit properly. The key to a successful exit is having the right strategy in place that will help you achieve the desired results. But equally as important, is avoiding some key mistakes when you get ready to sell your HVAC business. Statistically, many HVAC owners unwittingly sabotage the value of their business by failing to plan far enough in advance for a liquidity event.
While selling a business may seem far away right now, at some point, every business owner will make an exit. The question is will it be voluntary, because of careful planning, or will it be involuntary, because there was a lack of preparation. At some point, all HVAC businesses 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 mistakes that undermine the value of your business during negotiations.
6 Pitfalls to Avoid When Selling Your HVAC Business
1. No Succession Planning
Most HVAC companies are run by an owner/operator. While most owner’s take a great sense of satisfaction knowing a business cannot run without them, from a buyer’s perspective, this is a significant weakness. In fact, it will actually devalue your business at negotiation time. To enhance the value and make sure all your key employees’ jobs will be secure, HVAC business owners should train key members to handle every phase of the operations side of the business.
2. Failure to Diversify
The majority of HVAC business owners rarely step out of their comfort zone to develop new services. Lack of diversity can severely devalue your business according to Forbes. (Forbes magazine) For example, if your HVAC business is centered on new construction, there’s a certain amount of risk involved there. However, diversity in services provides protection from economic downturns, and buyers value companies that aren’t dependent on a single source of revenue. In 2020 many HVAC owners are seeing the impact of COVID-19 and recognizing they need to diversify in order to sustain current operations or to achieve growth goals.
3. Inaccurate Financials
All accredited professional buyers will always ask to see 5 years of tax returns and financial statements. If your financial house is not in order, you will not be able to show the maximum value to the buyer. Inaccurate or missing financials also affect your credibility from the buyer’s perspective and without an accurate and complete set of financials, you should expect a significantly lower offer. Inaccurate or missing financials is similar to missing a complete car history report before purchasing a used vehicle. Usually if something is missing or incorrect, buyer beware.
4. No 5-year Plan
A 5-year plan is essential in the HVAC industry. One should anticipate that a buyer knows nothing about the HVAC industry and you will need to help show them a path for growth so they see ways to improve the existing business. 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, it also provides a way to navigate success in the future for your business.
5. Inconclusive Receivables
Far too many HVAC owners tend to ignore past due receivables until it’s too late and they turn into bad debts. A smart buyer won’t pay debts more than 90 days old. Make sure you are closer to 45 days or less.
6. Key Team Members are Not On Board
Far before you’re ready to sell, it’s important to lay the groundwork with your employees and partners. This includes key employees, suppliers and your professional team. If you want to sell your HVAC business for the highest price, the best thing to do is eliminate uncertainty. When your key team members are committed to working with the new owner (buyer), that confidence will be show often in a better offer price.
Plan for the Sale of Your HVAC Business
That vast majority HVAC industry is populated by small, family-owned businesses. Over two decades in business, Viking Mergers has seen our fair share or heartbreaking stories of heating and cooling companies sold at low 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 nearly guaranteed to get a lower offer price. Keep in mind a lot of successful small business buyers are professionals, and they are looking for distressed businesses that they can turn around for a profit.
You’ve spent a lifetime building equity into your HVAC business, so don’t let it slip away due to a lack of planning. Take the time to develop an exit strategy to benefit yourself and your family.