Valuing HVAC Companies
HVAC companies are amongst the most sought-after businesses in the country. The reason is since 2015 HVAC businesses have witnessed an increase in business activity and consumer spending. As of 2018, the annualized growth rate over the past five years has been 2.8% and is projected to be 2.3% over the next five years. Depending on the location, the growth rate varies due in part to the expansion of nonresidential and commercial buildings. Understanding that every residential and commercial building requires heating and cooling indicates that HVAC companies are always in demand.
HVAC companies are a great investment for a potential buyer because there are several factors that one could implement to expand an HVAC company. However, if you currently own an HVAC company, you must be wondering how you could maximize your payout. Over the past year, Peak Business Valuation has worked with several HVAC companies looking to sell. Throughout the United States, there are dozens of businesses that transact every year. Depending on the size, cash flow, and revenue of the company, the average selling price for a small HVAC business is between $685,000 and $1,250,000.
If you have been thinking about selling your HVAC company, the first step is to understand the value of your business. Get started with your business valuation for an HVAC company today. Schedule your free consultation by clicking the link below.
Market Multiples for HVAC Companies
- 37.0 – 60.0% of annual sales, includes inventory
- 2.4– 3.4x Sellers Discretionary Earnings, includes inventory
- 3.4 – 7.8x EBITDA
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
For more information, see Valuation Multiples for HVAC Companies.
Factors Impacting the Value of an HVAC Company
There are countless factors to consider, but this will provide you with the basis of what your company is worth. If you are searching for a more extensive valuation, reach out to a valuation professional like Peak Business Valuation.
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your HVAC business. I will touch on 4 ways in which you can increase the value of your business.
Market and Services Segmentation
How does your business stack up next to the industry in terms of revenue breakdown? The primary revenue sources for HVAC companies are installation, repairs, replacements, and maintenance. Observe the percentage breakdown of your revenue to see how each product and service you offer compares to that of the industry. In addition, identify the source of each product or service purchased. Below is data derived from IBISWorld. If you are interested in more industry research, feel free to schedule a free consultation with Peak Business Valuation.
HVAC Products & Services:
- New Construction HVAC Installations – 50.8%
- HVAC Maintenance and Repairs – 32.5%
- Existing Structure HVAC Installations – 10.8%
- Refrigeration System Installations – 5.9%
In addition, you can compare your revenue against the reported HVAC market segmentation as described below.
HVAC Market Segmentation
- Single-Family Homes – 25.6%
- Manufacturing and Industrial Buildings – 12.7%
- Office Buildings – 11.6%
- Retail and Storage Space – 11.6%
- Healthcare and Public Safety Buildings – 10.4%
- Educational Buildings – 9.2%
- Apartment Buildings – 6.4%
- Other – 12.5%
After comparing your own numerical figures to the statistics above, you will be able to identify areas of weakness and strength.
Annual Service Agreements
Service agreements produce consistent revenues and repeat customers. One of the most difficult aspects of renewable service agreements is explaining the benefit to the customer. The strongest selling point is preventative maintenance. A preventive maintenance plan ensures the effectiveness and efficiency of products sold. By servicing HVAC systems on a regular basis, customers forego higher repair costs. If this does not convenience the customer, other options include offering better pricing or a customer loyalty program. There are countless incentives to test with customers. Train your technicians and salespeople on these different benefits of pitching to customers. Ultimately, the goal is to increase customer loyalty and topline revenue.
I have spoken with several individuals within the HVAC space that have not prepared a business plan. One HVAC owner in particular simply stated that if they have the capability to fulfill, they will look into other products or services. This pattern of thinking distracts you from identifying ways to grow your company. If you are able to assess your company and identify ways to increase revenue and profits, buyers will want to buy your company.
You, as the owner, have the best understanding of your business. It is in your best interest to create a business plan and then take action. If you need assistance, you can use this business plan template. By documenting your business plan, a potential buyer can further understand the business model and growth of the company.
Experienced technicians may be hard to come by. With the surge in residential and commercial constructions across the state of Utah and in many areas of the country, HVAC technicians are in great demand. It is important to find ways to maintain such individuals on your team. One way to do this is to have each of those individuals specialize in one of the market segments identified above. This will increase your accessibility to jobs. Another way may be to hire new technicians. This may add to your overhead, but new technicians can help your business expand prior to a potential sale.
Understanding the value of your HVAC business is important, regardless of any near future transactions. By implementing some of the points discussed above, you can increase the value of an HVAC company.
We at Peak Business Valuation work with a handful of HVAC businesses each month. We are happy to address any questions that you may have about valuing an HVAC company. Feel free to reach out by scheduling a free consultation.
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