Contractors are experts in servicing HVAC equipment, but this expertise likely does not transfer to knowledge of how to sell a business or find real estate space. When the time comes, working with a broker can maximize the sale price of an HVAC company or help find cheaper office space.
Brokers Know How to Increase Company Value
Patrick Lange, owner of Business Modification Group and vice president of the Business Brokers of Florida, said that the primary advantage of using a business broker for selling an HVAC company is pricing.
“A broker who sells a lot of heating and air companies is going to know what the market is and know where pricing should be,” he said. He explained that a company like that knows how to evaluate the value of HVAC companies, as well as how to successfully negotiate for the best price based on aspects like profit, customer base, and more.
“When I list a heating and air company, I've got a specific checklist of everything I'm going to need from them to compile a report to be able to take it to market,” he said. Selling a business involves a lot of work, such as compiling tax returns, financial returns, and other forms and contracts, and a broker can help with this process.
Lange said that when looking for a broker, contractors should look for someone specializing in selling HVAC companies. Lange himself specializes in selling HVAC companies, which he said gives him a lot of data to successfully price HVAC businesses for sale. Plus, focusing on one market allows a broker to become familiar with companies that acquire HVAC companies on a consistent basis. This means a broker can approach several companies that have a habit of acquiring HVAC businesses, which can create a bidding war and raise the sale price of the company.
He explained that when looking for a broker, contractors should make sure to find somebody they feel comfortable with, since they’ll be doing a lot of side-by-side work with them.
Lastly, Lange gave advice to companies who might be looking to sell in the next few years. He advised owners to have clean books and records, and to be able to separate themselves from the day-to-day operations as much as possible, so that the company does not depend completely on them.
“Companies that focus on service are more attractive to buyers because there's relationships with maintenance agreements,” he added. “Develop relationships and have predictable revenue that comes in from your client base and maintenance agreements.”
Look for a Professional, Responsive Broker
Corey Philip, partner with National HVAC Brokers, described a way that small HVAC business owners can undersell their businesses. He explained that large private equity firms might approach a small contracting company and try to make the owner feel as if the company is not worth very much. They might argue that the company does not have the right systems and processes, or has low assets or a slow-growing customer base.
“With a broker, you get somebody that is going to say, ‘Your business is worth this,’” he said. “The broker is going to attract a more qualified pool of people that are not going to try to whittle the price down.”
Philip agreed that contractors interested in selling their business should approach a broker who deals specifically in HVAC, since those brokers will have a well-qualified pool of buyers and will consistently run ads to attract buyers. He added that many times, it takes a lot of work to prequalify a potential buyer, making sure they have the funds to purchase the company they are interested in.
“There's a lot of fall off that happens between the time that an offer is made, and actually closing the business,” he said, describing how buyers can get cold feet when small issues arise, and a broker can move potential buyers along and ensure that a company is worth acquiring.
When choosing a broker, Philip said that business owners should make sure the broker has experience and has made sales.
“Professionalism and response time is also key,” he said. “Do they answer the phone when you call them? Do they reply to your text messages? Do you have to go through a gatekeeper to get to them?” He warned that sometimes it can take 36 hours to get in touch with a broker, which can be a warning sign.
“After an offer is made, it's vital that everyone replies quickly because you're often trying to coordinate between a buyer, a seller, a lender, and attorneys on each side,” he said. “So you've got five parties on one transaction, and it's really difficult to make everything move and happen quickly. And a broker that facilitates communication is very key to making everything happen quickly and getting the deal done.”
He also said that business owners can miss an opportunity when they don’t realize that with a little bit of work and refinement in their business, they can radically increase the valuation of their companies.
“The biggest missed opportunity is not having documented and defined operations and documented systems and processes in place,” he said. Once a company has that, he can show a buyer the tangible value of the business. At National HVAC Brokers, the brokerage firm has a defined exit method that they walk through with contractors to prepare a business to sell.
“With a few months of preparation, they can increase the value quite a bit,” he said.
Finding Office Space With a Broker
HVAC contractors can also utilize brokers in another area: Finding office space. Jonathan Wasserstrum, CEO and co-founder of SquareFoot, a real estate broker in New York City, said that brokers can help a contractor look at a large number of real estate options for their business, and choose the best one. This can be a much better option that putting the onus on the contractor to spend large amounts of time looking for the ideal space.
“Who is most likely to find the best deal for office space?” Wasserstrum said. “A business owner, or a real estate professional who knows where to look?”
He advised that business owners not try to time the market on when to begin renting office space to get a lower cost. Since an HVAC contractor isn’t a real estate investment professional, he recommends that they simply look at their financials and company needs, and then seek out a broker to begin looking for the space they need.
“If you need office space, then you need office space,” he said. He acknowledged that it is nice when the market is good and a company can get a lower rent, but a business shouldn’t put off renting new space if they need it, since there’s no guarantee the market will behave as predicted.
In addition to this, Wasserstrum said that contractors should stick with one broker instead of working with multiple brokers at once.
“Brokers get paid on commission for each sale they broker,” he said. “So working with multiple ones reduces each one’s incentive to work as hard with you, since they can’t be sure they’ll be the one to get the sale if you find a place.”
He also added that all brokers have access to the same data on commercial real estate available, so working with more brokers doesn’t increase the amount of listings available to the company owner.