What’s a HVAC Contractor Worth?

Views: 51 Comments: 0 0 Post Date: December 1, 2020

If you think it’s expensive to hire a professional, try hiring an amateur. This saying is most true when it comes to hiring contractors.

Did you know that HVAC alone comprises 5-8% of a building’s value? So for your average $500k home, the HVAC alone can be $25-40k. And HVAC components are the ones needing most work post installation?

That means HVAC contractors should be rich and popular. But, are they?

There are over 105,000 HVAC contractors, employing 600,000 people, and making $85 billion in annual revenue.

There are 3 trends affecting this business –

  1. It is all connected – Alexa, Google Home, Nest, Internet, ADT, Wi-Fi, camera, Smart home tech. It is all one big network. Which will keep growing and compounding. HVAC contractors can decide to swim with the current or wither away. Keeping up with the latest tech advancements that is in sync with customer demand is crucial.
  2. Green and sustainable – reducing your carbon footprint is cool. It in. Businesses that work with clean and renewable solutions are in demand. Businesses affiliated with indoor and industrial HVAC needs like hemp and cannabis have a bright future.
  3. Transparency – everything is online. Cost of parts. Cost of labor. Employee reviews. Customer reviews. Appointments and calendar. Successful contractors are good at managing their online presence with transparency.

Rule of Thumb – “HVAC contractors can sell for 0.25-0.35x of revenue, or 2-4x of SDE. Plus, the fair market value of inventory, property, plan, and equipment.”

There are FOUR things that will help current owners maximize their business’s value –

  1. Customer Service – take care of your customers. Simple, right? But how? Make sure you communicate easily and openly. Ask for after service feedback. Listen to online reviews. Ask satisfied customers to give your testimonials and reviews. Make it easy for customers to reach you, schedule an appointment, make service requests, by digitizing communication or hiring great customer service reps.
  2. Loyal and Certified Technicians – hire technicians that have multiple certifications, and train the inexperienced ones. Be polite, and ask them to pay the favor forward to your customers. Use good parts suppliers, so employees feel proud of their work and efforts. This is a service business. Your people are the service providers.
  3. Annual Service Agreements – recurring revenue is king. During the low months, the service contracts’ revenue will keep your team occupied and your cash flow running. You are looking for 50-70% of revenue in annual service contracts. Customers on service contacts will always call you first for any installations. Keep your end of the deal with service contracts. Don’t hide behind the fine print.
  4. Professional Management – clean books, strong supplier relationships, new uniforms, well maintained vehicles and equipment, receivables within 30-60 days, project management software, proper trainings, policies and procedures. These are building blocks of a professionally run firm. Otherwise, it’s just an owner juggling 15 balls at once.

If you keep your customers happy, run a happy team of employees, and keep your books clean, your business will accrue value overtime. The problem with most owners is that they have watched too many ‘Wall Street’ type of films and want to get rich within a few hours, and start making decisions for short term gain.

Business is straightforward. People make it complicated. Valuation is not rocket science. If owners keep their eyes on the ball, and do what is the right thing for their business long term, they will always create value.

Bharat Kanodia – Founder and Chief Appraiser

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