How to get the highest price possible when selling your HVAC or plumbing company
Getting the highest price possible is an important goal when you’re selling your business, but the person on the other side of the table likely wants to pay the lowest price possible. Working the deal in your favor requires strong negotiation skills, but you also need to bring a valuable product to the table.
There are multiple steps you can take to boost the value of your HVAC or plumbing company before putting it on the market. The right strategies can also help to optimize the value of your business as you search for the right buyer and negotiate the terms of the acquisition.
This guide is designed to set you up for success. It covers several strategies you can use to increase the value of your HVAC or plumbing company, so you can walk away from the acquisition with the biggest check possible. Some of these tips can be implemented in the months or even years leading up to the sale, while others are designed to help in the midst of the acquisition process.
1. Create recurring revenue
Buyers want security, and recurring revenue reassures them that they are stepping into a situation with almost guaranteed cash flow. Set up service plans with as many residential and commercial customers as possible. They pay an annual or monthly fee, and in exchange, they receive regular service appointments for their plumbing or HVAC equipment.
Many plumbing and HVAC companies also offer recurring revenue clients access to special deals, such as priority emergency service or discounts on repairs. It’s never too late to establish recurring revenue streams. Secure as many of these deals as possible in the months leading up to your sale.
2. Look for a strategic buyer
There are typically two types of buyers in mergers and acquisitions: financial buyers and strategic buyers. Financial buyers want to cash in on the promise of your business’s future profits. Strategic buyers, in contrast, like the way your business complements their current operations.
A strategic buyer may want to buy your business to expand their service area into a new territory. They may have a plumbing or HVAC company that focuses on residential clients and want to acquire a business with an emphasis on commercial clients. They may see other ways that your business can help theirs grow.
Strategic buyers tend to be more active. They have a strategy in mind, and your business can help them achieve it. Financial buyers, on the other hand, just want the profit streams — they could buy any business. You have more leverage (and, by extension, the chance to obtain a higher price) from a buyer who really needs your business to meet their goals. In most cases, that’s a strategic buyer.
3. Position the company to succeed without you
Your efforts were indispensable during the growth of your company, but now, you need to be dispensable. You need to be able to step away without affecting operations. Work on training employees and managers to run the business whether you are there or not. Consider stepping away temporarily as a trial run. Evaluate what did or didn’t get done in your absence, make a few tweaks to processes, and try again. You’re ready to sell when your business can succeed without you.
4. Choose the timing carefully
Don’t wait until you’re desperate. Many owners want to hold onto their company forever, and they wait until they are sick or itching for retirement to start the M&A process. Most people don’t have the energy or the inclination to go through the sales and negotiation process at this point in their lives. A buyer will use that fatigue against you to rush you into accepting a low-ball offer.
Sell before you get to this point. Also, pay attention to the market. Whenever possible, try to sell during a seller’s market. Taxes are another area to pay attention to — at the time of writing, there is a proposed capital gains increase that threatens to substantially reduce the total profits you may be able to get from a sale. Pay attention to all of these elements and anything else that can affect the success of your sale as you identify the optimal time.
5. Get a professional valuation
There are many ways to value your company. Ultimately, its value is whatever someone will agree to pay for it. That is an extremely vague definition of value, but don’t just come to the negotiating table with a number you’ve pulled from thin air.
Consider getting a professional evaluation. An outside opinion on your business’s value carries more weight than your personal estimate of the company’s value. Be sure that the valuation explains why your HVAC or plumbing company is worth that amount and use those ideas to bolster your negotiation.
6. Organize your financial records
Well-organized financial records give prospective buyers insight into how your company is performing. Get your accounting and bookkeeping in order before you put your company on the market. You may need to work with an accountant or a virtual CFO to ensure your financial records show your company in the best light possible.
7. Work with an M&A specialist
The world of mergers and acquisitions is complicated. Don’t try to navigate these waters on your own — get the help of a specialist. An M&A specialist can guide you through every step of the process, including targeting the right buyer, choosing the optimal time to sell, and negotiating the best terms possible.
Contact SF&P for help selling your plumbing or HVAC business
We know that our clients have poured their sweat and tears into their businesses, and we want to see them exit as profitability and as easily as possible. Let our team guide you through the sales process to a deal that will make you proud.
We specialize in M&A for plumbing and HVAC companies, and we have a four-step acquisition process that is designed to streamline and simplify selling your business. Contact us at SF&P today for help selling your plumbing or HVAC company and to get a free business estimate valuation.