Has anybody ever sold a small Service Business ?? Need some help.

[HowDeDo]

Originally Posted by sunsprit

You've fallen into the trap of confusing technical HVAC proficiency with comprehensive business ability, hard work, sales and marketing sense.

While you have done an admirable job of creating a personal long term sustainable business with a good cash flow from your technical expertise base, it is presumptuous of you to assume that there's any $20/hr techs out there with your combination of business acumen, sales skills, and technical proficiency ... who would also have the financial ability to purchase a business you're suggesting would have an immediate NET of approx $150,000 per year (2,000 billable hours x $79/hr earnings).

To do that in a service business typically takes significantly more GROSS Sales to achieve the NET INCOME. In my experience, if you can retain more than 20% of your Gross in a one man service shop, you're outperforming just about every other business in your trade by a huge margin. The inference is you're billing $750,000 per year, which doesn't sound very likely in this trade. I've got a neighbor with a 5 man (and a receptionist/dispatcher) HVAC shop that doesn't bill that much per year, and he's one of the few local shops that does commercial refrigeration, ammonia systems, and industrial boilers, too.

Even if your books showed a pre-tax NET income of $150,000 for years, you don't have anything to offer except an existing client list of 300+ contacts, which is no assurance to your business purchaser that they'll continue to like him and do business with him, plus your hard assets.

Let's try this from another angle: 400 customers for routine annual servicing spending an average sales ticket of, let's say $300.00 each ticket (parts & labor). That's $120,000 per year ... at a price point that seems very high. At least in our area, a HVAC seasonal service call ... promo price point, heating season's just around the corner ... is $79.00 (plus parts). With a 400 client service base, that's only $31,600 per year gross income; you'd have to be selling a lot of replacement units and parts to bring your sales volume up to your suggested income point. And if your HVAC service business is seasonal at all like so many areas of the country ... you have many months of minor service calls and two big service seasons, heading into the heating or A/C high demand times of the year. 300 clients could certainly keep you hopping for some months ....

So, for discussion's sake .... let's say my inferred numbers are way out of wack. You're saying your leaving the area. Why does somebody need to buy your business to access the clientele you've been servicing? If it's that lucrative a rate of ROI, then it would be reasonable for somebody else to get their advertising out in the local market, buy a van, stock their tools and service parts ... and get a good clientele in no time. Simply put, they don't need you if they're technically proficient and have any sales/marketing/business savvy.

Sorry to have ruffled your feathers, but you really need to take a good look at what you truly have to offer somebody to buy. It's not gonna' be some number equal to what you think somebody can earn out of the gate with your business plus your depreciated hard assets. Nor will it be some multiple of your annual demonstrated income, or projected income for a new owner.

IMO, if you sell this business for a modest down payment and carry a note for an inflated price based upon your projections of earnings for somebody else, you'll be at serious risk of being back in the business in short order.

What you asked for was an honest assessment of how to go about selling/valuing your one man personal business from someone who's been there and done that. I've done it several times, with comparable service businesses to yours and a 6 figure income (pre-tax) where I was able to expense off a lot of business operations to personal use.

REPLY: While I appreciate the time youre devoting to my case, theres a few things you have overlooked concerning my particular business situation : 1. My business profit doesnt consist of only billable labor hours ; I sell and install alot of replacement parts and new equipment thruout the year at a good profit margin. 2. A person with technical and marketing savvy in the residential HVAC trade doesnt acquire 400 faithful returning customers 'in no time' ; it takes many years of proving yourself to be proficient, honest, reliable, fair, and having constant marketing gumption to achieve this level and to maintain it . What i can offer a young HVAC Tech that desires to go off on his own (or established HVAC Company for that matter)... is immediate success in a small business that is well established in my locale ; whether that is maintained by the prospective Buyer depends on that person . While my 'little ma and pa business' is far from being on the NYSE , I have every confidence that it will be highly desirable especially for the Tech who wants to branch off on his own and comes complete with virtually EVERYTHING he needs incl. customers/inventory/materials/equipment/work van/and a full tank of gasoline ; few businesses for sale can offer a ROI of 1 year or less which is what im willing to sell my business for. Im not looking to make a killing --- just to acquire some renumeration for developing the business and some cash to help in my semi-retirement. So...if youre ready to get your hands dirty, make me an offer ! ... lol.... Regards.

[sunsprit]

Originally Posted by HowDeDo

REPLY: While I appreciate the time youre devoting to my case, theres a few things you have overlooked concerning my particular business situation : 1. My business profit doesnt consist of only billable labor hours ; I sell and install alot of replacement parts and new equipment thruout the year at a good profit margin. 2. A person with technical and marketing savvy in the residential HVAC trade doesnt acquire 400 faithful returning customers 'in no time' ; it takes many years of proving yourself to be proficient, honest, reliable, fair, and having constant marketing gumption to achieve this level and to maintain it . What i can offer a young HVAC Tech that desires to go off on his own (or established HVAC Company for that matter)... is immediate success in a small business that is well established in my locale ; whether that is maintained by the prospective Buyer depends on that person . While my 'little ma and pa business' is far from being on the NYSE , I have every confidence that it will be highly desirable especially for the Tech who wants to branch off on his own and comes complete with virtually EVERYTHING he needs incl. customers/inventory/materials/equipment/work van/and a full tank of gasoline ; few businesses for sale can offer a ROI of 1 year or less which is what im willing to sell my business for. Im not looking to make a killing --- just to acquire some renumeration for developing the business and some cash to help in my semi-retirement. So...if youre ready to get your hands dirty, make me an offer ! ... lol.... Regards.

Thank you, you've just made my point. There's damn few $20/hr young HVAC service techs with the business acumen you've demonstrated for years that also have the financial ability to purchase your business or the motivation/ability to sustain it. That's what separates your personal success story from those "$20/hr" techs ... and what makes selling your one-man business such a difficult proposition.

You've been doing the sales, marketing, tech service, diagnostics, books, billing, parts ordering/inventory, dispatcher, product training, sales tax/tax returns, delivery driver, receptionist, tool/equipment buying, HR benefits manager/purchasing agent, and every other function of a total service business.

That's in addition to having the "go get-em" attitude and outlook of being at risk in business for yourself, as opposed to that steady paycheck with benefits that most techs are happy to live with. You have learned how to pace yourself responsibly with the fluctuating income situation that comes with the territory of a "small business".

It's simply a rare combination, and it's why very few successful "one man" shops aren't built around your unique personal attributes. Finding someone who can ably replace you is not easy, and is the key to the ongoing success of your small business.

I'm well aware of the service labor/parts side equation of a service business, having been in the automotive shop ownership/tech biz for years. But when I had a small, efficient operation, I had little to sell when it was time to move on. When I built up an organization with 10 employees ... techs, receptionist, parts go-for/detailler, and a working shop leadman/service writer, leased facilities, yellow pages ads ... I had a "business" to sell.

I trained, even encouraged, some of my better techs to open their own successful shops. What I couldn't do was train them to take over my small business operation; they had to go out on their own and develop their own clientele ... the folks who they established their personal rapport with. If I could have simply walked out with a payout for building up my business and a new owner familiar with my clientele, operations, supply sources ... it would have been easy. Only it's so personal a business relationship with each of your clients that it simply doesn't work that way.

Perhaps you don't recognize what you've done to achieve your personal business success. Your service success wasn't built on selling the same loaf of bread that was available at your competitors operations. There's something uniquely different about your business to have achieved a 400 client operation with a one man shop. I don't know what those unique characteristics are, but I do know that you'll not easily find another you to take it over and have your success.

At those times I bought my shops from other one man shops, they were just like you. Built up a very successful trade and handsome income/ROI over the years. Several tried listing their business with a broker for a very handsome figure that reflected all the hard work/blue sky they'd built up. After 24+ months of trying to sell at that price point, the shop owner came back down to reality of what they really had for tangible assets ... and sold that to me for a realistic value of the depreciated hard assets. I rarely retained their client base as I'm different than them, and my subsequent small business success was built upon my own clientele I developed.

In essence, you're trying to sell somebody the opportunity to buy themselves an above average wage earning job with a lot of additional business responsibilities at hand to be able to have that better income.

Good Luck with your venture.

[cpg35223]

Well, if you have to choose between selling to a single person and an existing competitor, then you need to consider two things.

The existing competitor wants one thing and one thing only: Your list. If they can add 300-400 customers to their existing base, it's like found money for those guys, without spending an additional dime in marketing and advertising. At the same time, they know you're wanting to sell and will lowball you.

Meanwhile, if you sell to a single person, the biggest issue at hand will be ensuring that it's a cash-flowing enterprise for him. Goodwill becomes your most important asset at that point, but for that to be a salable asset, you will have to commit to a transition period--rather than handing over your account list and saying "Have at it."

If your buyer is offering substantially more money than a competitor would for your customer list, then I would offer this transition as part of the deal in exchange for open books and a revenue stream that diminishes over the next 3-5 years.

After all, the person in question would have to work years to build up the same customer list. This way, he gets a ready-made mature operation with the former owner willing to help him learn the finer points of operation. In exchange, a carefully-worded contract could mean that you realize revenue for a period of years. An example might be that you enjoy 15% of gross receipts during the first two years, 7.5% of gross receipts in the third and fourth years, and 5% in the fifth year. That way, even if his offer is slightly lower than that of the competitor, you stand a better chance of making money over the long haul. As long, of course, as this guy is trustworthy and you have a good attorney.

[HowDeDo]

Originally Posted by cpg35223

Well, if you have to choose between selling to a single person and an existing competitor, then you need to consider two things.

The existing competitor wants one thing and one thing only: Your list. If they can add 300-400 customers to their existing base, it's like found money for those guys, without spending an additional dime in marketing and advertising. At the same time, they know you're wanting to sell and will lowball you.

Meanwhile, if you sell to a single person, the biggest issue at hand will be ensuring that it's a cash-flowing enterprise for him. Goodwill becomes your most important asset at that point, but for that to be a salable asset, you will have to commit to a transition period--rather than handing over your account list and saying "Have at it."

If your buyer is offering substantially more money than a competitor would for your customer list, then I would offer this transition as part of the deal in exchange for open books and a revenue stream that diminishes over the next 3-5 years.

After all, the person in question would have to work years to build up the same customer list. This way, he gets a ready-made mature operation with the former owner willing to help him learn the finer points of operation. In exchange, a carefully-worded contract could mean that you realize revenue for a period of years. An example might be that you enjoy 15% of gross receipts during the first two years, 7.5% of gross receipts in the third and fourth years, and 5% in the fifth year. That way, even if his offer is slightly lower than that of the competitor, you stand a better chance of making money over the long haul. As long, of course, as this guy is trustworthy and you have a good attorney.

Good points . Im wanting cash out of it all at one time and be totally done with it .. and, im willing to let it go for less in order to get a cash sale. Im well off for retirement (thank you God for your faithfulness)..and im willing to settle for any reasonable offer actually.

[HowDeDo]

Originally Posted by sunsprit

Thank you, you've just made my point. There's damn few $20/hr young HVAC service techs with the business acumen you've demonstrated for years that also have the financial ability to purchase your business or the motivation/ability to sustain it. That's what separates your personal success story from those "$20/hr" techs ... and what makes selling your one-man business such a difficult proposition.

You've been doing the sales, marketing, tech service, diagnostics, books, billing, parts ordering/inventory, dispatcher, product training, sales tax/tax returns, delivery driver, receptionist, tool/equipment buying, HR benefits manager/purchasing agent, and every other function of a total service business.

That's in addition to having the "go get-em" attitude and outlook of being at risk in business for yourself, as opposed to that steady paycheck with benefits that most techs are happy to live with. You have learned how to pace yourself responsibly with the fluctuating income situation that comes with the territory of a "small business".

It's simply a rare combination, and it's why very few successful "one man" shops aren't built around your unique personal attributes. Finding someone who can ably replace you is not easy, and is the key to the ongoing success of your small business.

I'm well aware of the service labor/parts side equation of a service business, having been in the automotive shop ownership/tech biz for years. But when I had a small, efficient operation, I had little to sell when it was time to move on. When I built up an organization with 10 employees ... techs, receptionist, parts go-for/detailler, and a working shop leadman/service writer, leased facilities, yellow pages ads ... I had a "business" to sell.

I trained, even encouraged, some of my better techs to open their own successful shops. What I couldn't do was train them to take over my small business operation; they had to go out on their own and develop their own clientele ... the folks who they established their personal rapport with. If I could have simply walked out with a payout for building up my business and a new owner familiar with my clientele, operations, supply sources ... it would have been easy. Only it's so personal a business relationship with each of your clients that it simply doesn't work that way.

Perhaps you don't recognize what you've done to achieve your personal business success. Your service success wasn't built on selling the same loaf of bread that was available at your competitors operations. There's something uniquely different about your business to have achieved a 400 client operation with a one man shop. I don't know what those unique characteristics are, but I do know that you'll not easily find another you to take it over and have your success.

At those times I bought my shops from other one man shops, they were just like you. Built up a very successful trade and handsome income/ROI over the years. Several tried listing their business with a broker for a very handsome figure that reflected all the hard work/blue sky they'd built up. After 24+ months of trying to sell at that price point, the shop owner came back down to reality of what they really had for tangible assets ... and sold that to me for a realistic value of the depreciated hard assets. I rarely retained their client base as I'm different than them, and my subsequent small business success was built upon my own clientele I developed.

In essence, you're trying to sell somebody the opportunity to buy themselves an above average wage earning job with a lot of additional business responsibilities at hand to be able to have that better income.

Good Luck with your venture.

REPLY: Quick responses :
1. The amount of money im willing to take for my Business would make many Techs beg/borrow/or steal the money in order to have a lucrative HVAC Business dumped in their laps at less than a 1 yr. ROI .
2. Theres quite a few smart young men out there in my Trade who can do basic book-work , type proposals, and present themselves professionally. Ive met them. If they cant type, their wives can. Not all HVAC Techs are your typical stereo-type skidrow, foul mouth, unmotivated , unethical Varmin . Many are on the ball , represent the Trade well , and have basic Business acumen.
3. The additional business responsibilities associated with my one-man small Business is miniscule and easy ; All i use my Accountant for is year-end taxes and annual Corporate Minutes forms. If one is willing to pay a bit more, the Accountant can handle virtually everything from quarterly income tax , quarterly state sales tax , personal salary, and year end Returns.

Thanks again for your opinions and insight. Best of luck to you also.

[AONE]

I know as a Broker I can list businesses here in Florida and many find success at selling them in that manor. Im sure your agents can do te same up there

[Jonotastic]

Originally Posted by HowDeDo

Im moving to Florida from Illinois soon, and, I need to sell my Heating/Cooling business which is incorporated even though i am the only owner and employee. Its a relatively small Business although with Gods favor, ive been able to make a good living at it since i opened in 1986. Ive worked out of my house the entire time and so have a work Van, materials, parts, and phone number to sell to an interested Party. How does one go about determining a fair price to ask for such a Service Business ? Is it based on the average yearly sales volume, or, average yearly net profit ? Does anyone have experience selling a small Business that can shed some light on this issue ? Thanks alot.

You can sell a business based on it's net income. It depends on how much the van is worth and your inventory, but I'd imagine asking 2x or 3x your net income. If you make $100,000 ask $200,000 to $300,000 depending on what assets/inventory is included. That's the benefit about owning a business with land...when it comes time to sell, you can bank, if you lease or work out of a van, you can only sell the business.