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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.
I'm in a different service industry (medicine), so I can't speak specifically about how to value a heating and cooling business. But in my industry, the bulk of the value of a medical practice is in the accounts receivable (AR). About 80% of the price of the business is the AR (multiplied by a factor which is the percentage you reasonably expect to collect, usually 0.85). 10% of the price is in the depreciated value of hard assets (office equipment, diagnostic tools, etc). If you also own the clinic building, that will have to be valued separately (fair market value of real estate). And then 10% will be in goodwill (if you are a well established doctor with a large patient base, the higher this number will be).
For a small service business which is essentially YOU, you only have a few assets to sell:
1) Your depreciated value of the service van, tools, and equipment.
2) Your fair market wholesale cost of goods that are current to the marketplace. You cannot get a premium price for old inventory of parts which are not current moving items and not turning on the shelf.
3) A small percentage of the fair market value of any existing service/maintenance contracts that you may have.
4) Frankly, "blue sky" in your small service business ... unlike that of a professional practice (such as a medical practice with a patient list of which another doctor might be able to retain a significant percentage) ... based upon your personal skills and ability to sell your services ... is worth almost ZILCH. When you leave, your skills, personality, business/supplier contacts ... all those personal business oriented relationships which made your business a success, will leave with you.
In today's economy, consider the options available to your potential buyer. What are you offering him that he can't go out and replace somewhere else on his own?
If he can buy a service van, tools, equipment, inventory to meet his needs (and fit his cash flow) at a lesser cost than you want for your business ... why would he buy your business?
Frankly, this type of small business operation is not worth much, despite the claims and formulas of folks in the "business" sales business. You simply don't have a business worth some multiple of your annual gross sales or some other fictitious number. You've done well for yourself through the years, but without having built up a service organization with leadership, office management, sales staff, and techs that will remain .... from a practical standpoint, you have very little to sell. You don't even have a business location that will sell with your business, no storefront, no warehouse, no permanent business address where customers know to come to do business with your successor.
Unless you've got a "hot prospect" tech somewhere close by who is just aching to pay you top dollar ... and I'd only take cash, not a note or percentage of future business earnings .... I'd have a "retirement" auction on the physical assets of your business and take the money and run.
For a small service business which is essentially YOU, you only have a few assets to sell:
1) Your depreciated value of the service van, tools, and equipment.
2) Your fair market wholesale cost of goods that are current to the marketplace. You cannot get a premium price for old inventory of parts which are not current moving items and not turning on the shelf.
3) A small percentage of the fair market value of any existing service/maintenance contracts that you may have.
4) Frankly, "blue sky" in your small service business ... unlike that of a professional practice (such as a medical practice with a patient list of which another doctor might be able to retain a significant percentage) ... based upon your personal skills and ability to sell your services ... is worth almost ZILCH. When you leave, your skills, personality, business/supplier contacts ... all those personal business oriented relationships which made your business a success, will leave with you.
In today's economy, consider the options available to your potential buyer. What are you offering him that he can't go out and replace somewhere else on his own?
If he can buy a service van, tools, equipment, inventory to meet his needs (and fit his cash flow) at a lesser cost than you want for your business ... why would he buy your business?
Frankly, this type of small business operation is not worth much, despite the claims and formulas of folks in the "business" sales business. You simply don't have a business worth some multiple of your annual gross sales or some other fictitious number. You've done well for yourself through the years, but without having built up a service organization with leadership, office management, sales staff, and techs that will remain .... from a practical standpoint, you have very little to sell. You don't even have a business location that will sell with your business, no storefront, no warehouse, no permanent business address where customers know to come to do business with your successor.
Unless you've got a "hot prospect" tech somewhere close by who is just aching to pay you top dollar ... and I'd only take cash, not a note or percentage of future business earnings .... I'd have a "retirement" auction on the physical assets of your business and take the money and run.
REPLY: I thank you for your synopsis. I do believe I have a very lucrative business to offer the right person however ; I have 300-400 regular faithful customers that call me at least annually and often semi-annually for routine maintenance in addition to repair calls . If i were to explain to my customer base that im selling my business to an experienced Tech who I am confident is reliable and honest...I think my endorsement would carry alot of weight. I can prove what my sales volume and net profit was for each year going back to 1986 which shows a steady increase in growth and income ; for a Tech who is currently working for an HVAC Company making $20/hour ... I can offer him the immediate reality of making $79/hr gross salary if hes smart by working out of his home and keeping his overhead/expenses to a minimum. That is what i make after expenses working for myself and out of my house. Like i said initially, ive made a very good living in this Trade with Gods blessings, and Im sure a savvy young Man who already has the skills would be pretty interested in taking something like this over from me. The Buyer could take over my Business Phone Number and immediately triple his income and have all the business he can handle for himself ; he wouldnt even have to do any marketing --- just simply maintain the existing customer base which always brings new customers along thru referrals. It cant get any easier than that !
I believe your final analysis to be a bit presumptuous and condesending , but I do appreaciate your opinion and taking the time to respond. Regards.
REPLY: I thank you for your synopsis. I do believe I have a very lucrative business to offer the right person however ; I have 300-400 regular faithful customers that call me at least annually and often semi-annually for routine maintenance in addition to repair calls . If i were to explain to my customer base that im selling my business to an experienced Tech who I am confident is reliable and honest...I think my endorsement would carry alot of weight.
I believe your final analysis to be a bit presumptuous and condesending , but I do appreaciate your opinion and taking the time to respond. Regards.
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.
go to a CPA to do financial analysis of your business. bring tax returns and anything else he asks you for, sounds like you dont currently have one, could have probably saved a lot of money over the years if you had.
business brokerages are typically specialized real estate agents. they can also do a financial analysis of your business too. But i would go to a CPA first. remember you want an experienced agent for this too.
another idea is after you have an idea of what it is worth, call other heating/cooling places and offer your business. if that doesnt work, call or stop in to your parts shops and let them know you want to sell. they see everyone and BS with everyone in the business.
You might have better luck selling your equipment and client list with your current business phone number to an existing HVAC company. The big thing is your phone number.
You might have better luck selling your equipment and client list with your current business phone number to an existing HVAC company. The big thing is your phone number.
I agree and will be doing this , plus i know a few employees who would like to start thier own business .
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