What is your business worth? This is the key question to be answered when considering selling your heating and air business.
As I have mentioned in the past, when I initially meet with a seller one of the first questions I ask is, ” What does the check need to say for you to walk away?”. I ask this for multiple reasons, but primarily to find out, does the seller have realistic expectations, and can I meet those expectations. In my time selling HVAC companies, I have found that sellers, whether they initially admit it or not, have a figure in their mind of what their business is worth.
Sometimes it is a multiple of sales, sometimes it is based on how many service agreements they have in place, or a figure their accountant told them, or even, they heard that one down the street sold for $500,000 and their business is much better than that one, so it must be worth more.
When making the decision to sell your business, it is a very emotional one. Often owners have spent years, if not a lifetime, building this business they are now considering selling, and they apply all of the years they have worked as part of that valuation. There are different ways to value a business, but for the sake of this article I am going to assume we are looking for market value, what is the price someone is willing to pay for it.
Start with taking a look at what others of similar size, structure, and in your area have been selling for. Notice I did not say what they are listed for, because sometimes that is a bad place to look. We have all seen the house that is probably worth $150,000 and the owner lists it for sale for $500,000 to see if someone will buy it, and the same thing happens unfortunately in business sales. Those businesses listed that way are not really for sale in my opinion, and they bias the market.
Most brokers have access to lists of recently sold listings and can sit with you and review those that have sold, and how they compare to yours. How long were they listed for? What amount of assets were included? Primarily service or new construction? Were the books and records clean or did the seller use creative accounting techniques? Are there a lot of other listings in the area that they had to compete with? And countless other factors that could impact the selling price of a business.
The next step is to apply common sense. I met with a seller yesterday and when I asked him that question he told me his business doing $400,000 in sales, netting $100,000 with lots of grey spots on his tax returns, is worth at least $500,000. Put yourself in the buyers shoes, if you were looking to buyer a business would you pay that kind of money for one? Would you be willing to take 5 years or more to break even on your investment? Most people would say know.
In summary, when you finally make the decision to list your business, either on your own or with a broker, make sure your expectations are realistic. National averages indicate that only 20% of businesses listed last year sold, do not make yourself part of the 80%.