The American HVAC industry is growing, both within the residential sector and in commercial settings. As discussed in part one of this series, while many HVAC companies are prepared for booming growth and expansion these days, others within the industry may be in a better position to consider market consolidation instead. Companies wondering whether consolidation is right for them should consider the following clues: a solid base of return customers; stable cash flow; consistent and growing demand for services; and whether current ownership has a succession plan in place for the future.
With these indicators in mind, it’s clear that consolidation can lead to two diverging paths: those looking to acquire another business and those looking to exit their business through selling and/or being acquired. This article will focus on the second path. Here are some tips HVAC company owners looking to exit the industry can use to prepare their business for acquisition.
Start the planning process early
When considering selling the business, owners should think about their goals well ahead of time to ensure they’re as prepared as possible for the process. This requires considering the business from a holistic perspective, including marketing, operations, and management, preferably years in advance. The business should be able to run efficiently without meticulous oversight from the owner, so it’s important to have a comprehensive management and operations structure in place before bringing the company to market. In essence, preparing each aspect of the business for acquisition means ensuring it is marketable to potential buyers.
In addition, owners should think about their own plans. If their goal is retirement, they should consider whether their retirement funds are in a position to withstand acquisition. A third-party financial advisor can help HVAC business owners get a better perspective on where their business and goals stand. Looking ahead, they can also help to outline the next steps business owners should take moving forward.
Prepare financially
Planning for acquisition can and should include preparing financial documents. For business owners, this means going above and beyond financial statements generated in-house. Statements and tax returns should be gathered from the past several years and reviewed alongside a financial advisor or accountant to ensure they are as accurate and detailed as possible.
Timing can also be a factor when considering the financial health of a business preparing for acquisition. While the planning and sale process can take months or even years, it’s prudent to be aware of the environment the company exists within. Owners should consider the state of the market and how other HVAC businesses are faring.
Ensure other paperwork is in order
Preparing additional administrative paperwork is also essential as HVAC business owners prepare for acquisition. Beyond tax implications and potential tax liability, owners should review their business licenses, permits, and any registrations to ensure they are up to date.
In addition, the building that houses the company should also be considered. If the company does not own the building they’re in, it’s vital to ensure the lease is transferable. If not, owners should contact the building owners to negotiate a lease agreement with a more flexible time period and/or allow transfer of the lease from one owner to the next.
Consider the buyer
As the acquisition process continues, HVAC business owners will need to consider the suitability of potential buyers. When comparing buyers, whether to each other or individually, owners should look to answer some of the following questions:
- Would the new parent company be able to manage the business well and will they be able to help it continue to grow?
- Is there a good personality fit between the buyer and the company?
- Perhaps more importantly, is there a good fit between the buyer and employees/management?
It’s also important to remember that selling a business doesn’t necessarily mean being consolidated or acquired by another company. Owners can also explore other avenues, including selling to an interested and experienced manager or to an outside buyer who sees value in the company.
Address employees ahead of time
At some point in the acquisition process, business owners will need to address their employees and it’s often wise to do this sooner rather than later. For small businesses especially, it can be enlightening to ask employees about their thoughts on acquisition — would they be willing to stay with the company under new ownership? If possible, would they be interested in buying the company instead of being acquired by an outside entity? Often, by addressing these questions in advance, business owners can work in partnership with their managers and employees to prepare the business for sale — regardless of who the buyer turns out to be.
The acquisition process can potentially be both daunting and lengthy. However, HVAC business owners can mitigate stressful complications by beginning the planning process early and by partnering with a trusted financial advisor who has the expertise to guide them along the way.
