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Thread: About to Purchase a Commercial HVAC Contractor Business. Big Mistake???

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    About to Purchase a Commercial HVAC Contractor Business. Big Mistake???

    HVAC Owners and Managers, please I need the benefit of your experience:

    I am considering purchasing a commercial HVAC contractor business from an owner who wishes to retire. I have ZERO experience managing an hvac contracting business, but this particular business appears to have experienced managers in place who can (hopefully) be relied on to run the business while I try to get up to speed. This fact alone (relying on people I don't know) is a risk in my mind. This firm does about 9-10M dollars in revenue a year, SDE this year of just under $1M, 20 or so employees, 10 or so trucks. The owner wants $2.6M for the business, out of which I will invest $500K of my own money and borrow the rest (~$2.5M including working cap). I am projecting EBIT of $700K post sale, which after debt repayments would leave me with a projected yearly net of just over $400K. I'd appreciate any comments you throw my way, but my specific questions are the following:

    1) Do you consider HVAC contracting a low, medium, or high risk business in the current economic environment?
    2) Is this a good way to invest what is essentially my retirement? I just turned 50 and I consider this my last shot, if it goes wrong I am done as the bank will probably take everything.
    3) Is my projection of $700K too rosy, about right, or too pessimistic for an HVAC business of this size? (I realize I have provided limited data but that's where you experience comes in)
    4) As an engineer, I like HVAC work professionally. However, I am not doing this for the love but strictly for the money. If you have $1M in disposable cash at 50, would you risk it in this type of business or look elsewhere for better returns? I figure I'd do this for a max of another 10 years.
    5) How do you think the upcoming elections will affect this industry in the next year? (Although no politics PLEASE, I could hardly care who wins, just how it'd affect my money). AIA predicts a slow down in construction in the coming year, although they still project a 5.6% growth in commercial construction. I can live with that, but do you think they are being too rosy or just about right?

    Thanks!

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    You are not familiar with the trade and for that reason alone is a bad idea to sink such huge amount of $$$ into a bunch of smoke and mirrors, I wouldn't do it.
    There is not better place for the working men than the union! 100% UA the only HVAC union!

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    I'm not an owner nor do I wish to be. Mainly because of all the office crap. But from observations I've made over the years.
    1) medium to low risk. It's an established business with what sounds to be a good name for itself. Buildings will always need hvac.
    2) if it was me no way would I put all my eggs in one basket. One meeting that results in pissed managers all breaking off to steal your customers could break you.
    3) 700k seems pretty realistic. Most hvac companies bring 8-10% as profit. Drop some bonuses and 700k seems pretty solid.
    4) i would never put all of my money into something just for money. Without the passion for the business your investment will suffer. If you are doing it just for the money you will likely fail.
    5) who cares who will be elected. Buildings still need ac and it isn't going to be banned. Any regulation changes just get reflected in pricing etc.

    Bottom line i would say don't do it. You don't have the passion to run it properly and you would be risking it all. You would be surprised to know how much that passion can make or break a company. Just doing it for money is a recipe for failure.

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    Thanks! Though I'd appreciate a bit more perspective on why you think it's smoke and mirrors. I have verified most of their numbers.

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    Thanks Cimerian. To be honest: your point #2 gives me the most trepidation, as this is essentially an All Goodwill sale.

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    Quote Originally Posted by minisplit1999 View Post
    Thanks Cimerian. To be honest: your point #2 gives me the most trepidation, as this is essentially an All Goodwill sale.
    That would really scare me. Goodwill to me means assets from the company that can not be quantified or verified. Someone else said something about smoke and mirrors?

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    Yes the first responder valdelocc above said it's all smoke and mirrors. Unless they are somehow colluding with their bank, their numbers seem to check out.

    I am thinking that I might insist on a noncompete agreements from key employees as a condition of purchase. Although not full proof, it's at least something and if I can make them happy with bonuses (they already have health and 401K), perhaps that'd give them and I more comfort.

    I've had experience running another business. I know that running a business is always a headache, but on the passion aspect, I'll always be very passionate about anything that makes me money Question is, will it?

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    Ok well if bank numbers match up I would not call it a goodwill sale then. Depends on what you mean by goodwill.

    If you were to take all assets and liquify them how much could you get?

    If you were to hire someone to run the company how much would it cost?

    The actual assets are how much the company has in real money. Take the profits minus the cost of a manager to run it for you and that is essentially how much you will be earning.

    Again i go back to puttin all your eggs in one basket without having a true hvac passion. If it were me i would pass and sleep well at night.

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    There's no chance that anyone's going to sign those agreements. If anything it's going to drive people away.
    Your about to enter one of the most cutthroat industries around. The trade is empty of good technicians. You will see people come and go. You'll have to figure out your hiring requirements and how to source good techs. And what you want them to know. The guys that are good, will move around at the drop of a dollar more, or never leave where they are at.
    You'll also have to figure out new equipment sources. Handle PITA general contractors. Figure out what to do with jobs that didn't go as planned.
    It doesn't much matter if you have managers. HVAC problems will wind up on your desk and you'll have to determine what needs done.
    Something else to think about as well-is a masters license required for this area? If so, who's in possession of said masters license?
    If you've never managed a trades related company, I think your about to have an eye opening experience. I've seen many companies go under when ownership changes hands, even when the owners retired and his younger fanily has taken over.
    I havent failed. Ive just found 10,000 ways that wont work. - Thomas Edison

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    Quote Originally Posted by Cimerian View Post
    Ok well if bank numbers match up I would not call it a goodwill sale then. Depends on what you mean by goodwill.

    If you were to take all assets and liquify them how much could you get?

    If you were to hire someone to run the company how much would it cost?

    The actual assets are how much the company has in real money. Take the profits minus the cost of a manager to run it for you and that is essentially how much you will be earning.

    Again i go back to puttin all your eggs in one basket without having a true hvac passion. If it were me i would pass and sleep well at night.

    Sent from my SM-G900P using Tapatalk
    Thanks. It is still a Goodwill sale because I am essentially buying the company's reputation and existing relationships. There are no receivables, no payables, and no cash reserves involved in the transaction, although I'd like to see (and verify) a healthy backlog of work before signing on the dotted line. There's also the trucks as physical assets, but that's nothing.

    I very much appreciate your comments.

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    Quote Originally Posted by rider77 View Post
    There's no chance that anyone's going to sign those agreements. If anything it's going to drive people away.
    Your about to enter one of the most cutthroat industries around. The trade is empty of good technicians. You will see people come and go. You'll have to figure out your hiring requirements and how to source good techs. And what you want them to know. The guys that are good, will move around at the drop of a dollar more, or never leave where they are at.
    You'll also have to figure out new equipment sources. Handle PITA general contractors. Figure out what to do with jobs that didn't go as planned.
    It doesn't much matter if you have managers. HVAC problems will wind up on your desk and you'll have to determine what needs done.
    Something else to think about as well-is a masters license required for this area? If so, who's in possession of said masters license?
    If you've never managed a trades related company, I think your about to have an eye opening experience. I've seen many companies go under when ownership changes hands, even when the owners retired and his younger fanily has taken over.
    All great points to consider. it's really scary. The current owner is willing to stay on for 6 months to a year to ensure "successful transition" as he put it, but of course I can't stop him if he decides to walk after collecting his money. I think I can get the noncompete (if limited to existing key customers) into new employment agreements that I'd have to have with key employees, unless they decide to quit if I take over, which would effectively cancel the sale.

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    Quote Originally Posted by Cimerian View Post
    Ok well if bank numbers match up I would not call it a goodwill sale then. Depends on what you mean by goodwill.

    If you were to take all assets and liquify them how much could you get?

    If you were to hire someone to run the company how much would it cost?

    The actual assets are how much the company has in real money. Take the profits minus the cost of a manager to run it for you and that is essentially how much you will be earning.

    Again i go back to puttin all your eggs in one basket without having a true hvac passion. If it were me i would pass and sleep well at night.

    Sent from my SM-G900P using Tapatalk
    Hiring an experienced hand to run the company is a great idea. My expectations are modest, and I am willing to give up some take home to have a trusted experienced hand in charge. Question is, where to find someone like that? I don't think it'd be easy or cheap.

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    Noncompete agreements will mean nothing. You could lose all your good techs and they could go work somewhere else without touching any of your existing customer base.

    Bottom line is you will be out all your good techs and they are the ones that actually generate billable revenue.

    You loose one or two big contracts and your good techs will be out the door if there is no work.

    Again someone made a point about licensing.....if you don't have the credentials, then who does? What happens if they leave?

    I would question having 20 employees and only 10 trucks. Are there a lot of apprentices or are they employing too many office staff.

    Trying to run a commercial HVAC company is plain nuts without any trade experience imho.



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    Case in point, the company I started with in this trade just sold to a competing company. All the techs were evaluated and many were given raises of $1-$5/hr. Despite that, the new management didn't go over well. The new company lost the service manager to a competing company. About 6 customers followed him there without his request. They also lost about 4 techs, and several customers followed them as well because they liked the tech so much.
    You just have to keep in mind that this isn't an industry that you can just stick an ad in the paper and fill a position within a couple days. This is a career for guys.
    I havent failed. Ive just found 10,000 ways that wont work. - Thomas Edison

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    Our company doesn't have a backlog of work... Most of our stuff is completed within 24-48 hours. A very FEW things are scheduled out past a week. If they are doing that much revenue they then they are doing something right. I would, however, due your due diligence on their customer base. Do they have a lot of customers or just a select few? Do they have repeat customer or is it mostly new from advertising. Is the equipment new, slightly aged, or old? What is the owners current position? Does he just help organize things or does he actually work out in the field? The owner of my company actually works in the field and is the primary contact for our largest customers. If he quits then there is a large chance our customers may scout the field for other vendors.


    So without knowing more about the business, I will also say it is smoke and mirrors.

    Also, who will hold the contractor licenses?

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    Quote Originally Posted by minisplit1999 View Post
    Hiring an experienced hand to run the company is a great idea. My expectations are modest, and I am willing to give up some take home to have a trusted experienced hand in charge. Question is, where to find someone like that? I don't think it'd be easy or cheap.
    You are correct. It isn't easy or cheap. Hire the wrong person and bye bye retirement.

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    Yeowizer! Thousands of possibilities!As an "investment" for you to retire and sip Yukon Jack or Pina Collads at the pool side, then you are doomed to failure! As said by others, this is a tough profession.If you want to WORK and LEARN and SCREWUP and make MONEY,then GO FOR IT! Now,If you are the "lucky one" and hire a GOOD person to run and control "your" retirement $ ,while you play tennis, then go 4 it.So, where is your PASSION?!?!

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    Quote Originally Posted by minisplit1999 View Post
    All great points to consider. it's really scary. The current owner is willing to stay on for 6 months to a year to ensure "successful transition" as he put it, but of course I can't stop him if he decides to walk after collecting his money. I think I can get the noncompete (if limited to existing key customers) into new employment agreements that I'd have to have with key employees, unless they decide to quit if I take over, which would effectively cancel the sale.
    Well, if he signs a contract saying he'll stay on for a few months that's fine but he wants out & may decide to not put his heart into it. Or when you've had enough of the business, buy it back from you at a profit. Lol. Businessmen of good size companies are generally cutthroat & cold blooded. After 15yrs with my company, my boss was taking me for granted & I left. A lot of customers bailed on him afterwards.

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    Quote Originally Posted by TechmanTerry View Post
    Yeowizer! Thousands of possibilities!As an "investment" for you to retire and sip Yukon Jack or Pina Collads at the pool side, then you are doomed to failure! As said by others, this is a tough profession.If you want to WORK and LEARN and SCREWUP and make MONEY,then GO FOR IT! Now,If you are the "lucky one" and hire a GOOD person to run and control "your" retirement $ ,while you play tennis, then go 4 it.So, where is your PASSION?!?!
    Thanks. I don't want to hire a good person while I play tennis - that's in fact where I am right now and getting bored. I fit more in your first characterization: to work and learn and make money, but minimize the screwup part. Yeah it is pretty apparent that I would NEED a GOOD experienced person/partner/right-hand-man before venturing into this. Any idea where/how to find such a person?

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    Quote Originally Posted by hedrash View Post
    Well, if he signs a contract saying he'll stay on for a few months that's fine but he wants out & may decide to not put his heart into it. Or when you've had enough of the business, buy it back from you at a profit. Lol. Businessmen of good size companies are generally cutthroat & cold blooded. After 15yrs with my company, my boss was taking me for granted & I left. A lot of customers bailed on him afterwards.

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    I get you. This owner seems quite pleasant, but that's neither here nor there. I am pretty sure I can get him to sign a contract for 6 months to a year, but that's not sufficient protection 'sfar as I am concerned. I am thinking I should just straight up ask him to guarantee me conditions under which the business will not collapse from under me upon change of ownership. He seems quite eager to retire on MY money, so should be sufficiently motivated to come up with good ideas. An obvious way to do this would have been to structure an earn-out kind of deal, but I don't see him going for that.

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