In this article, we cover:
Purchasing an HVAC company can give you an asset that has steady growth and positive cash flow. Reinforcing this point is data from the U.S. Energy Information Administration that states 88% of U.S. homes use air conditioner equipment. Additionally, the U.S. Bureau of Labor Statistics projects the employment rate for heating, air conditioning, and refrigeration mechanics, installers, and techs over 2021-31 will increase by 5%. With the United States being a strong, mature market for HVAC businesses to thrive, let’s turn up the heat and review several ways to purchase, finance, and optimize an HVAC company.
There are several ways to purchase an HVAC company, each with its unique path:
- Franchise: You can purchase an HVAC franchise. Opening a franchise allows you to operate a business with a proven model, an established brand that resonates with consumers, and receive support from the franchisor to help you succeed. There are many HVAC franchises each with a unique offering. For example, some franchises focus on core HVAC services like heating and air conditioning while others offer additional services such as duct cleaning and restoration. Each franchise also has fees, royalties, and initial investment requirements. HVAC franchises include ServPro, One Hour Heating & Air Conditioning, Aire Serv, and many more. TopFranchise provides a good breakdown of different HVAC franchise options in their article titled Best 10 HVAC Franchise Opportunities in USA of 2022.
- Business Broker: A business broker acts as an intermediary between a business owner who wants to sell their business and someone, or a company, who wants to purchase a business. HVAC companies are relatively common businesses that you can purchase via a business broker. Business brokers can be local, independent individuals (who may or may not be licensed depending on the state) or large companies that provide brokerage services nationwide. One such resource is BizBuySell which lists many HVAC businesses for sale. The good thing about going through a broker is you will be able to review detailed information on the HVAC business you are considering acquiring. Financial records, cash flow, how much money it makes for the current owner, and more. You will have all the information you need to make a well-informed decision.
- Family Business: For some, purchasing an HVAC business is a family affair. This is a unique situation that requires direct negotiation with the family member who owns the business. Whether it is a buyout, a planned succession, or something else, purchasing an HVAC business from a family member can be an excellent path to ownership for some. The business sale can be privately negotiated.
- Apprenticeship: A common career path in the HVAC industry is to start as a field technician under the apprenticeship of an experienced HVAC business owner. By getting a license, working the job, and learning from an established pro, one can deeply understand the HVAC business in its entirety. It is also common for an apprentice to purchase an HVAC company directly from their mentor. These are details that should be discussed ahead of time.
- Start a new business: Starting an HVAC company is an option as well. Although you are not purchasing an existing HVAC company, you can have your own HVAC business without a steep barrier to entry. The main barrier (outside of funding) is you must be a licensed HVAC contractor to work on HVAC systems. Each state has licensing requirements so additional due diligence is required for your state.
Each of these paths to purchasing an HVAC company will have different capital requirements. The good thing is that there are many financing options to purchase an HVAC company.
Financing your purchase
In this section, we will review how to finance the purchase of an HVAC company.
- Write a business plan: Writing an effective HVAC business plan can improve the chances of your loan application being approved. A good business plan can serve as the foundation of your business as it details how to structure, run, and grow your business. It is a way for you to think through key elements of running your business. For additional information, review our article titledHow to Write a Business Plan for a Loan Application.
- Consider a business loan consultant: Business loan consultants help small business owners understand the loan landscape and figure out which loan is right for them. Business loan consultants can handle the entire loan process by gathering the right documents, preparing applications, submitting paperwork, and working directly with the lender on any follow-up questions. For entrepreneurs with little time, or who might be uncertain about getting a loan, business loan consultants can be a good option.
- Franchise Financing: Purchasing a franchise can give you special access to financing opportunities directly from the franchisor. In some cases, these terms can be very favorable because the franchisor has a strong understanding of the business. Our article titled Ways to Get a Business Loan for Opening a Franchise breaks down all the loan types you can use to purchase and/or operate your franchise.
- SBA 7(a) Loan: Proceed from a 7(a) SBA loan can be used for a range of business uses including the acquisition of an existing business. There are three types of 7(a) loans that can be used in the acquisition of an existing business. They are the standard 7(a) with a maximum loan amount of $5 million and a turnaround time of 5-10 business days, the 7(a) Small Loan with a maximum loan amount of $500,000 and a turnaround time of 5-10 business days, and the SBA Express with a maximum loan amount of $350,000 and a turnaround time within 36 hours. A good resource to learn more about the qualifications and requirements of SBA loans is our guide to Understanding SBA Loans to Small Businesses.
- Term Loan: A term loan can be used to purchase an HVAC company. Term loans can be obtained from traditional financial services like banks and credit unions or online lenders like Biz2Credit. Term loan proceeds are paid out as a lump sum which can help with the purchase of a business or as a down payment based on the financing you’ve worked out with the business you are trying to purchase. Loan amounts, interest rates, turnaround times, and requirements will vary depending on the lender.
- CRE Loan: A commercial real estate loan can be used to purchase an HVAC business. Businesses can leverage the equity of existing commercial real estate to secure a loan. Similar to term loans, CRE loan interest rates, requirements, and funding times will vary depending on the lender.
- Crowdfunding: Most loans from online lenders and traditional financial institutions require you to have an existing business with a credit and revenue history. Crowdfunding is an alternative approach if you want to try and raise money as an individual by tapping into your network by using a crowdfunding platform like GoFundMe or Kickstarter. Asking friends and family for money for an HVAC business is a personal decision that one will have to make. However, friends and family members with the means to invest in an HVAC business will likely ask to hear about your business plan (another great reason to develop a business plan as a first step) and how you plan on paying them back.
- Negotiate terms directly with the owner: For those looking to purchase an HVAC company through family or an apprenticeship, negotiating terms with the business owner might be possible (and even favorable) given the existing relationship. They might offer terms that online lenders or banks won’t.
Can I use Working Capital Loans to Purchase an HVAC Company?
Working capital loans are not supposed to be for acquiring a business. Working capital loans are intended to be used to operate an existing business and loan payments are made from your business receipts. Unfortunately, this type of loan is not an option to purchase a business. This also includes invoice financing loans, which are a form of asset-based financing intended for working capital. A business owner receives an advance of capital in exchange for unpaid invoices or accounts receivable.
Similarly, an SBA 504 loan should be used to promote business growth and job creation and not to acquire a business. Once your HVAC business is up and running, an SBA 504 loan is a great option to help you grow, expand, and hire.
Growing your HVAC company to maximize cash flow
There are business opportunities aplenty for HVAC companies to maximize cash flow. Let’s break down some growth ideas to ensure you have a successful HVAC business:
Service-based business: An HVAC company is a home service business. With that, you are entering someone’s home and dealing with the homeowner directly. It should go without saying that professionalism and high-quality service will lead to word-of-mouth business and referrals from happy customers. It’s not just getting the job done, it’s getting the job done and providing that added special service touch to make you stand out.
Maintenance agreements: Proactively getting customers to sign maintenance agreements will increase the chances that you will keep them as customers for the long term and provide ongoing service. Homeowners would prefer not to shop around anyway and have a trusted HVAC technician they can rely on. HVAC business can be looked at as being in a service industry.
Expand service areas: Expand your service area in an attempt to expand your customer base. Based on the data we referenced in the introduction, potential customers are just about everywhere. This is where the SBA 504 loan, or working capital loan, can come into play.
Expand services: One of the biggest growth opportunities is expanding into related services beyond heating and air conditioning. Related services can include duct cleaning, water heaters, air purification, air quality, humidifiers, dehumidifiers, plumping, and more.
Marketing strategy: Have a marketing strategy that includes a website, social media, and physical marketing materials you can hand to homeowners when you enter their home for a quote or after completion of service. Online reviews are very important for HVAC businesses as potential customers read them when they are vetting you online.
Cash flow: Focus on improving your cash flow. There are many smart ways to increase cash flow with small business financing that can put your HVAC business in the strongest position possible. A related article titled How to Minimize Credit Card Machines Charges for Your Small Business breaks down ways to save on collecting payments. These two efforts can help increase profit margins.
Summary
HVAC businesses can thrive in the United States. With many options to purchase and finance an HVAC company, entrepreneurs should be excited by this opportunity.
