How To Sell A Home-Service Business In Arizona

If you own an HVAC, plumbing, electrical, or other home-service company in Arizona and you are thinking about selling, you may own exactly the type of business many buyers are looking for.

Home-service businesses can be attractive to buyers because they provide essential service, often have repeat customers, and can generate consistent cash flow.

Here is what this guide covers:

• Why home-service businesses tend to sell at stronger prices than most other small businesses
• How your shop or office lease can affect the sale
• The four things buyers look at before making an offer
• How to sell without your employees, customers, or competitors finding out

Why Home-Service Businesses Sell Well

Buyers like businesses that can continue operating smoothly after the owner leaves.

A home-service company with repeat customers, maintenance agreements, experienced employees, and consistent earnings can be very attractive to a buyer. Licensing requirements can also create a barrier to entry that makes an established company more valuable.

However, not every home-service business is worth the same multiple.

Owner dependency, customer concentration, recurring revenue, employees, and growth all affect what a buyer is willing to pay. Two HVAC companies with the same revenue and profit can have very different values depending on how the businesses are structured.

Does A Service Business Sell For More Than A Retail Business?

Often, yes.

A service business with maintenance agreements and repeat customers can have more predictable revenue. Predictable revenue reduces risk for a buyer, and lower risk generally makes a business more valuable.

A business that has to find new customers every month is usually viewed as riskier than one that starts each month with a base of existing customers who regularly need its service.

The Four Things A Buyer Checks First

Most serious buyers will focus on four areas:

1. How much of the business is recurring.

Does the company have maintenance agreements, service contracts, or a large base of repeat customers? The more predictable the future revenue is, the more comfortable a buyer will usually be.

2. How dependent the business is on you.

If you quote every job, manage every employee, and every important customer asks for you by name, the business may be difficult to transfer to a new owner. Buyers want a business that can operate without the seller being involved in everything.

3. Customer concentration.

If one builder, property manager, or other customer accounts for 40% of your revenue, that creates risk. If that customer leaves after the sale, the buyer could lose a large portion of the business overnight.

4. Your employees.

Experienced employees who are likely to stay after the sale are very important to buyers. Low employee turnover is also a positive because replacing experienced technicians can be difficult and expensive.

If you are thinking about selling, fix what you can before putting the business on the market. The issues you can't fix should be disclosed at the appropriate time. They are likely to come out during due diligence anyway, and unexpected problems late in a transaction can kill a deal.

Don't Overlook Your Lease

If your business operates from a shop, warehouse, or office, your lease can become an important part of the sale.

A buyer will want to know how much time is left on the lease, whether there are renewal options, and whether the landlord will allow the lease to be assigned to a new owner.

If the lease is about to expire or the landlord won't approve the buyer, it can create a problem at exactly the wrong time.

I recommend reviewing your lease before putting the business on the market so you know what will be required when a buyer is found.

Selling Without Your Employees Finding Out

Confidentiality is one of the biggest concerns business owners have when they decide to sell, and for good reason.

If employees hear a rumor that the business is for sale, they may start looking for another job. Customers may become concerned and start shopping around. Competitors may also try to use the information against you.

The way I handle this is fairly simple.

Your business is marketed without its name attached. I use a blind profile that provides enough information to get a qualified buyer interested without providing enough information to identify the business.

Before a buyer receives confidential information or learns the identity of the business, the buyer signs a nondisclosure agreement and completes a buyer questionnaire.

This does not eliminate every confidentiality risk, but it significantly reduces unnecessary exposure.

When Do I Tell My Employees?

Usually much later than most business owners expect.

In many transactions, employees are not told until the sale closes. In some situations, certain key employees may need to know sooner, but I generally recommend waiting until the buyer is committed and there is a high degree of confidence the transaction will close.

There is no reason to create unnecessary uncertainty among your employees while a deal is still uncertain.

Your business broker should help you determine when employees should be told and how the announcement should be handled. The way employees learn about the sale can have a major impact on whether they stay with the business.

What One Of My Clients Said

What Is My Home-Service Business Worth?

Most small, owner-operated home-service businesses are valued using Seller's Discretionary Earnings (SDE).

Think of SDE as the total financial benefit the business provides to one working owner.

It generally starts with the company's profit and then makes adjustments for items such as the owner's salary, certain benefits, interest, depreciation, and legitimate discretionary or one-time expenses that a new owner may not have.

Once SDE is calculated, a market multiple is applied based on the size, quality, growth, and risk of the business.

Larger home-service companies with professional management teams are more likely to be valued using EBITDA instead of SDE.

The multiple is where the quality of the business really matters. A company with recurring revenue, experienced employees, low owner dependency, diversified customers, and consistent growth will generally be worth more than a company with the same earnings but greater risk.

Ready To Find Out What Your Business Is Worth?

If you're thinking about selling your home-service business, the first step is finding out what it's realistically worth in today's market.

I'll review your financial information, calculate a realistic market value, and explain how I arrived at that number.

The valuation is free, confidential, and comes with no obligation.

And if I think you'd be better off waiting a year and making a few improvements before selling, I'll tell you that too.

My job isn't to convince you to sell.

My job is to help you make the best decision for your future.

As a Master Certified Business Intermediary (MCBI), I help owners of HVAC, plumbing, electrical, and other home-service businesses throughout the Phoenix metropolitan area sell their businesses confidentially and for the highest possible price.

When you're ready to have a confidential conversation, I'd be happy to help.

This article is general information about selling a business in Arizona, not legal, tax, or financial advice. Licensing, tax, and contract questions depend on your specific situation. Talk to a qualified attorney or CPA, and confirm any licensing question with the relevant Arizona agency, before acting.