Knowing how to value a heating and air conditioning business is essential if you are planning to sell, bring in investors, secure financing, or simply understand your company’s true market worth.
Most HVAC businesses are valued using an earnings-based approach such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or Seller’s Discretionary Earnings (SDE). These earnings are multiplied by an industry standard multiple—typically 3× to 6× for small and mid-sized HVAC companies—and adjusted for assets, liabilities, and operational strength.
In this guide, you’ll learn exactly how to calculate HVAC business value, how valuation multiples work, what affects your HVAC company’s worth, and how to increase your valuation before selling.
What Is HVAC Business Valuation?
HVAC business valuation is the process of determining what a heating and air conditioning company is worth in the current market. Buyers typically evaluate HVAC businesses based on profitability, risk, growth potential, and recurring revenue.
This actually matters for many reasons:
- When you wish to sell your HVAC business, the valuation you establish allows you to set a fair asking price and consider the potential returns from the sale.
- Business value is important, even if you are not ready to sell, as it can help improve the condition of the business. For example, this can include optimizing the HVAC business structure, renewing contracts, or maximizing general HVAC net worth to achieve a higher return in the future.
- An accurate valuation of your HVAC company will help you make informed decisions about financing, partnerships, and expansion, while providing a clear picture of your company’s financial health.
To sum it up, having an understanding of your HVAC business valuation is not only instrumental when selling, but it also comes as a great tool for long-term planning and stability.
How to Value a Heating and Air Conditioning Business
The valuation of a heating and air conditioning business should be conducted in three ways. Each way, considering the different valuations of the company, can lead to more informed and prudent financial decisions.
- Income Approach (Earnings-Based)
It typically considers the current income of your business and the possible future earnings. Cash flow and profitability, which are essential for estimating the valuation of your HVAC business, form the basis.
- Market Approach
A market approach compares the sale prices of similar HVAC companies with those of service enterprises. It derives a value by applying a valuation “multiple” to your earnings or revenue, providing a real-world assessment of how much value your HVAC business holds compared to others in its industry.
- Asset Approach
The asset approach encompasses all tangible and intangible assets of your business, including tangible fixed assets such as vehicles and tools, as well as intangible assets like brand reputation, and it also includes liabilities. For HVAC companies, the reality is that the value actually lies in earnings and customer contracts rather than what they have.
Putting It Into Practice
- Calculating your earnings: For your earnings calculation, utilize an EBITDA calculator (Earnings Before Interest, Taxes, Depreciation, and Amortization)or SDE (Seller’s Discretionary Earnings) for small businesses.
- Determine the Multiple: Industry benchmarks provide the requisite metrics for determining the appropriate multiple for valuing an HVAC company based on its profitability and growth potential.
- Use the formula:
Business Value = Earnings × Multiple or,
Business Value = (Net Income + Depreciation + Amortization) × Earnings Multiplier
Which Factors Affect Your HVAC Company Valuation?
There are some underlying factors that do not depend on revenue but rather determine the answer to the question, “How much is my HVAC business worth?” Among them are the influences listed below.
- Revenue & Profitability: Profit Margin is a measure of value. For instance, the two companies with the same revenue may have different values if they have different profit margins.
- Recurring Revenue & Service Agreements: Maintenance agreements are found to mitigate risks and, as a result, increase valuation.
- Customer Diversification: Relying on one or two major clients is a risk. A broad customer base is much more appealing.
- Owner Dependence: If an owner makes themselves indispensable to the very operation of the business, the value decreases as the buyer perceives that the entity carries a risk much higher than normal.
- Assets & Liabilities: In the service industries, less prominent assets include equipment, vehicles, inventories, and outstanding debts, which nevertheless hold some importance.
- Market Conditions: A range of factors influences the demand for cooling services, like those from local sources, regional economic shifts, and the competition for broader customer sets.
Answering questions like, ”What can I improve now so that when I come to sell my HVAC business, I get more?” is a great way to learn about how you can continually improve your business so that it sells for more when the time comes.
What Role Does EBITDA (and SDE) Play in HVAC Valuation?
EBITDA determines the absolute value of an HVAC business. Here’s what you need to know:
- EBITDA represents cash flow before interest, tax, depreciation, and amortization. Buyers focus on this amount.
- For small businesses, SDE includes the owner’s salary and discretionary spending.
- After calculating your EBITDA (or SDE), you would then apply a multiple to it.
- The EBITDA multiple applied depends on the size, stability, and risk profile of the HVAC business.
HVAC Business Valuation Multiples (EBITDA)
| HVAC Business Type | EBITDA Multiple |
|---|---|
| Small owner-operated | 2.5× – 3.5× |
| Mid-size HVAC company | 4× – 6× |
| Large HVAC business | 7× – 10× |
Note: EBITDA multiples vary based on business size, recurring revenue, and operational maturity.
Many online tools, such as the EBITDA Calculator / SDE Calculator, allow you to input your financial data and then calculate HVAC business valuation for you (which we will discuss next).
Use an HVAC Business Valuation Calculator
Would you like to know the value of your HVAC business? The quickest way is to check it out with the help of an online calculator, which is free and fast.
What is a Calculator?
An HVAC business valuation calculator is essentially an online tool that shows you the potential worth of your business when you input some of your business numbers. Not foolproof, but definitely a good starting point.
Here is what you need to do:
- Enter your annual income.
- Enter your expenses.
- Enter the number of technicians you have.
- Click on Calculate.
- Receive estimated value.
Two tools to try:
ServiceTitan (free)
This can be accessed on their website: a free calculator. You enter your net income, depreciation, and other relevant numbers; the calculator then multiplies them by an industry average, providing you with an estimate. It’s quick and simple to use.
Housecall Pro (downloadable)
Housecall Pro also features a more detailed calculator. This can include the costs of multiple technicians, overhead expenses, and sales expenses being inputted. The amount of information you enter will make the estimate more accurate.
Always keep in mind that these calculators provide broad estimates. They do not know what your business is like in all areas. They fail to consider your customer contracts, brand reputation, and other specific factors. As such, the calculators should be treated as preliminary, rather than the ultimate opinion.
Best practices:
- Use the calculator as a starting line.
- Compare findings across different calculators.
- Consult a specialist for a valuation to determine the best price for selling your business.
- Use it internally to set goals (e.g., “If I increased earnings by 20%, what value would the business have?”).
How Much Is My HVAC Business Worth? (Key Benchmarks)
How much is your HVAC business worth? It depends on your earnings. Let’s simplify.
To estimate your value, start with a standard formula; your value = earnings × multiplier
HVAC Business Valuation by Size
-
Small HVAC businesses (under $1M/year)
- Valuation: ~2.75× – 3.25× annual earnings
- Example: $500,000 revenue → $1.375M – $1.625M value
- Notes: Higher risk due to heavy owner dependence
-
Large HVAC businesses ($5M+ revenue/year)
- Valuation: ~8× – 10× annual earnings
- Example: $5M revenue → $40M – $50M value
- Notes: Seen as stable and less risky
What this means for you:
Say, if your HVAC business were to generate a revenue of $1 million each year and enjoy a reasonably stable stream of income through contracts, then you can expect a valuation of 6-8 times that amount. Otherwise, if there were problems, such as the business relying too heavily on you or depending too much on one major customer, then earn-outs could drop.
HVAC Business Structure Matters for Value
Many HVAC company owners overlook this: organization can greatly increase your business’s value. An organized company is worth much more than a disorganized one.
A buyer wants more than your equipment and customer list; they want a business that can run profitably without you. If it can’t, its value drops.
Things that make your business worth MORE:
- Hire managers and staff:
Don’t try to be the whole business yourself. If you’re the lone salesperson, technician, and manager, then your business dies when you stop working. Hire people, train them, and let them take responsibility for tasks. This will bring risk down even further for buyers, and they’ll pay more.
- Use software and systems:
Install accounting software, scheduling software, and customer management systems. How do you do things? A well-documented system with everything conveniently organized and automated, it functions well without relying on a single person within the organization.
- Build recurring contracts:
Avoid one-shot jobs altogether. Make service contracts for maintenance. Enroll clients for monthly or yearly servicing. Recurring revenue is more predictable and valuable. Buyers prefer businesses with recurring revenue because they know the money will continue to flow in.
- Serve different types of customers:
Do not depend solely on residential or solely on commercial. Serve both, and don’t depend on just a few customers. Have a large number of customers spread over a wider area, if possible. This lowers risk, and if one customer moves out, your business still has plenty of others.
Understanding HVAC Net Worth
Many HVAC business owners mistakenly believe net worth and business value are the same, but this misconception can cost them money.
What is Net Worth?
- Net worth is straightforward. It is what you own minus what you owe. Sell all equipment, vehicles, and inventory, pay all debts, and what remains is your net worth.
- How much money would you have left after selling all equipment, trucks, and repaying loans if you stopped work today? That is your net worth.
What is Business Value?
- Business value changes. It is the price a buyer will pay to acquire your entire HVAC business. This price is usually higher than your net worth.
- A buyer purchases not only property, but also your customers and your company’s reputation. They expect future returns as the business continues to generate income.
The Big Difference
Your equipment and trucks may hold measurable value, but the real worth of your business lies in your customers and reputation. Patrick’s company isn’t valued by what was spent on equipment; a buyer will pay based on the profit generated.
Why It Matters
Lenders care less about net worth than whether you possess assets to back up a loan. They want assurance that you can cover liabilities.
Buyers focus more on business profit and growth than on net worth. They want to know if the purchase will generate future profit. When selling, focus on demonstrating business earnings over asset value.
How to Sell My HVAC Business
Preparing to sell your HVAC business? Use this clear guide to successfully sell your HVAC company.
STEP ONE: Prepare Your Business
- Organize Your Financials: Review your accounting records and correct any errors.
- Build Service Contracts: Move customers to recurring plans.
- Delegate Management: Hire managers for sales, service, and billing.
- Document everything: Write down processes and establish simple procedures so someone new can run the business without you.
- Verify Legal Standing: Ensure that licenses and taxes are up to date.
STEP TWO: Find Out What It’s Worth
Use an HVAC business valuation calculator as a rough initial estimate. Next, seek professional advice to determine the exact value of an HVAC company.
STEP THREE: Finding Buyers
HVAC businesses sell to three classes of people:
- Other HVAC companies
- Investment firms
- Individual investors
Prepare a packet with your financials, customer list, and team member information, and send it to potential buyers under a confidentiality agreement.
STEP FOUR: Negotiate
Discuss price and payment terms: it may be all cash upfront or in part now and later. Ask the buyer to share any specific concerns about the business that has been assigned to you, and address these concerns directly during the negotiation.
STEP FIVE: Close the Deal
Sort the paperwork, handle the necessary licenses, and consult a lawyer. Decide whether the buyer will take your equipment or your company shares.
STEP SIX: Hand Over the Business
Introduce the buyer to your team and customers. Train the buyer and ensure that everything is transferred smoothly.
How HVAC Business Valuation Helps When Selling
Timing is everything when it comes to selling your business. Choosing the optimal moment to sell ensures you secure the best possible price.
The right time to sell:
- When your business is growing and profitable.
- Another signal is when management operates effectively without your day-to-day involvement.
- Favorable market conditions also serve as a signal to sell.
- You should also be personally ready to move on.
A few reasons why you should never sell when:
- When in trouble.
- When you are forced to sell in a hurry.
- When the market is down.
A strong signal to sell is when your business performs well and operates independently, increasing buyer interest and demand, and potentially leading to a higher price.
Conclusion
Selling your HVAC business requires preparation and patience, but careful planning leads to better sale outcomes.
Knowing a great deal about the valuation of a heating and air conditioning business enables you to prepare more effectively. Understand your HVAC business valuation before discussing it with potential buyers. This knowledge is very powerful.
What is the value of my HVAC business? This is one question that owners often have on their minds: It depends mainly on how their HVAC business is structured, and whether it generates any recurring revenues, as well as how well it operates with minimal management oversight.
At Jadian, we help HVAC business owners understand their values and prepare for future success. Jadian is the consulting team behind an HVAC business owner’s plan to sell, whether the owner intends to do so now or at some other time in the future.
Want to know how to value HVAC businesses and know when to sell? Contact Jadian for a free consultation today!
Frequently Asked Questions (FAQs)
How do I figure out my HVAC business value?
Use an HVAC business valuation calculator for an approximate estimate. Once you have this initial figure, hire a professional to conduct an accurate valuation of your HVAC company.
What does the value of a heating and air conditioning business mean?
Calculating earnings and applying a multiplier based on the industry will help determine the strength of areas that buyers consider.
How do I make my HVAC business valuation higher?
Draw up service contracts, appoint capable managers, put your processes on paper, maintain accurate financial records, and serve various types of clientele.
What does the EBITDA calculator mean?
EBITDA refers to the cash that your organization earns from operational processes. Buyers take this number into consideration when determining the amount to be paid for a purchase in an HVAC transaction.
