When you 'Exit', What Becomes of Your Business?

Aug. 11, 2014
“Bottom line, it’s simple. Get the business to run efficiently without the owner being there for every transaction."

The discussion forum is a goldmine of commentary from HVACR contractors. Each day, the site features running threads on many HVACR topics for professional contractors. Each year, the site receives well more than one million visits.

This month, we’ve asked contractors to share their plans on exit strategies. Comments have been edited for space or clarity.

We have a feeling this topic and these comments will generate some responses from our readers. How have you planned for retirement? Please enter those comments below.

Q: What steps have you taken or are you planning to take that will prepare your business for your retirement? How are you going about putting a value on your business?

Many Well-Thought Out Plans

  • “First, I hired a good accountant to get me legit. Of course I pay more taxes , but my income and balance sheet looks good. Because I did that and had solid books, I was able to secure a ‘B of A’ loan for cash flow.
  •  “Second, I doubled down on service agreements, with a lofty goal.
  • “I’ve diversified into other income steams: a parts house, rental crane service, rental property, and a restaurant.
  • “Bottom line, it’s simple. Get the business to run efficiently with out the owner being there for every transaction. “
  • “From a management perspective, I’m slowly turning the decision making over to others a little at a time.
  • I’ve been keeping our name fresh in front of our customers, with new marketing on radio, newspaper, home shows and Yellow Page marketing along with Facebook and Google.
  • “I’m spending about eight to 10% of the gross profit on marketing.
  • I’m working on getting every department to be self-sufficient, and able to function without my input. My goal is to be in the office three days a week and use my other time to make money in other ventures.
  • “I’ve put my wife on the payroll, to demonstrate to a prospective buyer that our profit-and-loss includes her salary and also mine.
  • “Bottom line, it’s simple. Get the business to run efficiently with out the owner being there for every transaction. It requires putting the horse in front of the buggy, and most owners don’t want to do that. Once I do all of the above my business has value, as I’m not in the picture. I can sell it for real value or hand it off to my kids, and take retirement payments."— Roncool

Hiring On for a Small Shop

“I’m trying to get my wife to digitize the records. We do about $350,000 a year and are legit, with an accountant, and pay our taxes.

“I’m 63, and fell off an 8-ft. ladder a few months ago. All the strain from years of service have taken their toll, but after being off a week I went right back to it. I’ll get an operation later when she goes full time and insurance kicks in, in the fall
“I hired a young guy a year ago to train. Customers love him, but he needs about another two to five years before he can go it alone without me. It sure takes the strain off me, and has been a lot more fun to face those attics, crawl spaces, and roof tops with some help. He goes it alone about 20 hours a week, and goes with me the rest of the time.

“My wife is HVAC business savvy and can take on a trained service tech to carry on without me. Before I hired him I thought she should digitize the base and sell the whole thing: parts, tools, truck and all.

“Now that I have a technician to learn and help out, it’s a whole new ball game. Our modest home is safe, my wife receives Social Security, and I’m still working down here in the south. No worries.” — hellbirdman

Working, Planning for Expansion & Early Retirement

“I‘m still very early in my HVAC career. I’ve only been doing HVAC for 18 years, and have owned my own business for the last three. I’m 39 years old, but I’ve put forth a plan to help me retire by the time I’m 55. That’s not to say that I’m going to sit on my duff, but just have the financial stability through savings and investments to support my family in a comfortable lifestyle by that age.

“My business has shown a steady growth for the past three years, so I’m expecting to make the leap from one-man shop to multiple employees in the near future. I’ve hesitated until now, while trying to clear all of my personal debt. I don’t want to move too fast and risk the stability that I have now.

“Once I make the leap to multiple employees, I can reduce my role, while increasing my employee’s responsibility. I’ve kept my overhead very low and rely on my word-of -mouth reputation to keep me busy. I can honestly say that I’m busier than my wife would like me to be. “I’ve had an accountant ever since I started my business. I see it as a tangible way to show a prospective buyer or investor the value of my company. I understand that right now, the value is strictly based on myself as a one-man shop. Once I make the leap to multiple employees, I can reduce my role, while increasing my employee’s responsibility. I’m hoping for the best, but insuring for the worst case scenario.” — sgraefe

Building on Service Contracts

“My plan is to build as many service contracts as I can. The word on the street around here is that a business sells for twice the annual service agreement revenue. Then you negotiate over the hard assets.

“On a side note, I have made a couple of changes this year:

“I used to do some side jobs (DWH, disposer, faucets, etc.) during the off season, but no more, other than occasional requests from established customers.

“I’m doing some things other than residential HVAC (but not including commercial) to level out the year’s work. This idea of working like a dog during the busy season, then being bored is not good. I need to work steady all year.

“What I would like to do is find a young man (not a kid), and take him on for a year, and then buying the business. I would ride with him and teach him how I run it, and get him used to all my customers. He will need to give me a substantial down payment and pay off the business quickly The plan would be that by the time I bow out at the end of that year, he would be paid off 100%.

“When I retire, I plan to move to the country and start a small business, but not keep any of my current customers,  and just play with it. Run a couple of calls a day, 2-3 days a week, maybe 10 installs a year. Just enough to continue to stay busy and productive.

“It’s been said that when one sits on the front porch, they wither and pass on. I plan to be busy.” — ga hvac tech

HVAC Didn't Do It

“My exit plan is to close the doors, sell off my stuff, or give it away, and retire from money I invested in other things. If I had never made the investments I made outside of HVAC, I’d be sitting on a mountain of nothing. Sad state for a lifetime of work and investment.” — t527ed

Small Company Wealth a Pipe Dream

"One of the remodelers we do work for is making some nice coin. He has a very modest house and has always lived a modest lifestyle since I’ve known him, but he’s getting older and buying more toys. I think he’s at the stage where he’s rewarding himself. He’s had to work his but off to get that point but now it’s a company on auto pilot with a built-in high end clientele.

“He’s got a formula that works. When he gets ready to retire, it’s a matter of going into the shop behind his house and turning off the lights and selling a few tools here and there if he wants. Everything else is subcontractors. Not a bad plan really. Very low overhead, 100% referrals, and his name on the company letterhead. Zero advertising. No names on trucks. I doubt the guy even carries business cards.

“I don’t know if depending on 100% referrals is practical in our line of work, but he takes on projects he wants to take and doesn’t bother with anything else. I know I couldn’t survive by doing that, but some HVAC contractor might be able to.
“Most contractor businesses are based on reputation, personal relationships, and tradecraft; these are things that you can’t sell on.

“The point being: this notion that there’s something to sell at the end is a pipe dream for most small contractors, even the super successful ones. Most contractor businesses are based on reputation, personal relationships, and tradecraft; these are things that you can’t sell on. It’s only real shot is to come from inside the organization. You can try to sell to an outsider, but I figure most will fail in the effort.

“I think it’s more likely that my company gets broken apart into easy-to-swallow chunks of assets. The customer base will either be sold at that time or will just die on the vine.

“I’m 36, so I’ve got time to figure it out. I’ve got some investments and two term life insurance contracts that end with a cash dividend, optional riders, and jargon which is designed to give me plenty of walk-away money, provided I live to see any of it and we don’t have World War III between now and then.

“I don’t have a child to pass the company on to. Maybe that will change. I’m not counting on that happening, and I’m not sure I’d steer my kids into this life of heartache and stress anyway. Exit strategies are nice to think about, but in this economy, just keeping the ship floating seems to be a challenge from time to time." — hunter 844