Buying an HVAC business: what to check in the numbers
Short answer
When buying an HVAC business, split revenue into service agreements (maintenance plans), repair calls, replacement installs and new construction, because each has different margins and stickiness. Verify the number of active maintenance agreements and their renewal rate, check who holds the contractor licence (often a 'qualifier' who may be the seller), measure technician tenure and pay, and look at seasonality, warranty callbacks and fleet condition.
Recurring service agreements and licensed technicians who stay are what you're really paying for.
HVAC companies are popular acquisitions because demand is steady and many owners are retiring. The best ones are really membership businesses with a repair and replacement engine attached. The weaker ones are one licensed owner and a couple of vans.
Split the revenue
| Line | Quality | Verify |
|---|---|---|
| Maintenance agreements | Recurring; feeds repairs and replacements | Active count by month, renewal rate, price |
| Repair / service calls | Steady, weather-driven | Calls per tech per day, average ticket |
| Residential replacement | High ticket, lumpy | Close rate, financing partner, warranty terms |
| New construction / commercial projects | Thin margin, builder concentration | Contracts, retainage, WIP |
The membership math
Maintenance agreements are worth more than their own fees, because members call the company first when something breaks and when it's time to replace a system. So the questions are: how many active agreements, how many renew each year, and how much repair and replacement work comes from members versus new customers.
Illustrative example, not a real company
The software shows 1,800 active agreements at $180 a year: 1,800 × $180 = $324,000 of agreement revenue. Last year 1,500 came up for renewal and 1,170 renewed, a 78% renewal rate (1,170 ÷ 1,500). Members generated $900,000 of repair and replacement work, about $500 per member ($900,000 ÷ 1,800). So the agreement base drives roughly $1.22 million of the company's revenue, not $324,000. If renewals slip to 65% after the sale because the new owner stops the reminder calls, the base shrinks each year and the replacement pipeline with it. Ask how renewals are sold (auto-renew, phone reminders, technician visits) and keep whatever works.
Licences and people
- Contractor licence. Many states license HVAC contractors through a qualifying individual. If the seller is the qualifier, line up a licensed replacement (often a senior tech) before closing. See transferring licenses.
- Refrigerant certification. Technicians who handle refrigerants need EPA Section 608 certification.
- Technicians. Skilled techs are scarce. Check tenure, pay vs market, commissions, and any non-solicits. See key employees.
Add-back traps
- Owner does sales and estimates on replacements. You'll need a comfort advisor or do it yourself.
- Owner's truck as an add-back, when the owner uses it for service calls.
- Warranty callbacks booked as "one-time" costs.
- Marketing cut before the sale; lead volume falls later.
Documents to request
- Field service software exports: jobs, tickets, techs, agreements (24+ months).
- Tax returns, P&Ls, bank deposits; financing partner reports.
- Agreement customer list with renewal dates.
- Warranty policy and callback log.
- Fleet list with age, mileage and liens; equipment and inventory.
- Licences, insurance, workers' comp history.
Refrigerant rules and what they mean for diligence
Technicians who maintain, service or dispose of equipment containing refrigerants need EPA Section 608 certification, and the refrigerant management rules in 40 CFR Part 82, Subpart F govern recovery and recordkeeping. Ask for a list of techs with their certification type. The industry has also been moving away from some high-global-warming refrigerants under federal phasedown rules, which affects equipment the company sells and the refrigerant it stocks. Ask how much older refrigerant inventory is on hand, what it cost, and whether the company has adapted its install lineup. Don't let refrigerant stock be valued at a price that assumes it will sell.
What an SBA lender will check
Lenders like HVAC's steady demand. They'll check tax returns against IRS transcripts, look at seasonality to make sure debt service is covered in slow months, and focus on the license qualifier and key techs. If the business carries substantial consumer financing volume, they may ask how financing partner fees are recorded (often netted from revenue). They will also question an owner salary add-back if the owner runs calls or sells replacements, since you'd have to replace that work.
Worked example: what the owner's sales role is worth
Illustrative example, not a real company or market wage
A company does $2.4 million, of which $1.1 million is residential replacements. The owner runs every replacement sales call: about 400 leads a year, closing 45%, or 180 jobs averaging $6,100 ($1,098,000). The listing adds back the owner's $150,000 salary. If you hire a replacement salesperson paid 8% commission on sales plus a $40,000 base, that's $40,000 + 0.08 × $1,098,000 = $127,840, so about $22,000 of the add-back survives. But a new salesperson may close fewer leads. At 35%, they'd sell 140 jobs, or $854,000. With a gross margin of 40% on replacements in this example, the 40 lost jobs cost 40 × $6,100 × 0.40 = $97,600 of gross profit. Owner-dependence isn't a footnote here; it's most of the risk.
What moves the value of an HVAC company
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Agreements | Large, renewing base | Few agreements, low renewal |
| Sales | Trained comfort advisors | Owner sells everything |
| Licence | Qualifier who stays | Seller is the only qualifier |
| Techs | Tenured, certified, paid fairly | Turnover, open positions |
| Lead sources | Several, including repeat and referral | One paid channel |
We don't value deals or publish multiples we can't verify; these are the factors appraisers and lenders weigh.
Red flags specific to HVAC companies
- Agreement counts that include lapsed members. Ask for agreements with a paid renewal in the last 12 months, not everyone who ever signed.
- Replacement revenue concentrated in one hot summer. Compare three years; a heat wave can pull years of replacements forward.
- Installs without permits. Ask how permits are pulled and check a sample with the local building department; unpermitted work can become a liability.
- Equipment warranty registrations not filed with manufacturers, which can leave you paying for parts on recent installs.
- Financing partner volume with high dealer fees netted from revenue, hiding the true cost of sales.
- Technicians on commission plans that reward selling replacements over repairing, which can lead to complaints and chargebacks.
The first 90 days after you buy
Keep the agreement renewal process exactly as it runs today, because renewals are the engine. Make sure the qualifier's licence is in place for your entity on day one, and that permits can be pulled under it. Meet every technician individually, check that pay and commission plans are paid on time, and ride along on calls. Watch three numbers weekly: calls booked, agreements renewed and replacement close rate. If the seller sold replacements, have him ride with your salesperson on as many calls as possible before he leaves.
Questions to ask the seller
- How many agreements were active at each month-end for the last 24 months?
- Who sells replacement systems, and what is their close rate?
- Who is the qualifier on the contractor licence, and will they stay through and after closing?
- What did warranty callbacks cost last year, and what labor warranty do you give?
- Which lead sources produce the most calls, and what did you spend on each?
- How old are the vans, and which need replacing soon?
Plumbing and electrical companies share many of these issues; compare buying a plumbing business and buying an electrical contractor.
Frequently asked questions
What makes an HVAC company valuable?
A large base of renewing maintenance agreements, a strong residential replacement pipeline that comes from those customers, licensed technicians who'll stay, and diversified lead sources.
Does the HVAC licence transfer?
Contractor licensing is set by states and sometimes localities. In many places the company's licence depends on a qualifying individual. If that's the seller, you need a licensed replacement before closing. Check your state's licensing board.
How seasonal is HVAC?
Usually quite seasonal, with peaks in hot and cold months depending on climate. Look at monthly revenue and cash for at least two years.
What about warranty liabilities?
Installers often give labor warranties beyond the manufacturer's. Ask for warranty terms, callback rates and costs; future callbacks on past installs may become your expense.
How do I check an HVAC company's revenue against an independent record?
Field service software exports (every job and invoice) should tie to the P&L and bank deposits. Two further cross-checks: equipment purchase volumes from distributor statements, which should line up with the number of replacement installs, and consumer financing partner reports, which show funded install jobs.
What should I watch for in an HVAC company's replacement sales?
Close rate, average ticket, how much is financed through consumer lending partners and the fees they charge, and who sells. If the owner sells every replacement, that revenue depends on them. Also check warranty registrations: manufacturers often require installers to register equipment, and missed registrations can become your problem.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (QoE revenue sustainability; transferable licences as collateral)
- EPA: Section 608 refrigerant technician certification
- eCFR 40 CFR Part 82, Subpart F (refrigerant recycling and emissions reduction)
- IRS Publication 946: How to depreciate property (vehicles)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.