How Much Is an HVAC Business Worth?

What decides the value of an HVAC or refrigeration business?

Three things: what the business earns in an ordinary year, how much of that would continue after the current owner has gone, and what a buyer would have to pay to replace the people who produce it. A split system installer and a commercial refrigeration contractor can sit at opposite ends of all three.

The profit in the tax return is only the starting point. It carries the owner’s wage, whatever vehicles run through the business and whatever the weather did that year. A valuer rebuilds it into the earnings a new owner could reasonably expect to keep. The factors we examine are listed on our page on HVAC and refrigeration business valuations. Every figure in this guide is illustrative: none describes a real business and none is a benchmark.

Does weather make an HVAC business harder to value?

It makes a single year unreliable, which is why we use several. Split system and ducted installs bunch ahead of summer and in a heatwave, a cold snap lifts heating work, and breakdown calls follow the same swings. A business that earned its best profit in the hottest summer on record has not shown that it will earn that profit again.

We ask for monthly install counts and revenue for three years or more and adopt the level an average year would produce. The hot year was real and the profit was earned, but a buyer will not pay as though every summer will match it.

Are service agreements worth more than install work?

Generally, yes, provided the agreements are real. Planned preventive maintenance repeats because the customer needs the equipment to keep running, and agreement customers usually get priority response, which makes them harder to lose. Install work is won each season and moves with the weather and with building activity. We separate the streams and weigh each on its own record.

For agreements we count sites and units, price per visit, renewal history and how often a routine visit leads to repair or replacement work. We also read the terms: length remaining, response-time penalties and any clause that lets the customer end the agreement when ownership changes. Our guide to recurring maintenance contracts and business value explains how recurring revenue is read.

Do refrigerant licences and technicians change the value?

Yes, because refrigerant work cannot be done without them. Handling refrigerant requires a licence held by the individual, and the business generally needs authorisation under the same national scheme. Many jobs also involve electrical connection or gas work, which each state licenses separately. We identify who holds what, whether each licence is current and what a buyer would need to hold to keep trading. What passes with a sale depends on the scheme and on how the sale is structured, so a buyer should confirm the position with the licensing body.

Then we look at the people behind the licences: tenure, wages and whether any technician could leave and take customers. Refrigerant gases are also being phased down and replaced, and some replacements need extra training and equipment, so we ask what refrigerant stock is held and what newer gases would cost the business to handle.

What does a worked example look like?

The illustrative business below has three earnings streams. The install stream is averaged over three seasons because the latest one was hot. The owner’s role is charged at a market cost, and a private vehicle is added back.

Had the hot season been used alone, EBITDA before the owner adjustment would have been $530,000 instead of $420,000, and at the same multiple the value would have been $330,000 higher. The agreement stream is 42.9% of maintainable EBITDA, which is the part a buyer is likely to see as most repeatable. A real report tests that by reading the agreements, not by assuming it.

A real multiple depends on the risk, growth and evidence of the business in front of us. Our guide to EBITDA multiples for trade businesses explains what a multiple represents and why we do not offer one as a market figure.

What reduces the value of an HVAC business, and what increases it?

None of these changes the method. They change the earnings we adopt and the risk we apply to them.

What tends to reduce value

• Install-heavy revenue. Profit that depends on one summer, one developer or a few builders has to be won again, and is read as carrying more risk.
• A single licence holder. If the owner holds the only refrigerant handling licence, or the only electrical or gas licence the work needs, the business may not be able to trade without them.
• After-hours response that runs on the owner. Food and cold chain customers expect an answer to a failed cold room at any hour, so a roster that depends on one person is a risk.
• Callbacks and warranty cost. Early compressor and coil faults are costly and only partly recoverable from manufacturers.

What tends to increase value

• Documented agreements. A register of sites, units, visit frequency, price and renewal date, with a history of renewals, gives a valuer something to test.
• Food and cold chain customers. Supermarkets, food manufacturers and hospitality sites need their refrigeration to keep working and expect documented service.
• Technicians who have stayed. People who combine refrigeration with electrical or gas qualifications are hard to hire and hard to replace.
• A roster and quoting that run without the owner. On-call allowances, a response record and a second person who can price work all make earnings easier to transfer.

What should you prepare before an HVAC business valuation?

Most of the work is getting records into a form a valuer can test. For an HVAC or refrigeration business the most useful items are:

• Monthly install counts and revenue for three years, so that weather can be separated from the trend.
• A service agreement register showing sites, units, visit frequency, price and renewal dates.
• Refrigerant handling licences and business authorisation details with expiry dates, and a technician list showing the electrical and gas licences each person holds.
• Top customers by revenue for three years, including facilities management and food accounts, and any contract with a change-of-ownership clause.
• A vehicle and equipment schedule showing age, finance owing and calibration records.
• Warranty and callback records, including what manufacturers have repaid.

If you are a tradie weighing up a sale, a partner buying in or a succession plan, an independent valuation puts these answers in writing. Our pages on business sale and shareholder transfer valuations explain what the report needs to address. An Independent Business Valuation is $1,995 + GST, and you can start online. Whether a valuation suits a particular tax purpose is a question for your accountant or tax adviser.