Would You Take $7M for an HVAC Business You Think Is Worth $10M?

Think Like a CFO

Case 2

Would you take $7 million for an HVAC business you think is worth $10 million?

Most owners would say no before the buyer finished the sentence.

This owner has an even better reason.

A friend of his recently sold an HVAC company with almost the same revenue and EBITDA for about $10 million.

So when the buyer offers $7 million, the owner does not hear “fair market value.”

He hears: “You think my company is worth $3 million less than his.”

That is where this case gets interesting.

Because the friend’s sale may be a useful comparable. It may also be the most dangerous number in the entire negotiation.

Two companies can produce similar revenue and similar EBITDA and still be worth very different amounts.

The difference is usually hiding in what survives after the owner leaves.

How much is my HVAC business worth? Every owner eventually asks it, and this case is a working example of how to answer it from the owner’s side of the table: why an owner’s number and a buyer’s number can sit several million dollars apart, and what an owner can actually change before going to market.

The Business at a Glance

Metric	Case Fact
Revenue	$11.3M
Reported EBITDA	$1.55M
Seller-adjusted earnings	$2.13M
Revenue growth	11%
Recurring service / maintenance revenue	44%
Employees	29
Service vehicles	16
Largest customer / referral relationship	24% of revenue
Working capital needed to operate comfortably	~$700K
Offer received	$7.0M
Owner’s expected value	~$10.0M

The seller’s case for $10 million is easy to follow.

Take $2.13 million of seller-adjusted earnings, apply the kind of multiple he believes a company this size commands, and you land near $10 million.

At this scale, that expectation is not absurd on its face. $11.3 million of revenue, 11% growth and 44% recurring service and maintenance revenue describe a real operating company, not a one-truck shop whose value rises and falls with the owner’s own labor. There is no single multiple that settles the question for a business this size, and $10 million is not automatically outside what a company of this scale and quality can command.

Then add the friend’s sale on top of it: similar revenue, similar EBITDA, $10 million purchase price.

From the owner’s seat, the conclusion feels obvious.

My company should be worth $10 million too.

The buyer is not asking whether that conclusion feels reasonable.

The buyer is asking whether the two companies are actually comparable where it matters.

How Much Is My HVAC Business Worth? Start With Normalized EBITDA

At $11.3 million of revenue, this is not a Main Street business priced off one owner’s take-home pay. It is a company a buyer will underwrite on normalized EBITDA. Normalized EBITDA is the earnings a buyer believes will still be there after the owner leaves: one-time and personal expenses come out, and the real cost of replacing what the owner does — most often a market-rate manager — goes back in.

There is no single HVAC multiple. What moves it is earnings quality, the share of recurring service and maintenance revenue, management depth below the owner, customer concentration, growth, the condition and financing of the fleet, geography, and how the deal is structured. Two HVAC companies with the same revenue and the same reported EBITDA can be worth several million dollars apart for exactly those reasons, which is the whole subject of this case. Buyers, lenders and appraisers all reason from the same asset, market and income approaches set out in the IRS Business Valuation Guidelines.

A Comparable Sale Is a Starting Point, Not a Verdict

Revenue and EBITDA are the headline numbers. They are not the whole business.

A buyer also cares about who produces the earnings, how durable they are, how much cash the company consumes, what liabilities come with it, and how much risk shows up the day after closing.

If the friend’s company had deeper management, cleaner add-backs, lower customer concentration, healthier fleet financing and less working-capital pressure, then “same revenue and EBITDA” is not the comparison the seller thinks it is.

The buyer is not buying the friend’s company.

The buyer is buying this one.

In Case 1, where a buyer values an HVAC company asking $4.2 million, I ran this same analysis from the buyer’s chair. Here we are sitting in the owner’s.

The Buyer Is Buying What Survives After You Leave

The owner still handles important customer relationships, pricing decisions and larger estimates.

The seller adds back approximately $500,000 of owner compensation.

Some of that is a legitimate add-back. But a buyer does not get free management after closing.

Someone still has to do the work.

I would estimate roughly $315,000 per year to replace the owner’s operating role.

That is the first place the seller’s earnings begin to shrink.

Which Add-Backs Will a Buyer Accept?

The seller also presents roughly $85,000 of personal and discretionary expenses as add-backs.

I would not throw them all out. I also would not accept them all because they appear on a broker’s schedule.

Assume roughly $50,000 survives diligence.

That is how valuation gaps usually form: not one dramatic adjustment, but a stack of small assumptions that all leaned in the seller’s favor.

Payroll Is Cheaper Than It Should Be

Several key technicians are below market compensation.

That may be manageable while the current owner is in place. It becomes harder to underwrite after a sale, when retention risk is already elevated and a buyer is benchmarking the crew against published market pay. The Bureau of Labor Statistics put the median wage for HVAC and refrigeration technicians at $59,810 in May 2024, and a buyer will assume he has to pay at least that to keep the truck rolling.

I would normalize approximately $100,000 of additional annual labor cost.

The company did not suddenly become worse.

The buyer simply refuses to value an expense advantage he may not be able to keep.

How Fleet Debt Reduces What a Buyer Will Pay

A few trucks began having major mechanical problems earlier than expected.

The owner had a practical choice: keep writing repair checks and losing technician time, or trade the trucks and move into newer equipment.

He traded them.

Operationally, I understand the decision.

Financially, it left a scar.

Some of the old trucks were underwater. The negative equity did not disappear; it was rolled into the replacement financing.

Now the company has newer, more reliable trucks — but several loan balances are above the vehicles’ market values and the annual fleet cost is too high for a normalized operation.

Assume a properly capitalized fleet for a company this size should cost roughly $310,000 per year in financing and replacement economics.

This company is effectively carrying closer to $450,000.

That is about $140,000 of excess annual fleet cost.

That $140,000 does not just reduce annual cash flow. A buyer capitalizing a recurring cost into the purchase price sees the impact multiply — using this buyer’s own valuation assumptions, roughly $630,000 of value.

The trucks are not the reason this buyer stopped at $7 million.

They are one reason.

That distinction matters. This is not a story about one bad fleet decision. It is a story about several ordinary operating decisions accumulating into a valuation discount.

Customer Concentration Hits the Multiple

One customer and referral relationship represents approximately 24% of revenue.

The owner may have no reason to believe that relationship is leaving.

The buyer still has to price the possibility.

A relationship built over years with the seller does not automatically transfer with the stock certificate or asset purchase agreement.

That risk may not reduce EBITDA directly.

It can reduce the multiple a buyer is willing to pay for that EBITDA.

Rebuilding Normalized EBITDA

Normalization	Amount
Reported EBITDA	$1,550,000
Add back owner compensation	+$500,000
Legitimate discretionary add-backs	+$50,000
Replacement management	−$315,000
Market compensation adjustment	−$100,000
Excess fleet cost	−$140,000
Normalized EBITDA	~$1,545,000

Now the disagreement is easier to see.

The seller is effectively saying:

$2.13M of seller-adjusted earnings × 4.7 ≈ $10.0M

The buyer is saying:

$1.545M of normalized EBITDA × 4.5 ≈ $6.95M

Rounded, that is the $7 million offer.

Neither of those multiples is a published market rate for HVAC companies this size. Each one is an assumption — the seller’s and this particular buyer’s. Notice how close together they are. Almost the entire $3 million gap comes from the earnings figure, not from the multiple.

Now the $7 million offer becomes easier to understand.

That does not make $7 million the correct value and $10 million a fantasy. The gap is not proof that either side is being irrational.

The offer did not come from nowhere.

It came from a different definition of the earnings and a different view of the risk.

Same Revenue. Similar EBITDA. Different Business.

This is the part I would want every owner to understand before using a friend’s sale as the anchor for his own valuation.

The seller sees a comparable company that sold for $10 million.

The buyer sees whether this company deserves the same multiple on the same quality of earnings.

Those are not the same question.

A comparable sale tells you what someone paid.

The CFO work is figuring out why they paid it.

A buyer does not pay for the business the owner believes exists. A buyer pays for the earnings, risks and operating structure that actually transfer after closing.

So Would I Take the $7 Million?

Not yet.

I would keep the business for three more years.

But those three years would have a job.

This would not be “wait and hope the market gets better.”

It would be a formal pre-sale value-creation plan designed to remove the reasons the buyer discounted the business.

How to Prepare an HVAC Business for Sale

• Build a management layer that can run the operation without the seller.
• Clean up add-backs so the earnings story is simple and defensible.
• Bring key employee compensation to sustainable market levels.
• Reduce the 24% customer / referral concentration.
• Work down the underwater fleet debt and normalize vehicle economics.
• Improve monthly reporting so normalized earnings, cash needs and operating trends are obvious to the next buyer.

Preparing a company so those fixes actually show up in the financials is what sell-side and exit advisory is for — exit-readiness review, EBITDA normalization and add-back analysis, and finding the issues that reduce buyer value before a buyer finds them.

Why Three Years?

Because buyers pay more for proof than promises.

Three years gives the owner time to make the changes, let them show up in the financial statements, and demonstrate that the company can operate under a cleaner structure.

A buyer can discount a plan.

It is much harder to discount a three-year track record.

The CFO Rule: Is the Valuation Gap Fixable?

How much is my HVAC business worth today is only half the question. Before rejecting a serious offer, determine whether the gap between your number and the buyer’s number is:

1. Fixable
2. Measurable
3. Worth the time and risk required to close

There is a major difference between saying, “My business is worth $10 million,” and saying, “I know exactly what I need to change to make a buyer pay $10 million.”

One is an opinion.

The other is a plan.

So the owner’s real question is not “Why won’t they pay me $10 million?” It is “What would have to change for a buyer to confidently pay it?”

My CFO Verdict

KEEP THE BUSINESS — FOR THREE MORE YEARS.

But only if those three years are used deliberately to improve transferability, earnings quality and risk. How much is my HVAC business worth is not a fixed fact you discover. It is a number you build.

Then take it back to market.

If buyers still say $7 million, that is information.

If they say $10 million, you earned the difference.

Frequently Asked Questions

How much is my HVAC business worth?

Value is normally a multiple applied to normalized EBITDA rather than to the earnings in your own add-back schedule. In this case the owner’s $2.13 million of seller-adjusted earnings became roughly $1.545 million once replacement management, market-rate technician pay and excess fleet cost were priced in — and that is most of the distance between a $10 million expectation and a $7 million offer.

What affects the valuation of an HVAC company?

Earnings quality, the share of recurring service and maintenance revenue, management depth below the owner, customer concentration, growth, the condition and financing of the fleet, geography, and deal structure. There is no single HVAC multiple — those factors are what move it.

Which EBITDA add-backs will a buyer accept?

Add-backs that genuinely stop at closing. Owner compensation is addable only to the extent the owner’s work is not replaced. Anything that recurs after the sale — a market-rate manager, sustainable technician pay, ordinary fleet cost — gets pushed back into the earnings. Here roughly $50,000 of about $85,000 in discretionary add-backs survived diligence.

Does owner dependence reduce business value?

Yes. A buyer is purchasing the earnings that remain after the owner leaves. Where the owner holds the key customer relationships and runs the operation, the buyer prices a replacement — about $315,000 a year in this case — and that comes straight out of the earnings the multiple is applied to.

How does fleet debt affect what a buyer will pay?

Negative equity rolled into new truck loans pushes annual fleet cost above what a properly capitalized fleet would carry. In this case the excess runs about $140,000 a year. A buyer capitalizing that recurring cost into the purchase price sees the effect multiply — using this buyer’s own valuation assumptions, roughly $630,000 of value.

Should I sell now or improve the company before going to market?

It depends on whether the gap between your number and the buyer’s is fixable, measurable, and worth the time and risk. My verdict in this case is to keep the business for three more years and run a formal pre-sale value-creation plan — build a management layer, clean up the add-backs, bring pay to market, reduce the 24% concentration and work down the fleet debt — then return to market with a track record instead of a plan.

How much is my HVAC business worth if a similar company just sold for more?

A comparable sale is a data point, not a verdict. Two HVAC companies can post the same revenue and the same reported EBITDA and still be worth millions apart once management depth, customer concentration, recurring service revenue and fleet debt are priced in. Before anchoring on someone else’s number, find out what their add-back schedule, management structure and balance sheet looked like. That is usually where the difference lives.

Related Reading

• Think Like a CFO — the full case series
• Case 1: Would You Buy This HVAC Company? — the same industry from the buyer’s side
• Fractional CFO services for South Florida businesses
• What a fractional CFO costs and our flat monthly pricing
• About David Lopez, CPA
• Case 4: When reported earnings stop meaning what they say