
Learn how to value a heating and air conditioning business. Our complete valuation guide shows you how to calculate SDE, apply multiples, and maximize your exit value.
Here's the thing: Most HVAC owners have built something incredibly valuable but have zero clue what it's actually worth.
That's a problem.
Because whether you're planning to sell in 5 years, bring on a partner next month, or just want to sleep better knowing what you've built... Understanding your company's value at this moment in time is incredibly important.
The good news? Getting an accurate valuation isn't as complicated as the "experts" make it sound.
This guide will show you exactly how to value your HVAC business. We’ll break down each part of that process so it's clear, accurate, and practical for heating and air conditioning business owners.
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Understanding HVAC Business Valuation
In plain English, your business valuation is what you’re business is worth. It's like getting your home appraised, but with a lot more moving parts.
There are three main ways to value an HVAC business:
- Income approach: Looks at how much money your business makes now and will likely make in the future
- Market approach: Compares your business to similar HVAC companies that have recently sold
- Asset approach: Adds up everything your business owns, then subtracts what it owes
Most buyers care most about your earnings. Especially, how much profit the business generates after expenses. This is why the income approach is most common for small HVAC business valuation.
Typical Multiples and Benchmarks (2025 Market)
In the HVAC industry, valuation multiples are based chiefly on business size, maturity, and profitability (actual and potential).
The following multiples are evident in the 2025 market:
- Owner-operated companies (under $1 million in annual revenue). Multiples range from 2.75x to 3.25x SDE. Many smaller firms rely heavily on the owner, which usually limits valuations.
- $1 million to $5 million in revenue: These firms can achieve 3.25x to 4x SDE. They are typically less owner-dependent with established staff and procedures in place.
- Over $5 million in revenues. Larger operations can negotiate 4x SDE or higher. Business values north of 4x are achieved when cash flows, systems, and scaling potential are strong. Private equity interest can also juice multiples.
- Larger companies with strong recurring revenue. These transactions are often based on EBITDA valuations. For businesses with solid contracts and healthy growth prospects, multiples of 7x to 10x EBITDA are not uncommon.
Let's illustrate with an example:
- Imagine an HVAC business doing $4 million in annual revenue.
- The SDE is calculated at $800,000.
- Based on factors like owner involvement, customer mix, and recurring revenue, a business broker calculates that the multiple lies between 2.75x to 3.5x.
- The sale price is therefore between $2.2 million and $2.8 million.
Factors That Raise (or Lower) Your Multiple
The multiple is a critical metric in determining the cash you walk away with.
To lift your multiple, pay attention to the following:
- Recurring maintenance agreements: Predictable, diversified revenue streams excite potential buyers. Service contracts and maintenance agreements bring this predictability. They increase the value of your HVAC firm by delivering stable cash flow and mitigating risk.
- Service vs. new construction mix: A heavy reliance on new construction dampens multiples. These projects are cyclical and often have thin margins. In contrast, service and retrofit work offer the steadier margins and customer retention that buyers look for.
- Owner dependence: If your HVAC business relies heavily on your involvement, don’t expect to receive top dollar. Prospective buyers prefer companies with good teams and systems rather than operations with one individual running the show.
- Tenured, licensed technicians: A team of experienced, licensed technicians adds stability and customer loyalty, making your business more attractive.
- Digital reputation and reviews: A positive online reputation is more vital than ever. A business boasting a 4.5 to 5-star rating, with mountains of good reviews, indicates customer satisfaction and goodwill. It’s also an excellent marketing tool.
- Location and market growth: HVAC companies in fast-growing metro areas typically fetch higher multiples.
Remember that raising your multiple today can maximize your rewards tomorrow.
Step by Step Calculating Valuation Using SDE and EBITDA
1. Gather Historical Financial Statements
Buyers will want to know your historical performance, not just how your business has fared over the year. So start by collecting your financial documents from the past three years:
- Profit and loss statements
- Balance sheets
- Tax returns
- Equipment lists
These documents show your business's financial health over time, not just a snapshot of today.
2. Normalize Owner Compensation
Next, adjust your financials to show the true profit. A buyer wants to know: "How much cash will this business actually put in my pocket?" This means adding back:
- Your salary above what you'd pay someone else to do your job. So if you pay yourself $150,000 per year because the business has been profitable, but you could hire a manager for $80,000, you can put back the difference
- Personal expenses run through the business (car payments, cell phones, etc.)
- One-time expenses that won't happen again
Be sure to work with a financial advisor or your company accountant when putting together all these figures, you need to make sure that you can clearly explain what you’ve added back and why.
3. Calculate EBITDA
EBITDA sounds complex, but it’s actually pretty simple. It's a formula that shows how much revenue your business makes before you take away accounting and financing effects.
The EBITDA formula is: Net Income + Interest + Taxes + Depreciation + Amortization
Let's say your P&L shows:
- Net Income: $200,000
- Interest: $15,000
- Taxes: $40,000
- Depreciation: $30,000
- Amortization: $5,000
That’d mean your EBITDA is $290,000.
EBITDA matters to buyers because they want to know how much the business actually makes, not how you’ve approached tax strategy or how you’ve previously financed trucks or materials.
4. Calculate SDE
SDE stands for Seller's Discretionary Earnings. This shows the total cash benefit you get as the business owner.
When you break it down, the benefit you get of owning your business isn’t just what’s left as ‘profit’ in the company accounts at the end of the financial year. You're also paying yourself a salary, driving a company truck, getting health insurance, etc.
So SDE includes EBITDA plus your compensation and benefits.
SDE = EBITDA + Owner's Salary + Owner Benefits
Using our example:
- EBITDA: $290,000
- Owner's Salary: $150,000
- Owner's Vehicle: $12,000
Your SDE is $452,000. That's what a buyer sees as the total annual benefit of owning your business.
5. Apply Industry Multiples
Smaller HVAC businesses (making under $1m annually or sometimes $1-3m) often get sold for 2.0-4.0x their SDO.
So using our above example, if your SDE is $452,000 and you apply a 3.0x multiple, your business could be worth $1,356,000.
Smaller HVAC companies usually get valued on SDE because the owner is the driving force behind the business and the buyer's thinking: "How much money will I personally make running this?"
Larger companies (over $3M revenue) get valued on EBITDA because they have management teams in place. The buyer's thinking: "How much profit does this business generate without me having to run it?"
Factors That Impact an HVAC Company Valuation
Not all HVAC businesses are created equal. These factors can push your valuation higher or lower:
- Customer diversity: Having 200 customers is better than relying on just 10 large ones
- Service mix: Recurring maintenance contracts are valued higher than one-time installations
- Team structure: A business that runs without the owner is worth more
- Market position: Strong presence in a growing area increases value
- Online reputation: Hundreds of 5-star reviews boost buyer confidence
- Systems and software: Using modern tools like ServiceTitan or Housecall Pro increases efficiency and value
Real-world example: Two HVAC companies both making $300,000 in profit might sell for very different prices. Company A with 80% installation work and the owner doing all sales might get a 2.5x multiple ($750,000). Company B with 60% service contracts and a management team might get 3.5x ($1,050,000).
How to Sell Your HVAC Business and Maximize Price
Grow maintenance memberships
Recurring service agreements are highly prized. They provide consistent cash flow and increase customer lifetime value. They also lower risks, providing a buffer against market shocks and increased competition.
Businesses with a base of profitable maintenance memberships often justify premiums of 1 to 2 turns higher than companies without contracts.
Systematize operations (CRM, Pricebook, SOPs)
Turn-key businesses hold strong appeal to private equity and strategic buyers. Well-documented processes and systems indicate a smooth operation, while smart CRM and a well-considered pricebook add to the attraction.
Aim to build a business that's not reliant on personalities or institutional knowledge.
Reduce owner dependence
It's important to start handing over the reins well before you sell. Delegate field and admin roles, empower your managers, and step back from day-to-day decisions. Perhaps not a popular opinion, but the less you’re needed in the business, the more it’s worth.
Maintain clean, GAAP-ready accounts
A satisfactory due diligence is a crucial component of maximizing your sales price. Make sure your financial records are clean, accurate, and GAAP-compliant to aid this exercise. Clean, transparent financials prevent unpleasant surprises that can deflate your asking price.
Reliable accounts also help you to improve profitability and key metrics before going to market.
Cultivate online reviews and local brand
A history of glowing reviews is social proof that you serve your customers well. An excellent online reputation builds trust but also serves as free advertising. Moreover, it can boost local SEO, generating leads at lower acquisition costs.
Encourage your technicians to ask for a review after completing a successful job. You can also send an email 24 hours after the job, politely requesting feedback. Just make sure to make it simple and convenient for customers to complete a review.
Track and manage KPIs
KPIs allow you to measure, manage, and improve performance over time. They reflect operational discipline and make it easier to forecast future earnings.
Important KPIs to track include:
- Gross and net profit margins
- Operating costs
- Average response time
- Callback rate
- Customer Satisfaction Score (CSAT)
- Lead conversion rate
- Revenue/ productivity per technician (profit-sharing schemes can boost these numbers)
Profit sharing
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Give your team a stake in the company’s success. ShareWillow helps you create and manage profit-sharing programs that motivate employees and drive business results.
Empowering Your Team to Boost Value
So we’ve established what makes an HVAC business valuable to buyers and how buyers evaluate business worth. But, if you want to increase what you can sell the your business for, the #1 way to do it is to increase your profits.
The best way I’ve seen to boost profits? Incentivize your techs with performance pay.
Most HVAC owners pay hourly and wonder why their techs act like hourly employees: Show up. Do the minimum. Go home.
However, smart incentive structures can improve key metrics that buyers look at.
For example, if you pay technicians partly based on the service agreements they sell, you'll likely see more recurring revenue, which means a higher valuation multiple.
Here are some effective incentive structures I've seen in HVAC companies include:
- $50 bonus per 5-star review mentioning the tech by name (buyers love great reviews)
- 10% commission on service agreements (hello, recurring revenue)
- Team bonuses when you hit monthly targets (everyone wins together)
- Spiffs for add-ons like air purifiers or maintenance upgrades
When your techs make more money selling what buyers want most (recurring revenue, add-ons, great reviews), your business becomes more valuable.
Plus, techs who make good money don't quit. Lower turnover = experienced team = higher valuation.
I've seen this transform HVAC companies.
At ShareWillow, we help 200+ service businesses design performance pay plans that create an entrepreneurial mindset in every technician. Want to learn more? Book a call here.
FAQs About HVAC Business Valuation
What is a good EBITDA for an HVAC business?
A healthy HVAC business typically has an EBITDA margin between 15% and 20% of total revenue, though top-performing companies may exceed this range.
How do I value a small HVAC business with less than $1 million in revenue?
Small HVAC businesses are typically valued using the SDE method with multiples ranging from 2.0x to 3.0x, with higher multiples for companies with strong service contract revenue.
What documents do I need to gather for an HVAC business valuation?
You'll need at least three years of financial statements, tax returns, customer lists with contract details, equipment inventories, and employee information including certifications and licenses. The due diligence process varies with each potential acquirer but whoever you’re selling to is going to want to see every detail possible about your business so you need to be prepared to share and answer a LOT of questions.
How does seasonality affect HVAC business valuation?
Seasonality shouldn’t really impact your valuation. Every HVAC business experiences seasonal ups and downs, so buyers will expect to see this in your data. Veluations typically use multi-year weighted averages to account for seasonal fluctuations, with more recent years weighted more heavily to reflect current performance trends.
What is the difference between asset sale and stock sale for an HVAC business?
An asset sale transfers specific business assets while leaving the legal entity behind, while a stock sale transfers ownership of the entire company including all assets and liabilities.
So for example, if you were to sell some of your trucks and equipment to another company, that would be an asset sale and the cash from the asset sale would go to your business P&L. But if they were to take ownership of everything, you’d be selling your entire company and the cash from the sale would go to you (and other company shareholders).
How long does it typically take to sell an HVAC business?
It’s hard to put a timeframe on it. If you’re selling to a private equity firm, things might move faster and deals could wrap up in a few months. But if you’re selling to another local firm or entrepreneur, it could realistically take six to nine months to close a deal.
Conclusion
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