How to Value HVAC, Plumbing, and Home-Service Businesses

Valuation is where most deals die. Sellers think their 30-year reputation is worth 5x revenue. Buyers think the owner-paid Porsche should be added back to SDE. Brokers who can't defend a number lose the listing. Buyers who can't model SDE correctly overpay. This guide gives you the framework both sides use, with the adjustments that actually matter in trades.

Start with SDE, not revenue

Seller Discretionary Earnings is the foundation. SDE = net profit + owner compensation + owner benefits + one-time expenses + depreciation + interest. For a typical HVAC company: net profit $120K, owner salary $150K, owner health insurance $18K, one-time legal $8K, depreciation $25K = SDE $321K. That $1.8M revenue business is a $321K SDE business, not a $1.8M business.

Normalize aggressively but honestly. Legitimate add-backs: owner salary above market rate for a GM replacement ($80K–$100K in most markets), personal expenses run through the business, one-time capex. Illegitimate add-backs: 'what the business could earn if we had a sales team', that's pro forma, not SDE.

Multiple ranges by trade and size

• HVAC: 2.8x–4.0x SDE (premium for commercial mix, recurring maintenance contracts).
• Plumbing: 2.5x–3.5x SDE (higher emergency call premium in some markets).
• Roofing: 2.0x–3.0x SDE (weather dependency, insurance claim cyclicality).
• Landscaping: 2.0x–3.0x SDE (seasonal, labor-intensive, lower barriers).
• Pest control: 3.0x–4.5x SDE (recurring revenue premium, route value).
• Commercial cleaning: 2.5x–3.5x SDE (contract-based, concentration risk).

Size matters: businesses under $200K SDE trade at the low end. $300K–$600K SDE is the sweet spot for solo buyers and search funds. Above $1M SDE, strategic buyers and PE enter, compressing multiples for financial buyers.

Adjustments that move the multiple

Premium factors (+0.3x–0.5x): recurring maintenance agreements over 30% of revenue, owner willing to stay 12+ months, diversified customer base, clean books, growth trend 3 years running. Discount factors (-0.3x–0.8x): customer concentration over 25%, owner is only licensed tech, declining revenue, fleet on short-term leases, pending litigation.

Asset vs. stock sale implications

Most trades acquisitions are asset purchases, buyer gets step-up basis on equipment, avoids unknown liabilities. Stock sales are simpler but riskier for buyers. Asset sales typically allocate value across equipment (fast depreciation), goodwill (15-year amortization), and non-compete. Work with a tax advisor before structuring.

Quality of earnings: what QoE firms catch

• Revenue recognition timing, cash vs. accrual mismatches.
• Related-party transactions at non-market rates.
• One-time jobs inflated in trailing twelve to boost SDE.
• Deferred maintenance on fleet and equipment.
• Employee misclassification (1099 techs who should be W-2).

Budget $15K–$30K for QoE on deals over $1M enterprise value. It's the cheapest insurance you'll buy. Brokers who recommend QoE before listing close faster because buyers trust the numbers.

Walk-through valuation example

Plumbing company: $2.1M revenue, $290K normalized SDE. Market multiple for plumbing in Southeast: 2.8x–3.2x. Base range: $812K–$928K. Adjustments: +0.3x for 35% maintenance contract revenue, -0.4x for owner as only licensed master plumber, +0.2x for three-year growth trend. Final range: 2.9x–3.1x = $841K–$899K. Present as range, negotiate from midpoint.

Broker negotiation tactics

When representing sellers: anchor high with defensible SDE add-backs documented in a seller packet before listing. When representing buyers: lead with comparable transactions in the same metro, 'three HVAC deals in Atlanta closed at 3.0x last year.' Data wins arguments that opinions cannot.

Market comps without paid databases

Browse same-trade operators in the target metro to understand density and competitive dynamics. A market with 40 HVAC companies and three recent retirements signals seller motivation. A market with two players and PE already present signals compressed multiples, adjust your range down before the first seller meeting.

Presenting valuation to sellers

Use a one-page summary: trailing SDE, normalized adjustments with documentation, multiple range with comps cited, and net proceeds after debt payoff and taxes. Sellers care about walk-away cash, not abstract multiples. Show the math transparently, it reduces re-trading at LOI.

Revenue vs. SDE confusion

Sellers often say 'we do $2 million a year' expecting $2M valuation. Educate early: buyers pay on profit, not revenue. A $2M roofing company at 8% net margin has $160K SDE, that's a $400K–$500K business at 2.5x–3.0x, not a $2M business. Address this in the first meeting to avoid six weeks of wasted diligence.

Documentation that speeds closings

Brokers who provide a seller packet upfront, three years P&L, SDE worksheet, equipment list, customer concentration chart, close 30% faster. Buyers trust organized sellers. Disorganized financials signal operational chaos and trigger deeper QoE that kills deals. Invest two days preparing the packet before listing.

Keep a running comp sheet of every deal in your market that closed or failed in the last 18 months. Valuation is an art informed by data, the broker with comps wins the listing and defends the price at closing.

When buyers push back on multiple, ask what SDE they modeled and which add-backs they rejected. Often the gap is a misunderstanding, not bad faith, a 30-minute call on the SDE worksheet saves a month of re-trading.

Seasonal businesses (roofing, landscaping) need trailing-12 or multi-year normalization, never value on peak month SDE alone.

Document your multiple rationale in the listing memorandum, buyers who understand your math negotiate in good faith and close faster.