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.