What the Plumbing and HVAC Companies That Scale Well Have in Common
For owners of plumbing, HVAC, and electrical companies
Adding a van and a tech is the easy part. You already know how to do that. The companies that keep going past it tend to have the same four things sorted: recurring revenue they can count on, an operation that runs when the owner is not in it, a customer base that is not leaning on one account, and numbers clean enough to make decisions from. None of it is complicated. All four also make the business worth considerably more if you ever decide to sell, which is a nice thing to be true whether or not you ever do. Here is what each one looks like in practice.
Same revenue, same market, same year
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What actually makes a trades business valuable
Two trades companies can do the same eight million in revenue and be worth very different amounts, and the reason is the same reason one of them is easier to run. Value follows profit rather than revenue, and profit follows how much of the business keeps working when the owner is not in it. That is a growth statement before it is a valuation one: the company that runs without you is the company that can open a second location.
A buyer is not paying for revenue. They are paying a multiple of profit, and the multiple is really a judgment about one thing: how much of this business keeps running after the owner stops showing up.
Size sets the starting point. Bigger companies command higher multiples than smaller ones, and the step up at each tier is meaningful. But the published ranges are wide, they move with the market and with who is buying, and any number you find online is a starting point for a conversation rather than an answer about your business. Anyone who gives you a firm figure without looking at the four things below is guessing.
One thing worth knowing before you compare yourself to anything you read: at the smaller end, buyers usually work from what's called seller's discretionary earnings, which is EBITDA plus one owner's total compensation, plus the personal and one-time items running through the business, because the owner is still doing a job. Higher up, they work from adjusted EBITDA, where owner pay is replaced with what a hired manager would cost rather than added back entirely. Same idea, different starting number. So two multiples quoted at you may not be the same currency, and it's worth asking any advisor which one they mean.
What matters more than which tier you're in is where you sit inside it, and that spread is wider than most owners expect. Two companies doing identical revenue in the same market can sit at opposite ends of the same range, and the distance between them has nothing to do with how hard either one worked last year.
Closing even part of that distance is usually worth more than a year of hard revenue growth, and it costs nothing but time and discipline. That is the whole reason to read this now rather than when someone makes an offer.
Maintenance agreements: the closest thing to predictable revenue you get
Maintenance agreements, whether you call them service plans or membership clubs, are the single biggest lever on your multiple. A company with a large share of its customer base on agreements is worth meaningfully more than one with a handful. The first ten or twenty points you add move the number most; after that the effect flattens, but the early gains are real and they compound.
That is the half everyone talks about. Here is the half that catches sellers at the closing table.
The money customers have already paid you for maintenance they have not received yet is not really your money. When you sell, most or all of it lands on your side of the ledger.
Look at it from the buyer's chair. You sold 900 agreements and customers paid up front. Some have had one of two visits, some none at all. The buyer has to send a truck and a tech to every one of those houses to deliver service that is already paid for, and the cash for it is in your account, not theirs.
So it gets accounted for. Sometimes as a straight reduction in the price. Sometimes folded into the working capital you have to leave in the business at closing, which is not identical economics but lands in the same place from where you're sitting. Sellers argue it's a normal operating liability that should ride along with the business. Sometimes it does, inside the working capital peg. Either way it gets priced.
So if you're carrying $130,000 of unearned agreement balance, plan on a meaningful part of that number affecting what you walk away with. It is not a penalty and not a negotiating trick. It is a real obligation you took money for and have not delivered yet.
None of which is a reason to sell fewer agreements. Sell more. Just know that how you bill them, how fast you deliver the visits, and how well you track the balance all show up in the final number. Tracking that balance properly is day-to-day accounting and controller work, not something to reconstruct later.
How to know your agreement book is real
A buyer paying a premium for recurring revenue is going to test whether that revenue is actually recurring. This is where a lot of agreement counts fall apart, and it is worth testing yourself before someone else does.
What a buyer will check
- Are the agreements being collected? Auto-pay fails constantly: expired cards, closed accounts. Your system can show one active while nothing has drafted in months.
- Are you actually doing the visits? Filter shipments and service logs should line up with what you're billing. When they don't, those customers churn at renewal.
- Can the customer walk when you sell? Many standard agreements let them out when ownership changes. If yours do, a buyer will price that risk.
- What is your actual renewal rate? The number your system produces, over a full year, not the number you'd estimate. A buyer will compute it themselves.
- How long are the terms? Multi-year with auto-renewal beats year-to-year, and both beat a handshake.
Every one of these is fixable in a year or two. None of them is fixable in the middle of a deal.
The collection one catches people out. If a meaningful slice of the book has quietly stopped drafting, the agreement count you present is overstated, and a buyer's team will find it. You want to be the one who found it first.
Building an operation that runs when you are not in it
This one moves the number more than almost anything else on the list.
A business where crews are run by somebody other than the owner, the processes are written down, and the customer relationships belong to the company rather than to one person earns a premium for it. A business where the owner is still the best closer, the final word on every bid, and the person three customers call directly gets discounted for exactly the same reason.
The version of this that stings: if you're the one going into the house to sell a replacement system or a panel upgrade, you almost certainly close better than anyone you could hire to do it. That's not a knock on your people. It's the natural advantage of being the owner in someone's kitchen. But a buyer will price the gap, because the day after closing you're gone and your team isn't.
Then there's the license. If the entity's license runs through you personally, or through somebody you pay monthly as a contractor to hold it, that matters more than it looks, and it's sharpest in electrical, where the qualifying license is often the whole permission to operate. It is invisible on an org chart and looks transferable on paper, but a license holder can leave on short notice, and lenders and buyers both treat it as a real risk without a long-term written commitment behind it. How this works varies by state. It is worth asking your attorney about yours before a buyer's lawyer asks you.
Customer concentration: how much is too much?
If no single customer is more than ten percent of revenue, skip this section. It doesn't apply to you.
If one is, the bands are steeper than they look. Between ten and twenty percent, a buyer takes a modest haircut. Between twenty and thirty, expect a real one plus pressure to take part of your money as an earnout, which means you get paid later, and only if the customer stays. Above thirty percent, the discount gets steep and some buyers pass entirely.
The reason bites harder in the trades than in most industries. If a builder, a GC, or a property manager is a quarter of your revenue, that relationship often sits with you personally rather than with the company. Buyers assume it doesn't survive the handshake changing hands, and they're right often enough to price it that way.
The version of this worth acting on: a signed, assignable, multi-year contract is worth materially more than the same revenue on a relationship. If you have big commercial accounts, papering them properly is one of the highest-return things on this whole page, and it takes a conversation rather than a project.
Residential-heavy companies with a wide base trade well for exactly the inverse reason. Nobody worries that four thousand homeowners are going to leave at once.
Three things that make your numbers easy to trust
Somewhere after a handshake and before a closing, a buyer sends in accountants to do what's called a quality of earnings review. They are not auditing you and nobody is accusing you of anything. They are answering one question: is the profit you're claiming real, and will it still be there next year without you? What they're testing is controller-level work: accrual books, a clean close, documented adjustments. That is the ground our accounting and controller services cover.
Three things decide how that goes, and all three are set long before anyone shows up.
Whether your books are on one method
Most trades companies run their books on cash, money in and money out, because it's simple and it matches how taxes work. Buyers want accrual, where the work gets recorded when you do it rather than when the check clears. Cash books make your months look lumpy in ways that have nothing to do with the business: a month with three payrolls looks terrible, the next looks great, and a buyer trying to model your future can't tell the difference between a real trend and a calendar quirk.
The worst version is a hybrid nobody documented: accruing payroll but not bonuses, catching some prepaid items and not others. Then the buyer's team has to untangle it line by line, which takes longer, costs more, and puts everyone in a worse mood heading into a negotiation. If your accounting system is the thing making a clean close hard, that is a system design problem before it is a staffing one.
Whether your add-backs are documented
Every owner runs some personal expense through the business. The truck, the phone, the trip that was mostly a conference. When you sell, those get added back to profit, because a new owner wouldn't have them. And because the price is a multiple of profit, each one counts for more than its face value.
Documented add-backs survive. Undocumented ones get thrown out. That's the whole rule, and every line it applies to is worth more than the expense itself.
What survives: anything you can hand over an invoice, a receipt, or a clean entry in the books for. What doesn't: a number you assert without paper behind it, a "one-time" cost that shows up three years running, or below-market rent you pay yourself on a building you own. That last one gets adjusted to what the building would actually rent for, and it can go against you.
Whether your own pay makes sense
A buyer won't pay a multiple on money you take out that a hired manager wouldn't cost. So they work out what it would cost to replace what you actually do, meaning the market rate for a general manager who runs your operation. The difference between that and what you take gets added back to profit.
The mechanics matter. Add up everything you take out: salary, distributions, health insurance, the vehicle, the retirement contribution, the personal items sitting in the P&L. Compare it against replacement cost. If you're taking $250,000 and the manager who'd replace you costs $140,000, that $110,000 difference lifts your profit, and because the price is a multiple of profit, every dollar of it counts several times over. Scale the figures to your own size; the method is the same. But it only counts if you can show the work. A buyer who thinks you picked the number will delete it.
Six things worth getting ahead of
These are the ones that surface late, after the price is agreed, and knock money off. All of them are cheaper to fix now than to explain then.
Worth a look this year
- Workers' comp class codes. Techs coded under the wrong classification can mean years of back premium. In a stock sale that follows the entity; in an asset sale it lands in the indemnity. Either way a buyer finds it and holds money against it.
- Warranty exposure on recent installs. A buyer builds a reserve from your own callback rate. Better to know that number before they calculate it.
- Open permits. Permits pulled and never closed follow the entity. A stack of open permits reads as an operation nobody has been closing out, and it creates real liability.
- Truck stock. Buyers read van inventory discipline as a proxy for whether the field operation is managed. Thin or inconsistent stock gets read as a field operation running without a system behind it.
- Manufacturer dealer status. Factory authorized programs generally don't transfer. The buyer has to re-earn them.
- How your techs are classified. People who work like employees but are paid as contractors is an exposure a buyer will find and price.
The order to build it: a three-year plan
Most guidance on this subject is written for someone already in a deal. By then the record is what it is, and the only thing left to negotiate is how much of it a buyer believes. This version is written for the owner who is three, five, or ten years out and mostly wants a business that is easier to run in the meantime. Every item below pays you before it ever pays a buyer.
- Three years outGrow the agreement base and get off cash booksThese are the two that take the longest and pay the most. Recurring revenue has to be built customer by customer, and a buyer wants to see two or three years of clean history, which means the accounting change has to happen well before the years you'll be showing them.
- Two years outGet yourself out of the critical pathSomeone other than you running crews. Someone other than you closing in the home. Processes written down rather than carried around in your head. This is slow, it feels like a step backward in the short run, and it is worth a full turn.
- Eighteen months outClean up the personal spending, or start documenting it properlyWhatever runs through the business either comes out or gets papered so it survives as an add-back. A buyer asks for three years of financials, and looks hardest at the most recent twelve to twenty-four months, so this has to be in place before the window they examine closely.
- Twelve months outFix concentration and audit the agreement bookDiversify away from any customer over ten percent if you can. Pull every agreement, find the ones that aren't collecting, and either fix them or take them off the count so the number you present is one that survives.
- Six months outKnow your own numbers before anyone asksYour renewal rate. Your callback rate. Your agreement balance. Your true owner add-back with paper behind it. The seller who has these ready is negotiating. The one who doesn't is reacting.
You may never sell. Every item on that list makes the business better run and more profitable in the meantime, which is why it's worth doing whether or not a buyer ever calls. Reporting that answers these questions every month rather than once, at the worst possible time, is what CFO-level management reporting is for.
Common questions
I'm not planning to sell. Does any of this matter?
More than it does for the person who is. Every item in this guide describes a company that is easier to run: revenue you can predict, an operation that does not route through one person, customers who are papered rather than remembered, and books that say what actually happened. Those pay you every year, in decisions you can make with confidence and cash you can see coming.
The owner three to ten years out has time to change all four. The owner with an offer in hand has time to organize what already exists. That is the entire difference, and it is why this is worth reading now.
What is my plumbing, HVAC, or electrical business worth?
A multiple of your profit, adjusted for how much of the business runs without you. Size sets the starting tier, but where you land inside it comes down to four things: recurring revenue, owner dependency, customer concentration, and whether your books hold up when someone examines them. That's why two companies doing identical revenue in the same market can be worth meaningfully different money.
Anyone who gives you a firm number without looking at those four things is guessing.
How do maintenance agreements affect what I can sell for?
Two ways, in opposite directions. More recurring revenue raises your multiple, and the first ten or twenty points you add move it most. After that the effect flattens. But the money customers have prepaid for visits they haven't received gets accounted for at closing, either as a price reduction or inside the working capital you leave in the business, because the buyer has to go deliver that service.
The answer isn't to sell fewer agreements. It's to know your balance and deliver the visits on schedule so it stays small.
Do I need to switch to accrual accounting before selling?
If you're planning to sell in the next few years, yes. Buyers want to see the work recorded when you did it rather than when the money moved, because that's the only way to tell a real trend from a calendar quirk. Cash books don't disqualify you, but they make diligence longer, more expensive, and more adversarial.
The important part is timing. A buyer will want two or three years of consistent history, so the change has to happen before the period they'll be looking at, not when you list.
Can I still run personal expenses through the business?
Yes, within whatever your tax advisor says is legitimate. The thing to understand is that at sale, those expenses only help you if you can document them. An add-back with an invoice behind it lifts profit, and price follows profit. The same expense with nothing behind it gets deleted, and you've lost the deduction and the value.
So the practical answer is: keep the paper.
How far ahead should I start preparing to sell?
Three years for the things that move the multiple most: recurring revenue and getting yourself out of the daily operation. Eighteen months for the books. Six months is enough time to organize what exists, which is worth doing, but not enough to change what it says.
Should I take the private equity call?
Taking the call costs nothing and tells you what the market thinks. Just know that the first number in a conversation like that is based on what you tell them, and the number at closing is based on what their accountants find. The gap between those two is the entire subject of this guide.
If you're a few years out, the more useful move is to get an honest read on where you'd land today, then spend those years closing the gap.
Do I need a CPA or a bookkeeper to get ready to sell?
Start by asking your CPA whether they do sell-side preparation. Many firms do, and if yours does, that's your answer and it costs you a phone call.
If they don't, what you're looking for sits between the two roles. A tax CPA is built around filings. A bookkeeper records what happened. Converting to accrual, building the agreement liability schedule, and documenting add-backs so they survive a buyer's review are a different piece of work than either one is usually scoped for, and closer to the kind of special project that gets scoped on its own.
One last thing
Nothing on this list asks you to run the business in a way that hurts it. More recurring revenue, less dependence on one person, less concentration in one customer, and books that say what actually happened. Those are just descriptions of a better-run company. They pay you every year whether or not anyone ever makes an offer.
Selling only changes the deadline. When a buyer does show up, all of this is already true or it isn't.
If you want to know which work is making you the most
APN Group works with plumbing, HVAC, and electrical companies across Georgia, Florida, and Tennessee: the books, the agreement accounting, profitability by job type, and the reporting that lets you decide where the next truck goes.
Tell us roughly your size and how much of your revenue is on agreements, and we'll give you a straight read on what would move your profit most this year. If a sale is somewhere on the horizon, the same work gets you ready for that too, but you don't have to be thinking about it for this to be worth doing.
Valuation drivers described here reflect how buyers active in the trades evaluate businesses as of 2026. Nothing on this page is a valuation, an appraisal, or a prediction of what any particular business will sell for; that depends on the business, the market, and the buyer. Nothing here is legal or tax advice. License structure, worker classification, and permit obligations vary by state and are worth reviewing with your attorney.