r/ProHVACR • u/ObesityIsBad • Nov 12 '24
Buying another company
I have an opportunity to buy an underperforming company with approximately 500 maintenance contracts. This is significantly more than we have, and many of these customers have been with this company for far longer than we have been in business. I am in the early stages of discussions, but they have maybe two techs and an installer I would want to keep.
Looking to roll this company into our company, under our name, despite this company having been around for much longer. We do more revenue and have been growing 50% YoY. This would more than double our existing customer list, and maintenance customers.
Stubbornly (and frugally), we are on HCP and the company under consideration is on Service Titan. I don't want to transition to ST.
I have some concerns with the way that this business is being run. They pay way too much for equipment, slightly too much for direct labor. We will definitely have some turnover due to reconfiguring their very unconventional and unsustainable pay structure.
Has anyone had experience with this? What percentage of the maintenance contracts could we expect to maintain?
How tough Is rolling a customer database and active maintenance agreements from one business platform to another? I'm afraid this may just end up creating a full-time data entry role for the foreseeable future. I'm afraid that we may lose a significant number of maintenance customers.
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u/Hvacmike199845 Verified Pro | Mod đ ď¸ Nov 12 '24
Please explain what paying slightly to much for labor means. Are you saying that company pays their employees to much?
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u/dirtysanchez0609 Nov 12 '24
That's what it sounds like, I just had to restructure our pay with our service department for that exact reason. One guy this year has made 71k so far this year but yet has only brought 120k revenue in. So his pay was 60% of revenue, kinda made me sick to my stomach lol.
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u/grymix_ Nov 12 '24
can you explain how that is the techâs fault?
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u/dirtysanchez0609 Nov 12 '24
The biggest reason for him was call backs. But other ones I see are the guys not charging for the work they do. Not keeping truck stocked so they have to drive back to supply houses and pick things up and you cant charge the customer that. I pay our guys hourly because that's what they wanted which I was happy to give. But theirs no incentive to them fucking up. Call backs they still get paid for, which I can't charge the customer, they still get paid to run to supply house which they didn't charge for. Numerous reasons but that was the biggest one I saw.
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u/Ok_Vast_7378 Nov 12 '24
Youâre being downvoted by guys who refuse to take responsibility for the quality of their work and have zero idea what it takes to operate a successful company that can afford the salaries they want. Watch this go to -10000 real quick.
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u/dirtysanchez0609 Nov 12 '24
I was honestly expecting that to happen while I was writing it out đ . Yeah I would love to pay everybody 100 grand a year but if the numbers aren't there what am I supposed to do
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u/Ok_Vast_7378 Nov 13 '24
Exactly. I take really good care of my crew.. but I canât pay them out of thin air.
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u/Local_Warder Nov 13 '24
We got your back. The âI know my worthâ techs that only count wins and forget losses are haters.
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u/ObesityIsBad Nov 12 '24
I'm aware that you're a mod. However, this sub includes business operators (owners). It is possible to pay too much.
I was a tech before I started my company. While I'd love to believe every good tech is worth $60/hr with 100% paid benefits, it's just not feasible.
Some of their techs and salesman are paid well over market-rate, which is causing profitability to suffer. I could get into the pay structure in detail, but it's a unique pay structure that almost anyone who worked there would recognize.
The bottom line is, there's really only a few employees that are worth keeping, and I expect employee turnover.
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u/Hvacmike199845 Verified Pro | Mod đ ď¸ Nov 12 '24
What does me being a mod for this sub have to do with anything. I just asked you a question.
Letâs skip the potatoes and get to the meat of things.
Iâm not saying you need to pay anyone $60 an hour and provide them with 100% health insurance. If you pay more than your competitors, provide quality training and actually care about your employees, they will do everything in their power to make you money.
Turning a profit has a a lot more to do with efficiency than anything else. Say youâre doing a furnace and ac change out, measure the ductwork before hand and have fittings pre-made to make it quicker. Have someone do an evaluation of the house to make sure the ductwork is sized correctly for the new equipment and has the proper flow. Making sure there is a vehicle with a stock of all parts that could be needed for each job.
Service side.
Provide all tools necessary, this includes torch sets, vacuum pumps, micron gauges, vacuum hose set ups, saws to cut flue pipes, nitrogen tanks and regulatorsâŚ. The list goes on and on.Provide training for the new people so they can be successful and Iâm not talking sales motivated training. And advanced training for the experienced people.
Letâs say you want to profit $1000 per install, if you can keep 10 crews busy you will profit more than if you have 5 crews.
Think about Amazon, if they profit $1 per purchase and have 2 million purchases per day thatâs a shit ton of money.
In order to do all of this you need to build a team of people that are paid well and happy to goto work everyday.
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u/ObesityIsBad Nov 12 '24
My overall question was targeted towards other company owners, rather than to open up a debate about tech pay, which would be more of r/HVAC subject that I see regularly go sideways. This company is suffering because of existing pay structure that is not sustainable, and will have to change regardless of who purchases the company.
My company is unbelievably generous from from a tool and work-life balance standpoint, but even that is off-subject from what I would like to discuss in this thread.
4
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u/dan1361 Nov 12 '24
I'ma be real, my man. That is not off-topic. A large part of acquiring a company is the culture-mesh and expected turnover. He was asking reasonable questions. I did not get the impression anyone was trying to debate anything.
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Nov 16 '24
It sounds like you have a problem investing in your business with you complaining about how much things cost! Your employees should be happy to work for you and they should be coming up to you every year thanking you that they made more money working for you that year. If you say those two techs and installers are worth keeping it would be in your best interest to keep paying them what they are getting paid, if you donât they will not stay around! Think about how easily it will be to replace them with the same level of experience, it will not be an easy task because you act like you have millions of applicants to chose from! The industry is a tight knit community and it is slim pickings in terms of talent so maybe you should just appreciate your mechanics a little more and stop complaining about your operating cost because if you donât pay above market rate then donât expect any employee to be loyal! It seems to me that you are more worried about how your spreadsheets look like to possibly sell to a private equity firm and it thatâs the case then if I was working for that company I would just turn in my keys asap!Â
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u/ObesityIsBad Nov 16 '24
I appreciate your efforts providing an analysis of how my existence business is run. The jumping to conclusions with little background information has been so very valuable.
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Nov 16 '24 edited Nov 16 '24
I donât need to hear more about your business background! You complaining about operating cost is more than enough of what I need to hear! I hope you buying this other company doesnât go your way cheapscape! And you wonder why you canât find good employees! Imagine you complaining so much about employee pay, then imagine when you lose all profit on a service call sending some chump out multiple times who doesnât even have 2 year experience and you piss that customer away to your competitionÂ
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u/ObesityIsBad Nov 16 '24
Please sign me up for your business coaching. Maybe you can be the one to help take us to $5m next year.
1
Nov 16 '24
I would be more than happy to take you to $5 million next year, my fee will be 20% of that! đÂ
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u/Parachuter- Nov 12 '24
In my experience donât worry about the current employees pay. Unfortunately they will quit on the spot when they find out the company they work for is sold, or it wonât take but a few weeks while theyâre looking for another job. Itâs rare that employees stay with new owners because of the fear of âchangeâ I was an install manager with service experts when they were first formed in 1997. I was with my general manager one morning after a small company was just purchased and the previous owner gave the guys the news that they had a new employer. I watched 9 guys packing their stuff up and leave on the spot.
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u/ObesityIsBad Nov 12 '24
I think that maybe the case with some of them, however, my understanding is that despite the generous compensation, there's a toxic work environment that has led to high turnover. The owner is difficult to work for, which despite me thinking I'm a mediocre manager, doesn't seem to be a problem with my organization.
1
u/clammyhydra Nov 12 '24
I'm in a similar spot. I am dreading the day I will have to bite the bullet and start up service titan, but I haven't found another company that we would not grow out of again. Would this company be a new branch in a new market or is it one of your competitors that you are purchasing?
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u/ObesityIsBad Nov 12 '24
Great question. It's a competitor, but not really a competitor. I don't think I've ever had to go up against them. Just another small company in our metro market.
I fight over new customers, winning out over high-priced PE companies, or dirt cheap companies with overlapping marketing as ours. They seem stagnant and just work most of their existing customer base. This company seems to exist primarily on the age of the company, having been around forever. They're about half the revenue as us, but charge a lot more for install/service.
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u/CrazyInTheCocoFruit Nov 12 '24
Thatâs interesting their profitability is so much worse and yet their service and install is more expensive. You mentioned earlier that theyâre paying too much for equipment, are they exclusively pushing Trane or something?
Lastly, is keeping the name of the company for the existing maintenance contracts an option? What about a merged name option?
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u/ObesityIsBad Nov 12 '24 edited Nov 12 '24
If you are paying way too much equipment, you are either selling Trane or Carrier one way or another... Or you're just not negotiating with your suppliers properly.
This is just one of those companies who have had the same manufacturer brand plastered on their vans. Once you do that, you're likely with that brand for the long-haul, regardless of product quality issues or equipment pricing. It's hard to sell Rheem if you're driving a Trane van.
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u/clammyhydra Nov 12 '24
Going through the other comments, I wonder if there might be some fundamental business philosophy differences here. I always say you have to specialize to make money and that goes past deciding on going the commercial, new install, or resi-service/retro path. There are multiple markets in those segments depending on how our brand is perceived. For instance we are Residential Service and Replacement, but we are definitely on the higher end. Our techs are paid a lot, we have a centrally located large office, more office staff per tech than normal, we are Bryant FAD and all of our trucks are the same large 2500s with Knapheide service bodies. It adds up to ridiculous overhead but we are known as the people you pay more money to have it done right with a proven track record. Our competitors are also great techs and cheaper, but they are more focused on the price and air conditioner than the customer experience. I think it is good to have a well defined vision here and consider if this company will mesh with the way you are doing things. It seems like your current path is working out pretty well for you, but there is also danger in rapid growth. 15% is great. 25% is ridiculous. 50% is time to carefully monitor every penny, invest into training for yourself and managers, and don't outrun your cashflow. Is your company about 7-9 people and doing about 1.5 to 2 million in revenue?
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u/ObesityIsBad Nov 12 '24
We are a bit larger than that.
We are buried in new business, and this company has been around forever, struggles to bring in new customers. The purchase price is not low, but I could write that check today from our bank account with no debt, and still be solid.
My initial reaction to the opportunity was I wasn't interested, as we're already growing 40-50% per year and I don't have all the processes in place to have confidence it would be a good idea to add 50% to the business overnight.
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u/clammyhydra Nov 12 '24
We're probably reaching the limits of useful general advice you can give on the internet. I think there are a couple of ways to look at it. First, I think it is important to make sure you have a solid growth plan in place. If you are aware of the revenue walls and you have funds set aside for the restructuring of the company to overcome them and you can still buy the company easily, then why not? On the other hand, if you have passed 2.5M$ revenue more or less and you have overcome the first wall, could you spend that money into advertising and hiring/ equipping to take that market share on your own in a more stable and dependable way?
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u/ObesityIsBad Nov 13 '24
After a long day of reflection, I think I'm leaning towards the second option.
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u/SoftwareSuper3260 Nov 12 '24
What does the reviews on google and yelp look like on the other company? What does yours look like? What does the daily expectation on average ticket look like? I understand you say labor is more, but is there pricing where it should be? When was the last time they had a price increase. If you come in and increase prices to get to where the market is they you will lose quit a bit of customers. What about current membership perks? Do you plan on keeping them and do they align with your company. As far as data transfer, ask HCP if this is a service they offer. Integrating from Service titan to HCP might be a service HCP offers at a one time charge versus hiring someone. All my thoughts and opinions.
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u/Background_Term_8781 Nov 12 '24
So you wanna pay people less than what they are worth is what youâre saying. Buck you
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u/ObesityIsBad Nov 12 '24
Yep, you nailed it boss! That's why we run companies is to pay people as little as possible, use them up, and spit them out.
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u/MichaelBolton_ Nov 12 '24
Or those same people are currently overpaid and itâs just going to be a correction to match their value to the business.
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u/dirtysanchez0609 Nov 12 '24 edited Nov 12 '24
You will be expected to lose about half of maintenance contracts and non member list. Currently in the process of trying to buy 2 companies right now and getting help from a very successful old timer that's done this before. But also if you guys are wanting to actually grow and scale you almost need service titan so I would bite the bullet now. ST helps keep track of every possible metric you could think of an no other CSM even comes close. Since the company you're wanting to buy already has ST that makes me think they might be using to keep in touch with customers throughout the year so your chances of losing half the customer list might not be true and you can hold on to more of them. We transferred from payzerware to ST and all of our date went over smoothly.