How to buy an HVAC (Heating, Ventilation, and Air Conditioning) Business with business broker Patrick Lange.

Patrick Lange is back on the show to share the latest in HVAC business ownership opportunities. He helps people buy and sell heating and air companies.

According to the Air Conditioning Contractors of America (ACCA): The U.S. HVAC services market is predicted to grow to $35.8 billion by 2030. This growth is partly fueled by the demand for energy efficiency, and booming construction.

Patrick Lange with Business Modification Group specializes in the sale and acquisition of heating and air companies. Patrick has been an entrepreneur his entire life buying, growing, and selling businesses in multiple industries, including owning a residential heating and air company.

Patrick is considered an expert in the field of business brokerage, having earned multiple awards for transactions and dollar volume of businesses sold.

Patrick decided several years ago to focus exclusively on heating and air companies after seeing a need for someone with specific knowledge of the industry as well as the ability to market these businesses in an effective manner to help his clients achieve predictable results. Since he made that transition, he has sold more heating and air companies than any other broker.

In addition to facilitating the sale of heating and air companies, Patrick also provides valuations for those who are interested in learning the current value of their business in the market as well as strategies to increase the potential selling price.

Patrick lives in Horseshoe Beach, Florida

Buying an HVAC Business:

Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.

Resources:

Books mentioned in this episode:
[We receive commissions for purchases made through these links (more info)].

• The E-Myth HVAC Contractor: Why Most HVAC Companies Don’t Work and What to Do About It by Michael E. Gerber

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Transcript:

The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

Henry Lopez (00:15):

Welcome to this episode of the How of Business. This is Henry Lopez and I’d like to welcome back on the show, Patrick Lang. Patrick, welcome back to the show.

Patrick Lange (00:24):

Thank you so much for having me. I’m excited to be here.

Henry Lopez (00:26):

Yeah, Patrick is back to share even more information and insights on the HVAC business, the heating, ventilation, and air conditioning business in which he has a lot of experience and he helps people buy and sell those types of businesses. So if you’re interested in that business or maybe you have a business in that industry that you’re looking to perhaps exit at some point, Patrick is the guy for you. According to the Air Conditioning Contractors of America, the A CCA in the us, the HVAC services market is predicted to grow to over 35.8 billion by 2030. And this growth is fueled by various factors as we’ll get into with Patrick, but some of it is the demand for more energy efficient units and also booming construction, so that need and that service. Not to mention people needing to service their existing units, as you know, probably as a consumer, as a homeowner or someone who’s had their AC service, the demand is incredible and there’s really a lot of opportunities in this space, in this industry.

Henry Lopez (01:36):

And so we’re going to get into that again on this episode. If you want to learn more about the how of business, including the show notes page for this episode, and to learn more about my one-on-one and group coaching programs, just visit the how of business.com. I also encourage you to please subscribe to my show wherever you might be listening so you don’t miss any new episodes. Lemme tell you a little bit more about Patrick again. Patrick Lang is with business modification group. Business modification group is the name of his company, and he specializes in the sale and acquisition of heating and air companies. Patrick has been an entrepreneur his entire life, buying, growing and selling businesses in multiple industries, including owning a residential heating and air company. Patrick is considered an expert in the field of business brokerage, having earned multiple awards for transactions and dollar volumes of businesses sold.

Henry Lopez (02:31):

Patrick decided several years ago to focus exclusively on heating and air companies after seeing a need for someone with very specific knowledge of the industry as well as the ability to market these businesses in an effective manner to help his clients achieve predictable results. So since he made that transition, he has sold more heating and air companies than any other broker. This is what he specializes. In addition to facilitating the sale and purchases of heating and air companies, Patrick also provides valuations for these businesses. So what is a potential HVAC business worth for someone buying it, for someone trying to sell theirs and who are interested in learning that current value in the business of their business, rather in the market, as well as strategies to increase the potential selling price? Patrick lives in Florida, in Horseshoe Beach, Florida, and so once again, Patrick Lang, welcome back to the show.

Patrick Lange (03:28):

Thank you so much, Henry. It’s really a pleasure to be here again.

Henry Lopez (03:31):

So we’re going to get right into it this time. If you are interested in the very interesting journey Patrick had to becoming what he does now or doing what he does now, being a broker, go back and listen to episode four 13. We also talked about of course, buying and selling HVAC businesses. We’re going to revisit a couple of those topics, but get into some other topics and insights here on this episode. But episode four 13, if you’re interested in this subject, if you’re interested in buying or selling an HVAC business, I would encourage you to go back and listen to that episode, but we’re going to dive right in because we’re recording this at the end of first quarter of 2024. Patrick, I’d like to start with revisiting 2023. It’s been a couple of years since you were on the show. What were some of the highlights, some of the trends that emerged last year in the industry?

Patrick Lange (04:21):

Yeah, great question, Henry. There’s quite a few, and so separating it, so from the industry side of heating and air and then kind of the brokerage world side, we saw several different things. There’s energy efficiency moves that are being pushed. They’re coming out with a new refrigerant for air conditioners. There’s the electrification of America, we see where they’re now, most of the country is recommending switching from furnaces to heat pumps, and so all of those things open up opportunities in the heating and airspace On the brokerage side, we’ve still seen a lot of activity. There’s been a lot of private equity interest in the space still. We thought we’d see a drastic slowdown when interest rates and inflation got so high. But surprisingly, I typically do around 20 transactions a year, and last year I sold 23 heating and air companies. So we’ve stayed busy and helped a lot of people both get in and get out of the business. So things have definitely been active.

Henry Lopez (05:29):

And what’s been of those things, what’s some of those, I’m sure the energy efficiency component of it, those things, the move again, like you said, to heat pumps for all of those efficiency reasons, is that some of the things that are continuing to happen in 2024, what are you seeing emerging this year?

Patrick Lange (05:48):

Yeah, absolutely. I was just at a conference last week where they’re talking about the new refrigerants that’s coming out. There’s some changes. There’s some changes in efficiency. So yeah, there’s uncertainty in the marketplace, which I think creates a lot of opportunities for those looking for it.

Henry Lopez (06:07):

You talk about equity investors, and so this is another classic industry that’s rather fragmented and that’s good and challenging, fragmented meaning that there’s really, I mean to my knowledge, you’re going to educate me here, not too many of any national brands that dominate the space. It’s still predominantly independently owned operators in regions and in cities. Is that true?

Patrick Lange (06:32):

Yeah, very true. Aside from where private equity has been in the space for several years now, and so there are a few companies doing a billion and a half, 2 billion of sales nationwide, but they haven’t rebranded themselves. Interesting. So they’re buying up these fragmented businesses in town and oftentimes leaving the names in place because if you think of yourself or other places you’ve lived in your town, you may know of a heating and air company, but you drive 45 minutes away and nobody’s ever heard of ’em. And so when they’re making these acquisitions, they’re keeping that brand reputation in place and simply growing it.

Henry Lopez (07:14):

Interesting. Of course, if I’m looking at it, because primarily going to look at this conversation from buying a potential business, obviously you help both sides because I think most of my audience or folks that are looking to start a business or probably get into this business, so I’m going to look at it from that perspective primarily, obviously always that situation presents I think an opportunity for us as business owners because that means there isn’t one dominant player that I’m going to have to have a hard time entering a market against. Now, conversely, there could be a very dominant local player that’s been around for a long time. But my point is that in other industries I might have to fight a giant that’s established that has huge national advertising and marketing budgets. That’s not usually the case in this industry.

Patrick Lange (08:08):

Absolutely correct. Yeah. And one of the is that attract a lot of people to the space. I sell a lot of smaller companies and smaller in the industry would be companies doing a million, $2 million in sales, and often they’ve been in business for 20 or 30 years and they have incredible reputations within their client base and very loyal customers. So when somebody buys a business like that, they’re buying those 20 or 30 years of relationship and maintaining that. And so the outside market, until they start really looking at growing, isn’t much of a factor because if you’ve done a good job taking care of your customers, they’re often extremely loyal.

Henry Lopez (08:50):

Yeah, yeah. We’re going to dive into a moment here into more of the advantages. I see that, I mean anything in the home services space in particular, but here, this is the type of service where if you will take care of the customer, that’s the key. I mean, you have to be technically competent and we’ll get into also the licensing requirements. All those things are given, but at the end of the day, I think what the homeowner wants, what I want as a homeowner, we just last year had to replace our AC system at our home, is somebody who I can trust, who’s going to show up, who’s going to do a good job, who I feel is not going to rip me off. All of those things are what I’m looking for, and I’m willing to pay for that as a homeowner.

Patrick Lange (09:33):

Yeah, absolutely. And most people don’t know anything about their air conditioning. No. So you’re inviting somebody into your home, which is a big step. And oftentimes from a replacement standpoint, it can be expensive. And so going with somebody you trust is extremely important, and that’s where buying up an existing business that’s done a good job taking care of those people, you’re buying that trust off them.

Henry Lopez (09:59):

Yeah, that’s got to be at the top of the list. If I’m looking at a business to buy in this space, is that reputation, those loyal customers, I would be the number one thing I look at when we, like I said, we had to replace, we live right on the coast, and so ACS get a beating because of the salt air. So it was at 15 years our AC was, and so it had to be replaced. And of course it wasn’t just replacing the outside component, the inside component had to match and all of that that had to go. So it was an expensive replacement, but the way that we went about it was by asking, there’s a Facebook group here that’s local to our community, asking people who do that’s reputable, and that’s how my wife primarily, because she usually handles those things, went about deciding who we were going to go with.

Patrick Lange (10:49):

And that’s quite often studies have shown that typically it’s the woman of the house that is making those decisions. And you’ll see a lot of companies now in the heating and air space that their branding typically was very technical, and now it’s more trusting and warm and fuzzy, and you’ll see different logos and animals and they’re appealing to a different segment of the market.

Henry Lopez (11:16):

In fact, that brings to mind, I had a client reach out to a listener, reach out, female reach out and says, this is a male dominate industry, but I really want to get into it. Should they tell me I shouldn’t because then I don’t have that experience. It’s like, no, no, no. I think it’ll be a huge advantage to you to be a female owned HVAC business to the point that we’re discussing.

Patrick Lange (11:37):

Yeah, absolutely. And I’m a member, there’s an organization called Women in HVAC that is obviously primarily run by women in heating and air. And obviously I think there’s opportunity to improve what historically has been a male dominated industry, but I think they’re making great strides. I think they really are doing a great job and for every reason should continue.

Henry Lopez (12:07):

Agreed. Agreed. Okay. I’m curious just educationally from a layman’s person, the new refrigerant, explain that to me in non-technical terms. What is this and why?

Patrick Lange (12:18):

Yeah, so refrigerant is similar to the oil inside of a car and refrigerant is what heats and cools the home. So without getting extremely complex, it expands and contracts and heats and cool the house. For years, we had what was called R 22, the government and their infinite wisdom decided that it was having an impact on the ozone layer and switched to a four 10 gas, they call it gas as this refrigerant, it’s F on. And they made a switch to four 10, probably 10 years ago, I’d have to look. But somewhere around that time when they started outlawing equipment that was built using R 22, and now they’re doing away with this four 10 and going to a new refrigerant that is supposed to be better for the environment and the older equipment is not going to be able to run on it. So when there’s an issue there, the government has put a phase out for four 10 gas, and when that phase out is gone, there’s none left. If you have a system that’s run on four 10 and it gets a leak or something goes wrong, you’re not going to have an option but to replace it.

Henry Lopez (13:25):

So that creates a challenge for homeowners, but it creates an opportunities for HVAC suppliers, HVAC businesses in addition to new growth, of course, new installations, but it provides that opportunity. That’s the point. And if we dive in now into those advantages of this business, that’s steady demand for various reasons, is one of the reasons this is such a viable business, isn’t it?

Patrick Lange (13:50):

Absolutely. I often joke, I live in Florida and I owned a heating and air company in Florida, and people often ask me why I had no experience in the trade, why I bought heating and air company. And I said, I don’t know a husband or a wife dumb enough in the state of Florida to tell their significant other, they’re not going to fix the air conditioning in the summertime. So what used to be a want, I think because of our changes over time, it’s become a need that people are unwilling to do without air conditioning in the summer and in most of the country heating in the winter. And so it proved during covid and other recessionary times that it’s resilient that no matter what’s going on, people are going to spend money to fix those two things. Yeah.

Henry Lopez (14:38):

And then of course we’re talking about, I’ve been mostly sharing examples from a residential perspective, but there’s a whole commercial side to it. And if we think of any commercial space, say an office or a retail location, people are not going to come to you if you don’t have air conditioning. And in fact, some of those buildings aren’t even designed to be able to open the window, so you really don’t have a choice.

Patrick Lange (15:01):

Absolutely. And air conditioning also includes the refrigeration. So every grocery store you go into and every milk cooler you take something out of and where the eggs are, all of that is refrigerated. If you think of your average grocery store or big box retailer that could have a couple hundred thousand dollars of food in a refrigerator, it has to stay running. And so there’s opportunities for those who knew how to fix it to do pretty well for themselves.

Henry Lopez (15:31):

There’s also a recurring revenue, which of course has become such a popular model in many industries, is the recurring revenue. I can see it, and I’ve been part of it as a business owner in the commercial side. So when I’ve had businesses where I’ve had commercial HVAC systems and they need regular maintenance, I’ve had recurring service contracts there. Is that emerging on the residential side as well, or what’s going on there with that type of recurring revenue?

Patrick Lange (15:59):

Absolutely. Really, it has been for years. So typically most companies will offer a preventative maintenance agreement is what they’re called, where it’s typically two visits a year. So they come out in the spring and go through your air conditioner and make sure everything’s ready to go for season and then come back again in the fall and make sure your heater or your furnace is ready to go. So that 4th of July weekend, a minor part doesn’t burn out that could have been replaced two months ago On a visit like that, it often also rewards them for their loyalty. They’ll get discounts on things they purchase or services they purchase. They’ll also give them an opportunity for priority placement. So if you’re a club member or have a maintenance agreements and you call in with an issue, you’ll get in front of the line for lack of a better term.

Patrick Lange (16:50):

So there’s different ways to do it, but it’s definitely something that’s big and prevalent in the industry and for a lot of good reasons, it helps during slower times if you have maintenance agreements in place and you can be out servicing those customers when it’s 70 degrees outside and nothing’s running or breaking, it helps you from a business owner standpoint, but it also helps educate the customer. So you think of most of the time when things break, it’s often during extreme weather conditions, so it’s extremely hot, extremely cold, and yours is breaking As so is everybody else’s. So that technician gets to your house, fixes it, and goes on to the next one and doesn’t spend a lot of time educating or talking about options or working with you. And by having a maintenance program in place, they’re able to spend time going through your system and saying, is every room the same temperature?

Patrick Lange (17:37):

You’re having airflow issues anywhere, any noises, they’re able to look for other things, allergies does better filtration make sense? So it helps the customer become more educated and it helps with upsell opportunities. And at the end of the day, the customer’s paying for their own loyalty. If I’m paying you as the business owner, let’s say $200 a year to come to my house twice a year, well if my system breaks, I’m calling the guy or girl that I’m paying $200 a year to be watching out for it. So they’re paying for their own loyalty on some level, but it certainly deepens the relationship with the client. It helps for better education, better alternatives, and often to catch things prior to them happening when they’re not an emergency.

Henry Lopez (18:19):

Yeah, that makes sense. Makes sense. Alright. Another advantage that we’ve touched on already is that diverse clientele. So residential, commercial, different segments within commercial, you mentioned refrigeration. So in most markets, certainly in the south in particular because of the heat, I mean there’s all types of segments within the industry that I could specialize in or diversify across.

Patrick Lange (18:44):

Yeah, absolutely. So the biggest problem really facing the industry, Henry, is lack of qualified talent. And so training people becomes a key priority. So most bigger companies choose to focus on one segment of the market, one niche, whether it’s residential or whether it’s commercial or whether it’s refrigeration or there’s all sorts of different niches out there. Having employees that are extremely cross change is a challenge in today’s market. And the reality is most industries are struggling to get qualified talent, so heating and air is no different. And so sometimes smaller companies, and especially in smaller towns I live in, there’s not a lot of big commercial work. The person who does residential will often do light commercial offices, that kind of stuff makes sense, but they’re not doing big commercial work, big chillers and high rises and that type of stuff, not here, it just doesn’t exist. And so they’re able to cross train on the small variations that there are, but typically the recommendation is to kind of stay in your lane just because it’s easier to develop, train, and educate your talent. And that’s once again one of the key issues facing this industry and so many others.

Henry Lopez (20:03):

That makes a lot of sense. Alright, I’m going to dive into that challenge in a moment, a little bit more of the labor challenge, but just to wrap up on advantages that we’ve kind of touched on here of the business and we kind of hinted to it, but the resiliency from an economic perspective, I’m not going to say it’s recession proof, I don’t know that anything is, but it certainly is resistant because like you said, regardless of economic conditions, it’s going to be pretty hard for me to live without air conditioning in my hope, right?

Patrick Lange (20:34):

Yeah, absolutely. And as opposed to other things that could break in your home, you don’t have to be a master plumber that if your pipe leaks under your sink, you probably could go to Home Depot or Lowe’s or local store and get that fixed. Most air conditioning parts you need a license to buy, and so you don’t have the ability to fix it yourself. And once again, most people don’t have the knowledge to do that. It would require a special skill, but you could probably mow your own lawn if things got tight. You could clean your own pool if things got tight, fix your own leaky faucet if things got tight. But if the air conditioner breaks, chances are you’ve got to call somebody, which is certainly one of the advantages and another that is often overlooked. There’s typically, it’s not an asset intensive business, so when you look at the major purchases done in the heating and airspace, it’s typically just some trucks or vans aside from that,

Henry Lopez (21:31):

Which I could finance or lease. Again, not usually a huge capital investment upfront on that part of it. Right?

Patrick Lange (21:38):

Yeah, absolutely. If you look at a company that’s generating two or $3 million in sales, they probably have less than $200,000 in assets. And so it’s great when you’re looking at growing your business, obviously it makes it a little more challenging from a financial standpoint when you’re looking to buy one, which often leads to SBA financing lend on cashflow as opposed to assets. But it’s certainly one of the few businesses you could generate a lot of cashflow with very few assets.

Henry Lopez (22:07):

Yeah, yeah, well said. That’s a great point. Alright, let’s dive into some of the challenges or potential challenges that we have to consider with an HVAC business and one that you’ve been educating people quite a bit on recently are the licensing requirements. So let’s just start on a high level there. What are we talking about when we say licensing requirements that we need in this business?

Patrick Lange (22:29):

Yeah, absolutely. So most states, and I think there’s only three or four that do not, most states have a state heating and air license that someone at the business needs to have in order for the business to operate. So in most states, it doesn’t necessarily need to be an owner, it could be an employee. What it’s called is qualifying the license. So that person says, my license is going to be with this business. And so that’s the biggest hurdle oftentimes to non-industry people getting into the industry. And specifically what makes it a bigger problem is when they’re using SBA financing because oftentimes a seller is open to letting you use their license until you get their own. So they’ll stick around and say, Hey, I’ll be here and I’ll help you qualify the license until you’re able to sit for the exam and get your own.

Patrick Lange (23:25):

The problem with that is SBA says the seller has to be gone in under 12 months. So if your state will use Florida as an example, says you need four years of experience before you can sit for the exam and that seller can only be there for 12 months. Well after 12 months you don’t have a license. So it creates a problem in the SBA lending process. So having that worked out before you get to the bank is going to be extremely important because you’re going to need somebody to license it. Now some states like New York, Minnesota, they have a local municipality license, so it’s not a statewide license, it’s done in each municipality is a little different. So that’s certainly easier in those states when it comes time to purchase a business using financing, but at the end of the day, there’s going to be some sort of licensing that somebody is going to need to have, and each state is going to be a little different

Henry Lopez (24:21):

All Let’s walk through this a little bit more because I want to make sure I understand it. So a couple of different scenarios, I see if I have been a technician somewhere I might or be on the path to licensing or can get there pretty fairly quickly and now I’m ready to own my own business, then that’s a very common path I have to suspect and I end up then being the owner and the person who carries the license, right? That’s a common situation I have to imagine.

Patrick Lange (24:48):

Exactly. A hundred percent.

Henry Lopez (24:50):

Otherwise, let’s say it’s my daughter who wants to buy an HVAC business and she has not only doesn’t have the background, but possibly no desire necessarily to be the technician. She would solve this by either partnering with someone who does have that qualification, has the license, or having one or more key employees that carry the license. That would be how I would do it otherwise. Is that correct?

Patrick Lange (25:17):

Exactly. So the one thing, and once again, there only needs to be one license holder, and most heating and air owners currently are technicians turned owners. They didn’t like their boss, right? So they just went and they started their business. And buyers often come and say, well, doesn’t somebody else there have a license? And the answer most of the time is no. Why would they need one? The owner has it. If the owner dies, the business dies anyways. So there’s no reason to have anybody else have a license. Many owners are also scared of their technicians getting licensed because they believe it may create their own competition. So if that technician gets licensed now they can start their own business and now they can become a competitor. So it’s kind of been a back and forth between owners and employees, but what you described is very true.

Patrick Lange (26:07):

We see a lot of scenarios where there’s a partnership, somebody with a technical ability and somebody with some business sense, and they go in together. We’ve also seen it where you could hire a general manager that has a license or an employee that has a license. So there’s lots of ways to work around it. The key is, and if you’re planning on using SBA anyways, the key is to have that worked out before you get to the bank because as we know, Henry, the bank’s number one concern is getting paid back, right? At the end of the day, they want you to be successful, but they want you to be successful so they can get their money back. Well, if they’re worried that you’re not going to have a license and not be able to go fix air conditioners, then they’re going to be worried about giving you that money. And then one other thing, and I don’t want to stay on the point too long, but just use your daughter’s example. So she hires an employee as the license holder. My advice to owners is always eventually get your own license even if you don’t want to turn a wrench or fix an air conditioner. Got it. You never want to be in a spot where you’re held hostage by a license owner.

Henry Lopez (27:12):

Right, right. That makes sense. Makes sense. But just to clarify, the SBA will accept that as a solution that I’ve got a key employee or an employee that has the license that is acceptable to the SBA or is it a gray area?

Patrick Lange (27:27):

So it really depends on what bank to the SBA. It is absolutely acceptable. It’s going to be up to the bank’s discretion on whether they want to lend that way, but it’ll also be tied in, do you have any other business experience? What kind of collateral do you have? So there’s a lot more that goes into

Patrick Lange (27:47):

How many other, are there other people potentially in the business that could become licensed holders as well? If something happens? Once again, let’s use the state of Florida as an example. If you and I are partners and I’m the license holder and I get run over by a bus yesterday, you got a business.

Henry Lopez (28:05):

But similarly, I get it, but similarly, I see it as rather archaic. This old philosophy of only I will have the license as the owner. First of all, this fear of competition, while I get it, I think you got to look at it differently, especially in this market now, I think of it as well, that’d be great if I have an employee who delivers value to me for a period of time and then goes and set up their own business, great for them. I got to start looking at it that way, especially to attract the right kind of people, because that’s what a lot of individuals want to aspire to do anyway. Not everybody, but some of them do, number one. Number two, what happens if I do get hit by the bus, then there is no business. So what am I leaving for my family and the other stakeholders of the business? Right?

Patrick Lange (28:54):

Hundred percent.

Henry Lopez (28:55):

There’s equal exposure there,

Patrick Lange (28:57):

And we’re starting to see a shift in that mentality.

Henry Lopez (29:00):

Yeah, I have to think. So, yeah,

Patrick Lange (29:02):

That is happening, but it’s slow. Slow and it’s not typically happening with the heating and air guy who’s been in business 30 years, of course

Patrick Lange (29:11):

And is looking to get out. So it’s the 30-year-old who’s starting the business and looking to grow something and looking to take care of people. It’s certainly a different mentality when it comes to employees today than it was 30 years ago. Absolutely. And I would agree that that view is shortsighted, but that’s the reality of what

Henry Lopez (29:28):

Yeah, no, I get it. I get it. I understand it. The other thing that appeals to me about the whole concept of somebody coming into it without being the technician, this is classically what Michael Gerber writes about in his book, the E-Myth. The E-Myth is the most recommended book ever on this podcast. And he talks just about that, working on the business, not in the business. When you’re a technician, you easily get sucked to being, well, I’m the only one that can go do that service call. Oh, I have to be in the field. And while that’s fine, it doesn’t give you what we have highlighted is really the more important part of this business beyond being technically competent obviously is the customer service side of it and building the business. When we get bogged down being the technician, it’s hard for us to do those other things that grow their business. What are your thoughts on that?

Patrick Lange (30:20):

I absolutely agree, and I was at a heating and air convention last week and I spoke on that exact topic. Typically the biggest barrier to growth I see is the owner not getting out of their own way. They believe that they’re the best technician or they’re the best salesman or the best CSR or the best, whatever. If you’re the best, best, best, and every Google Review has your name on it, then you don’t have a business, often you have a job. That’s right. And so where I see people who achieve incredible levels of success are often ones that can’t fix an air conditioner. And even that was the case with me when I bought a heating and air company. If you called me today and your air conditioner was broke and when I left your house, it’s still going to be broke. I can’t fix it.

Patrick Lange (31:05):

And so it made me focus on delivering a good experience to the customer. Is our pricing properly? How do our uniforms look? What does our marketing say? What kind of training are we getting for our employees? So all these other things, I and others had to focus on ways to add value to the business and help the business grow. I couldn’t be turning wrenches. And I think for me, that’s the first business that I’ve owned that I couldn’t be necessarily the technician we’ll call it. And I see people achieving great levels of success with that now. And once again, if you show me a company, a heating and air company that’s at a million dollars or less in sales, it’s because the owner’s in the field still turning wrenches. And every time, every one I’ve looked at, I’ve sold 120 of them, I see them all day every day. And that’s the reality. And there’s actually an addition of the E-Myth for the heating and air owner. Oh,

Henry Lopez (32:00):

That’s right. That’s right. There’s a version of it I forgot

Patrick Lange (32:02):

About that. Ken Rich from Ghetto did book, and it’s a great breed for applying the E myth to the heating and air world.

Henry Lopez (32:12):

Wonderful, wonderful. Well said. Thanks for sharing that. This is Enri Lopez briefly pausing this episode to invite you to schedule a free coaching consultation with me. I welcome the opportunity to chat with you about your business plans and offer the guidance and accountability that we all need to achieve success. As an experienced small business owner myself, I understand the challenges you’re experiencing, and often it’s about helping you ask the right questions to help you make progress towards achieving your goals. Whether it’s getting started with your first business or growing and maybe exiting your existing small business, I can help you get there. To find out more about my business coaching services and to schedule your free coaching consultation, please visit the how of business.com. Take that next step today towards finally realizing your business ownership dreams. I look forward to speaking with you soon. I want to address specifically the labor shortage.

Henry Lopez (33:10):

Like you said, we’ve touched on it already. We’ve actually shared, I think some ideas on how to address it, including perhaps taking a different mindset of what if I attract somebody with the promise and the commitment that I’m going to help them get to a point where they might start their own business someday looking at it that way as opposed to thinking somebody’s going to be with me forever. So that’s one approach. What else? Is there one or two things or something that you’re seeing operators out there doing to address and alleviate this challenge, not only of attracting people but then of retaining them? What do you see that’s working out there?

Patrick Lange (33:49):

Yeah, a couple different things. The first is the most successful I see are hiring for attitude and training for aptitude. So they’re not necessarily looking for a heating and air technician. They’re looking for somebody who’s friendly, who’s nice, who can show up to work on time, who doesn’t have all sorts of issues when they come to work every day and they’re teaching ’em how to fix air conditioners. And as a result, they’re giving that person an opportunity at a career to take care of their family and achieve their goals. And typically they’re more loyal and don’t come with 20 years of bad habits. So because right now everyone knows about the shortage in the space and companies are hiring stealing away employees from one another, and the employee has all the leverage and they’re leaving for a shinier new van or a new ladder kind of thing, anything they want, they’re leaving for.

Patrick Lange (34:50):

And so oftentimes I’m seeing companies that bring somebody in, train ’em the way they want them to be trained, they’re able to build a better technician based on their desires, and one that has skills on talking to people and talking with homeowners and explaining things in a way that’s maybe not as complex, kind of the old school grumpy technician, I’m just here to fix it and leave as opposed to delivering a good experience. And so that’s the first part on getting the employees and getting ’em started. And I think the retaining is realizing that people have a choice. They have a choice of where they want to work. I think when I was growing up, certainly in my early working years, it was different. I was talked to much differently than I think employees are talked to today. I probably needed it in my life, but I don’t know that it would be as well received today as it was 20 years ago.

Patrick Lange (35:57):

And so I think there’s somebody who does a lot of coaching consulting, gentleman named Tommy Meow who owns a one garage doors. And his biggest thing that I’ve ever seen and seen the takeaway and people achieve results from it is tying the employee into their own goals. Now, what do they need to do with your business to achieve what they want to achieve? And designing the entire system around if you do X, you get Y that you’re looking for and building a system around that. And I’m seeing quite a few people implement it with incredible results. And it’s a complete mind shift. It was, you need to be happy you have a job, and if you don’t like it, we’re going to fire you to come to work and how can we help you achieve your goals?

Henry Lopez (36:43):

Yeah, I love that. I love that. All great takeaways. And to that point there, that’s exactly what we were talking about. Your goal might be that you aspire to start your own business someday. That’s great. Let me help you get there. In the interim, we help each other, we deliver value for each other and for our customers. And so that’s the point I was talking about. So thanks for articulating that. Is that mindset as opposed to, I’m going to keep this employee as an employee. Well, they might have aspirations that I could help them achieve. So it’s a win-win for everybody if I can help them do that. And not to go off too far on a tangent, I’ve talked about this often on this show, this whole thing about people don’t want to work or they have choices. Thank goodness. What happened is this generation figured out what we couldn’t figure out, which was that we were beholden to a corporation or a company and then they let us go whenever they wanted to.

Henry Lopez (37:38):

That was the part that didn’t get talked about. And so they see that differently now, this newer generation. And I think they’re right to do so we need to match that and understand, like you said, that they have choices. And so it’s a different mindset. And then what you said initially about attracting, hiring for attitude, train for aptitude, love that. That’s such the right approach. I think in what I’m seeing, again, we’re not trivializing the technical aspects of this job, but you can train people on how to do that. It’s hard to train people on having a good attitude and on delivering the right level of service. Right?

Patrick Lange (38:21):

Absolutely. I think learning how to fix an air conditioner is a teachable thing. Sometimes teaching somebody how to be a good person is a harder, I think so I think it’s finding the good people and then giving them the educational opportunities, whether it’s schooling, training, whatever it may be, and then an environment for them to produce it.

Henry Lopez (38:46):

Yeah. Alright. I’m going to take a left turn here. Why? If I’m looking to become an HVAC business owner at a high level, why should I consider buying an existing business versus building my own from scratch?

Patrick Lange (39:01):

Great question. A few different reasons. And I’ve bought and built businesses. So this is not just a broker who sells businesses

Henry Lopez (39:10):

I have as well. So we both have been there. I know we’ve seen the benefit of building our own and buying existing businesses.

Patrick Lange (39:18):

I think the first side is the mathematics. Using SBA financing offer, you’re buying a cash flowing business from day one with the trucks, with the website, with the phone number, with the customers, with the employees. And you could absolutely build that, but it would take time. And this is slingshot thing, you forward to, you’re stepping right into a running and profitable business. And to me, many of the businesses being sold, many of the technicians that own business today are great technicians and not incredible business owners. So specifically for somebody with some outside business experience, there’s an incredible opportunity for low hanging fruit to be able to come into a business and identify things that could improve the customer experience, improve the bottom line, improve the environment for the workers. So there’s a lot of low hanging fruit in those things where you could take a business that’s doing a million or 2 million in sales and quickly catapult it to 2 million or 4 million in sales where if you started just with you specifically, if you have no trade experience, you’ve got to go hire a technician and then you’ve got to find a way to make the phone to ring for that technician to have something to do.

Patrick Lange (40:31):

And it’s a much slower process in my opinion.

Henry Lopez (40:34):

Yeah, yeah. You’re buying that time. That is so valuable. It is the whole, I can build them and hope they will come. And certainly in this industry that we’ve talked about, there definitely is a market and opportunity, but I have to start from scratch. I have all of that friction. Also, Patrick, in my experience, and I’m curious as to what you’re seeing with SBA loans a lot more challenging to get a loan for a new business with no track record than it is buying an existing business that has a history to show.

Patrick Lange (41:07):

Absolutely. And after Covid, the reality is SBA and lenders love the trades. Absolutely love the trades because when everybody was on lockdown and sitting in their house, their pipes were leaking, their air conditioner wasn’t working. They realized that it didn’t cool the office in their house as well as they thought they did. And so those businesses thrived while everybody else was forced to sit at home. And SBA lenders took notice and have aggressively been going after the trades.

Henry Lopez (41:38):

Yeah. Since we’re on the topic of funding, SBA lending obviously is one of the principal methods, what else are you seeing seller financing, a combination thereof? What are you seeing as typical funding options? If I’m buying an existing HVAC business,

Patrick Lange (41:56):

There hasn’t been much seller financing the last couple of years. Sometimes the bank will request 10% seller note if they’re doing an SBA deal. But the market is so strong and there’s so many cash buyers currently with all the financial buyers and the private equity groups that are in there. Getting somebody who’s willing to finance the transaction has been a challenge because they just haven’t had to.

Henry Lopez (42:20):

They haven’t had to.

Patrick Lange (42:21):

Yeah. And if you put yourself in a seller’s shoes, once again, earlier in this we talked about limited assets. So if you buy a business for $2 million and they have $200,000 of vans, let’s just use that as the example, and you default me as the seller, I get a business back that I didn’t want. That’s why I sold. Now I’m potentially a year or two older. If you weren’t making the payments, chances are you were not successful and you probably lost my customers and my employees. So now, and I get used vans, that’s the extent of what I get back and a business that I didn’t want that’s not performing. So the risk because of the low assets, makes it challenging for a seller to consider, especially in a market with so many buyers.

Henry Lopez (43:10):

Explain Patrick at a high level, how you help people, well, we’ll stay on the buy side, but buy or sell. How do you help people buy an HVAC business?

Patrick Lange (43:22):

So the buying a couple different ways. I have some people that come to me and say, Hey, I’m looking for a deal in Austin, Texas. And we try to find them something there and I represent them through the transaction. I have others that come to me and say, Hey, I’m looking at this opportunity in Atlanta, Georgia, and it’s a deal that’s already there with another broker. And depending on when they came to me and when the broker was notified, potentially I can work with them under a co-broking type scenario. Then I have other people that come to me and say, Hey, we want to pay you and we want you in our corner. You’ve done all these deals. You know what you’re looking for and what we should be looking at. And so we do it on a kind of consultancy basis. And each of those is unique. I have people that’ll send me a deal, they’ll send me a deal sheet and say, Hey, take a look at it. I’ll look at it and say, Hey, it’s overpriced in my opinion, here’s the three things I would ask. And I send it back and I never hear from them again. I have others that we do that and they say, Hey, but I still want to buy it. Where would it make sense? Then we work together on putting something together or I help them in the due diligence process.

Henry Lopez (44:30):

Because you might get engaged even just to do a valuation of a business, right?

Patrick Lange (44:34):

Absolutely. Yeah. It’s just kind of, Hey, I have some that are kind of back of the napkin here. What do you think this is worth? And I have others that are, here’s three years of tax returns, P and ls, we want to dive through it. Here’s their numbers, here’s the summary of the business. And we go through it that way. So yeah, it really depends on the buyer, what they’re looking for, what their needs are. And I even have SBA lenders who send me buyers and I say, Hey, they’re looking at this deal, don’t know if it’s a good deal. Take a look at it with them and see if it makes sense, kind of stuff. So yeah, I help out in a bunch of different ways, and it really just depends on the needs of the buyer

Henry Lopez (45:14):

In the traditional sense of, I come to you as a broker, I want to buy an HVAC business. Help me find one. It’s like any other business broker in that your fee is paid by the seller. Is that correct?

Patrick Lange (45:26):

That is correct. And on the other scenario, so if it’s listed with another broker, some brokers are willing to co-broke. Similar to real estate, which is now, I guess there’s some issues with the national lot of changes.

Patrick Lange (45:41):

And so as of right now, the brokerage world in some places that exist, some states brokers, they won’t work with another broker at all, some will. So it just depends on who you’re working with. With any broker in the country, my job I believe, is to get the business sold and somebody else brings me a buyer, I’m happy to work with them. Not all brokers believe that same mentality. So in that scenario, potentially we could do a deal and I could be paid by the seller. Or once again, some people come to me and say, Hey, here’s what I need you to do. I’ve already talked to the broker, they’re not willing to co-broke, but I want you to help me with this. And we would design, here’s what the fee would be for me to do that.

Henry Lopez (46:24):

I see, I see. Why do I need a broker at a high level? Why can’t I just do it myself?

Patrick Lange (46:30):

Well, I don’t know that necessarily it’s a need. I think you could do it yourself. I think at the end of the day, you could buy your own house, you could do all these other things. My belief is it’s better with a broker because most people, most of my clients on either side have never bought or sold a business, so they don’t know what they’re doing. And for most of them, it’s also the biggest sale or purchase of their life. And so to think that I would go spend a million, 2 million, $3 million on something that I’ve never done before and not had somebody in my corner to me would be foolish. As I told you, I owned a heating and air company. I can’t fix an air conditioner when my air conditioner breaks. I call my son. My son bought me out, so him and his wife own the business. I see. I called them and they sent a technician to my house to fix it. I’m not fixing it. I don’t do that. I don’t fix my own car. I’m not a mechanic. Not that there’s anything wrong with being either one of those. I just don’t have the skills to do it. And so if I’m going to be that way on a $10,000 air conditioner, I’m certainly going to be that way on a 3 million purchase.

Henry Lopez (47:39):

Yeah, I agree with you. Certainly as we continue to look at this through the lens of a buyer, so many advantages to going through a broker, including that, that becomes another advocate for you. Someone who guides you through the process, someone who could be that middle person, which is often very necessary in a negotiation. Someone that can help me with asking the right questions. You at the end of the day, it’s my responsibility as the buyer to do the due diligence, but you’re there to help me guide me through that, right? You’re not playing the role of an attorney. I still need an attorney when it all comes down to finalizing a purchase contract, but you’re there to walk me through that. And I see that as a very necessary process. Of course, I’m probably a little biased. I was a real estate broker back in my career. I’ve used brokers to buy and sell businesses, so I get the value of it. But thanks for sharing those insights

Patrick Lange (48:36):

And I think it’s a great point. And in addition to that, I think it’s beneficial to have a broker who’s familiar with that field.

Henry Lopez (48:43):

Absolutely.

Patrick Lange (48:43):

Yeah. If you came to me to buy a restaurant, I’m going to tell you I’m not your guy. There’s so many moving parts in that, and I’d refer you to somebody who I know that does a lot of restaurants. So anybody who’s listening, I’m happy to answer any questions, help out in any way. But if you’re looking to buy a flower shop, sending you the flower shop deal, I’m probably not the guy for you, but if you send me a heating and air company, I feel that I’ve looked at as many as anyone and would be able to add value in that space. So I think just kind of highlighting that point as well.

Henry Lopez (49:18):

Yeah, agreed. Alright, we’ll wrap it up. What’s one thing you want to stick away from this conversation that we had? Again, I focused it mostly looking at it from a buyer’s perspective, getting into this HVAC industry. We talked about the advantages and some of the challenges we talked about and specific the licensing requirements and making sure I’ve thought through and have a plan for that before I take the next step. But what’s one thing you want us to take away from this?

Patrick Lange (49:46):

Well, I think it’s kind of a broad thing and it is an incredible opportunity even for those without any experience in the trades, as long as you’ve done your homework, like you were just talking about taking care of the licensing stuff, looking into that, understanding that aspect of it so you don’t spin your wheels trying to buy a business that you’re not in a position to buy. But for those who do that, I think it’s an incredible opportunity. It has been an incredible opportunity and I think it will continue to be.

Henry Lopez (50:13):

Yeah, agreed. If someone’s interested in chatting with you, perhaps engaging you, what’s the first step in the process? What should they do?

Patrick Lange (50:21):

So visit my website and my YouTube. So you said, first I’m going to give you two and I apologize. I’ve got a YouTube channel that I probably have 70 or 80 videos on buying and selling in the heating and airspace. And there’s a lot of things that don’t get thought of that. Somebody will call me and ask me a question and I’ll write that down. And that afternoon I’ll run outside and do a quick video thinking, I bet you somebody else has this question. And there’s to that on my website. But visit my website. There’s a lot of information, a lot of articles, and all of my contact information, they can reach out to me directly, email, I’m active on LinkedIn, Facebook, those links are on my website as well. Don’t hesitate to reach out. I’m happy to answer any questions that I can.

Henry Lopez (51:08):

Alright. So initially, depending on where I’m at, educate, continue to educate myself. The YouTube channel is a great place to start. And how do I find you on YouTube? What do I search for?

Patrick Lange (51:18):

Yeah, just Patrick Lang business modification group.

Henry Lopez (51:21):

Got it. And Lang is spelled

Patrick Lange (51:23):

L-A-N-G-E.

Henry Lopez (51:26):

And I’ll have a link to it on the show notes page for this episode at the how of business.com as always. So if you’re an out where you can write this down or you don’t remember, just go to the how of the business search for Patrick or search for hvac, and you’ll find this episode as well as the previous episode that Patrick was on. So I’ll have all of that there and then I can call and schedule a consultation with you to discuss this further to see if you might be able to help me. Is that the next step after that?

Patrick Lange (51:51):

Absolutely. Or directly on my website. You can schedule a time. There’s a link on my calendar where you could schedule time with me directly to answer any questions. Either way, call the office, which the number’s on there, or call or book a time on my calendar. I’m happy for either one.

Henry Lopez (52:07):

Perfect. Patrick, another great conversation. We could keep going and going, and I realize we’re almost at an hour here chatting, which is fantastic. Thanks for sharing all these insights or being transparent on all of this and for answering all of my questions and for coming back on the show. Thank you so much.

Patrick Lange (52:24):

I had a fantastic time. So thank you so much for having me on, and hopefully your listeners will get some value out of everything we covered today.

Henry Lopez (52:31):

Absolutely. This is Henry Lopez, and thank you for joining us on this episode of the Howa Business. My guest today again is Patrick Lang. I release new episodes every Monday morning. You can find a show anywhere you listen to podcasts, including my YouTube channel, the How of Business YouTube Channel, and at my website, the How of business.com. Thanks for listening.