# Strategy

Strategy

Planning now for a future successful transition

##### Originally published: 10/7/2022

It’s estimated that only 6% of lower middle market HVACR business owners who are considering selling their business in the next 10-15 years, will get their desired business valuation to financially provide for the lifestyle that they and their families deserve.

Sadly, this means that no more than 7,080 of the estimated 118,012 HVACR business owners in the U.S. will have put in the necessary investment and structure to create a company that financially supports their goals well into retirement.

Actionable Steps to Improve Valuation

Now, before we jump into what actionable steps you can begin to implement today to begin improving the valuation of your business, let’s first determine what your financial end goal is to be able to reverse engineer it from there. To accomplish this, you need to determine what annual income you would need if your business was no longer paying for some of the perks that you’ve been able to previously receive from being a business owner (e.g., payments for your cell phone, internet, truck, boat, 5th wheel, “client” dinners, “client” visits, etc.).

Let’s say for purposes of this exercise, you’ve determined that you need to have an annual income of \$150,000.00. Next, we need to determine how much you need to have in investments/savings to be able to generate this income annually in perpetuity if you wish to leave a legacy for your family as well. Next, to meet your legacy objective, we need to assume a reasonable rate of return you can expect on this investment. The generally accepted rate of return has been 4%. So, let’s assume that for purposes of this exercise, that is close enough. To determine what investment would generate an annual return of your needed \$150,000.00/year, you multiply that number by the inverse of that assumed rate of return (e.g., 1/.04 = 25). Thus, if you were able to generate a return of at least 4% each year, you would need a minimum of \$3.7M in investments. Note, that this is the minimum amount that you would need after you’ve paid capital gains taxes, business broker fees, CPA fees, legal fees, and all of the applicable business fees.

If you are interested in finding out how your HVACR company ranks nationally in the eight distinct areas that potential buyers use to value a business, and you want to learn what actionable steps you can take to immediately begin improving them, take this free 10-minute assessment available here or scan the QR code now.

Now that you know what your future could look like, it’s time to go and get it!

HVAC business owners who are interested in creating a legacy, by creating a company that can provide financial security for themselves and their families in perpetuity, work with Michael Sauer, Scorpion's Certified Master Business Coach.

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