Business, Main Street / SMB

How to Underwrite an HVAC or Plumbing Business

Underwrite an HVAC, plumbing or electrical business by splitting revenue into maintenance agreements, repair service, replacement installs and new construction, then testing margin and recurrence of each. The key metrics are recurring service agreement revenue, revenue per technician with technician retention, and gross margin by job type after warranty and callback costs.

What makes home services (hvac, plumbing, electrical) underwriting different

Residential home services companies earn money from three very different streams. Maintenance agreements bring recurring revenue and steady leads. Repair calls are high margin and weather driven. Replacement installs carry large tickets and depend on financing offers and sales skill. New construction work is lower margin and cyclical. The asset that produces all of it is licensed technicians, who are scarce, so labor capacity often limits growth more than demand. Brand, call center performance and digital lead flow matter as well, since a large share of jobs come from inbound calls. Seasonality is pronounced, with peaks during hot summers and cold snaps.

Lenders focus on whether EBITDA is stable through a mild weather year, how dependent revenue is on new construction contractors, and whether the licenses held by the owner will transfer. They prefer high maintenance agreement penetration because it smooths cash flow. Private equity buyers treat home services as a roll-up: they pay for the agreement base, technician bench and brand, then add pricing discipline, call center centralization and acquisitions. Equity may pay a higher multiple for a platform with management depth, while lenders size debt off a more conservative EBITDA that strips out unusually favorable weather years.

Key metrics

Service agreement count and renewal rate

Maintenance agreements drive recurring revenue and give technicians a reason to be in the home when equipment fails.

Revenue mix by job type

Repair and replacement work for homeowners is more resilient and higher margin than new construction subcontracting.

Buyers often prefer a business weighted toward residential service and replacement rather than new construction.

Revenue per technician

Shows labor productivity and whether growth will require hiring scarce licensed staff.

Technician turnover

Losing technicians cuts capacity immediately and can take customers with them.

Gross margin by job type

Margins differ widely between service, replacement and construction, so blended margin can hide a weak segment.

Adjusted EBITDA margin

Shows profitability after normalizing owner pay and weather-driven spikes.

Call booking and close rates

Conversion of inbound calls into booked jobs and of estimates into installs shows sales execution and pricing power.

How to underwrite it, step by step

Pull job-level data from the field service software and split revenue by service, maintenance, replacement and construction.
Count active maintenance agreements, renewal rates and revenue generated from agreement customers.
Normalize EBITDA for weather by comparing peak months across several years.
Review technician roster, licenses, tenure, pay plans and any non-solicit agreements.
Confirm which contractor licenses are held by the owner and how they transfer.
Analyze warranty claims, callbacks and equipment manufacturer rebates.
Test customer acquisition: lead sources, marketing spend per booked job and brand dependence.
Size debt on normalized EBITDA and structure the price with rollover equity or an earnout for owner transition.

Due diligence checklist

Field service software job export for three years
Maintenance agreement roster and renewal history
Technician roster with licenses, tenure and compensation
Contractor license records and qualifier arrangements
Monthly P&L showing seasonality
Customer financing program agreements
Warranty and callback logs
Distributor and manufacturer agreements and rebate history
Marketing spend and lead source reports
Fleet list with vehicle age and leases
Builder or general contractor customer contracts

Key risks and mitigants

Owner is the license holder and leaves after sale.

Identify a qualifying licensee on staff or require the seller to remain as qualifier for a defined period.

Technician departures reduce capacity.

Review pay plans, add retention bonuses and confirm enforceable non-solicits where allowed.

A mild weather year reduces repair and replacement demand.

Normalize EBITDA across several seasons and stress revenue for a mild year.

Heavy reliance on builders for new construction work.

Haircut construction revenue and review builder payment terms and backlog.

Lead flow depends on paid ads or a single referral source.

Analyze cost per booked job and diversification of lead sources.

Typical financing and deal structure

Smaller home services businesses are often bought with SBA 7(a) loans plus a seller note. Larger platforms, typically above a few million dollars of EBITDA, are financed with senior cash flow loans or unitranche debt from private credit funds, often with a delayed draw facility to fund tuck-in acquisitions. Private equity buyers commonly ask sellers to roll a portion of equity into the platform. Earnouts tie part of the price to revenue retention after the owner steps back. Covenants usually include a maximum leverage ratio and a fixed charge coverage test, with add-backs for acquired company synergies negotiated carefully.

Red flags

Only one licensed qualifier and it is the departing owner.
EBITDA driven by a single extreme weather year.
Large share of revenue from a few builders with slow payment history.
Few or declining maintenance agreements despite claims of a recurring revenue model.
Technician pay largely off the books or misclassified as independent contractors.

Frequently asked questions

What multiple do HVAC companies sell for?

Multiples vary widely with size. Small owner-operated HVAC companies are often priced on SDE, while larger companies with management and strong maintenance agreement bases are priced on EBITDA and can attract higher multiples from private equity platforms. Recurring revenue, residential focus and technician depth all push valuation up, while new construction concentration pulls it down.

Why do maintenance agreements matter so much?

Maintenance agreements provide recurring revenue, keep the company in front of customers, and generate repair and replacement leads. When equipment fails, agreement customers usually call the company that services it. Buyers view a large, renewing agreement base as evidence of durable customer relationships and smoother cash flow through seasons.

Can you get an SBA loan to buy a plumbing or HVAC business?

Yes. Many home services acquisitions are financed with SBA 7(a) loans. The lender will want historical cash flow coverage, a plan for contractor license transfer, and buyer experience in the trade or a strong operating manager. A seller note and transition period are common parts of the structure.

What is the biggest risk when buying a home services company?

The main risks are licensing and labor. If the owner holds the contractor license and leaves, the company may not be able to pull permits. If technicians leave, revenue stops. Underwriters confirm license arrangements, review technician retention and compensation, and structure the deal so the seller stays engaged during transition.

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Educational content, not investment, credit, legal or tax advice. Benchmarks are common practitioner rules of thumb and vary by lender, market and cycle.