Thoughts on this deal?

May 06, 2025

by a searcher from University of Texas at Austin in Dallas, TX, USA

I am a searcher that is having bouts of maybe imposter syndrome, maybe legitimate concerns. My background is in strategy/finance and have gotten the following deal under LOI: - commercial trades company (think HVAC/R) - $2.5M revenue, 500k SDE - 90-95% of revenue from break & fix service and maintenance contracts so not much install/new construction work - largest customer is 5-10% of revenue so not much customer concentration - owner in his late 80s looking to retire - team of 12 FTEs with 5 technicians and 3 apprentices - $1.6M purchase price with 30% seller note on 2 year standby - DSCR (after paying myself) of###-###-#### in Y1-2 and###-###-#### after that without any revenue growth To me, all of this seems alright on paper, but curious about y’all’s thoughts? My biggest concern is how closely revenue is tied to keeping those technicians.. but hey maybe that just tells me where to focus my effort

Reply by a professional
from University of Illinois at Chicago in Houston, TX, USA

Mr./Ms. Anonymous, Great post — and congrats on getting this far. That alone puts you ahead of most. Here’s my take as someone deep in the trenches with a similar HVAC/R company (and who also wrestles with imposter syndrome more often than I admit): ⸻ Due Diligence Thoughts (Based on What I’ve Seen Behind the Curtain): 1. Evaluate True Cash Flow, Not Just SDE Numbers may look great on an annualized basis, but dig into monthly cash flow fluctuations. • How are they covering payroll, debt, and overhead in slow months? • Do they rely on cash advances or overdrawn accounts? • Negative cash flow months can quietly erode what looks like a strong DSCR on paper. 2. Scrutinize the Debt Ask for a full debt schedule — including MCA loans, vendor financing, and personal guarantees. • I’ve seen cases where MCA debt wasn’t disclosed in the SDE calculations, creating a massive funding shortfall post-close. 3. Bookkeeping and SOPs Matter More Than You Think If there are no written processes for handling AR, AP, reconciliations, or job costing, assume that the financials are just as loose. • Integrity of the books is binary: either it’s right, or everything’s suspect. • Look for mismatches between what’s on paper and how they operate day-to-day. 4. Technician Risk Is Real — But Manageable Yes, you’re right — in service-heavy models, technician retention is everything. • But that also means you know exactly where to focus: culture, pay structure, career path, and training pipeline. • Look at churn history: How many techs have left in the last 18 months, and why? 5. Future Exit Value Depends on Revenue Mix For HVAC businesses, the “big players” tend to look for residential change-outs — full system replacements that typically range from $7,500 to $25,000 per job. • If resale or private equity is ever on your radar, you’ll want to diversify into those types of jobs. • A company doing only service and maintenance, even at $5M+ revenue, is often not attractive to strategic buyers without install revenue. 6. If You Really Want to Know the Health of a Business, Ask Two Questions • Where’s the money? If they’re doing $2M+/year and have been around for any length of time, they should have at least $250K in reserves. Anything under $100K is a major red flag. • How fundable are they? Check business credit. Experian, Equifax, Dun & Bradstreet. Ask for a Nav.com login or screenshot if you’ve built enough rapport. Look for UCC filings too. These two questions will often tell you more than any spreadsheet or presentation. Most people won’t agree with this, but even if the red flags are there — it doesn’t always mean “don’t buy.” It just means don’t buy at that price. Know your risk tolerance. Ask yourself if this deal takes you out of your financial or operational comfort zone. If so, adjust your offer accordingly — or walk away. ⸻ On Imposter Syndrome: I battle with it too — especially when something feels just a little too big, or I’m in the room with more experienced players. But here’s what helps me: Difficult doesn’t mean you’re not capable — it just means you’re doing something meaningful. You don’t have to know everything. You have to be: • Effective – Get it done. • Efficient – Get it done wisely. • Smart enough to build a team and pick the right mentors – that is a form of excellence. Your role is not to be a superhero — it’s to be a great decision-maker. And you’re already doing that by asking the right questions. ⸻ You’ve got this. Keep going, stay curious, and trust the process. The only imposters are the ones who fake confidence without doing the work — and clearly, you’re not one of them.

Reply by a professional
from Bentley College in Miami, FL, USA

This deal has a lot going for it on paper—strong recurring revenue from service contracts, low customer concentration, and a seller who's clearly ready to exit. Your concern about technician retention is spot on and very common in skilled trades businesses. The human capital is the business in many ways, especially in a service-heavy model like this. Here are a few thoughts to consider: Tech retention & culture: Get a feel for what’s keeping the technicians around—loyalty to the owner, pay structure, work-life balance? If the seller is a big part of why they stay, you’ll need a plan to retain them post-transition. Consider stay bonuses or staggered retention incentives. Operational risk: With a lean team, even losing one tech can hit service capacity and revenue. Look into cross-training, tech pipelines (e.g., from local trade schools), and building a bench of subcontractors if feasible. DSCR: Your Y1-2 coverage looks healthy, giving you some margin for error. If the###-###-#### range in later years assumes no growth, that’s actually a conservative base case. Owner transition: At that age, the seller might be highly disengaged, which can be a double-edged sword. There may be easy wins in sales or ops, but you’ll want to be sure there’s solid second-tier management or at least reliable field leadership. You're asking the right questions. Technician-heavy service businesses can be excellent, but culture and continuity planning are critical. If you want a second opinion or help diligencing the ops side, DueDilio can connect you with specialists who’ve evaluated dozens of trades businesses.

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