The Sharpest Tool™

Patrick Lange | 4 Key Steps for a Successful Services Business

Patrick Lange is an experienced HVAC business broker heading up The Business Modification Group. Coming from a unique background in financial planning and owning an HVAC business himself, Patrick shares how to run a successful services business, so that when it comes time to sell it, people are lining up to purchase.

Josh Smith (00:03):

Hello. And welcome back to the sharpest tool where we take the sting out of marketing. My name is Josh Smith. I am your host, and I am honored today to have the opportunity to speak with Patrick Lange, an experienced HVAC specific business broker with the business modification group. Patrick has a unique background in financial plannings, even owned an HVAC business himself. If you're looking for answers on how to sell your business or want to run a business worth selling, this is the interview that you want to listen to or watch if you're watching us. And I'm really excited to actually say watching us, and I'll tell you why in a minute, but first off, Patrick, welcome to the

Patrick Lange (00:37):

Podcast. Thank you so much. I'm excited to be here. I really appreciate the opportunity.

Josh Smith (00:41):

It's good to have you here. And, uh, you know, I gotta, I gotta preface this. This is the first recording video recording that we're doing right now in Scorpion's LA studio. So no pressure at all, but don't screw it up.

Patrick Lange (00:54):

Absolutely. No, I'm nervous now

Josh Smith (00:57):

That you've had an interesting journey, both selling and owning businesses. And now you're kind of back in the selling realm. Why don't you provide a little bit of context for those who might not be familiar with you might not have heard your name thrown around a brief overview would be great. Just tell us a little bit about

Patrick Lange (01:11):

Background. Absolutely. I started my business career as a financial advisor. I own a financial planning company, um, for 13 years and one day decided it wasn't fun anymore and came home and told my wife that I was selling the business and was going to start up swimming pool service company. And after my wife fell on the floor and asked me if I was having a nervous breakdown, we sold the soul to financial planning. Businesses started service company, servicing swimming pools in the Sarasota Florida area. We ended up growing that company over about a five-year period, sold that company five years later and, uh, was doing some consulting work. And it was at a BNI meeting. Actually, I met a gentleman who is a business broker, and I said, what does a business broker, what does that do? And he said, I help people sell, buy and sell companies.

Patrick Lange (01:55):

And hopefully you get paid for that. And he said, absolutely. And I thought, well, I've been doing it for myself and nobody's been paying me. I'll give it a try. So I got licensed as a business broker and I was down in the Sarasota Florida area and I was selling everything. Bars, restaurants, convenience stores, you name it, I've sold it. Uh, flower shops. I've kind of sold everything. We moved to north Florida, uh, about five years ago. And at that time I listed heating and air company for sale. And so I love businesses with barriers to entry, need a license to get in. Uh, I think they're less price sensitive. And as I've said multiple times in our conversation, you know, my we've had money and not had money. And my wife will do without a lot. She's not doing without cold air in the summertime and warmer in the winter time.

Patrick Lange (02:33):

And so I thought it was good industry to get into. So about five years ago, I bought a heating and air company that I had listed for sale, ran it for two years and then realized that I missed the brokerage side of the business. And so when I was looking at finding what the business was really worth in the market, there wasn't anybody that I found that really knew a lot about selling heating and air companies. Yeah. So I decided that that time, which was three years ago to change the focus of my business and just focus in the heating and air space. So my, my oldest son at the time work with me and I told him it was time to a new job. We were selling the company, he had fallen in love with it. And so he told me he wanted to buy me out and did make his last payment. About two months ago, she was still friendly around the house and he'd been running it ever since. And I, since that time just started selling heating and air, and I've sold more in the last three years than anybody in the country.

Josh Smith (03:19):

Incredible. That's incredible. You know, you mentioned you, you just started going out selling businesses. How do you even strike up a conversation about that? What's what was your process in the beginning stages of your business for,

Patrick Lange (03:29):

Yeah, the reality was, I didn't know that there was business brokerage companies and he didn't tell me that at the BNI meeting. So I went to century 21 and said, can I be a business broker? And they said, sure, not knowing that century 21 didn't know anything about selling businesses. And so I'm a big believer in success, leaves clues. So I started finding other business brokers and finding out what they're doing. I did mailing, we did advertising, uh, I would knock on doors and say, Hey, would you ever consider selling? I did everything at the, at the onset, obviously selling a business as a confidential thing. You don't want your employees to know you don't want your competitors to know you, you don't want your customers to know. And so, so we've since then refined exactly how we do it, but in the early days it was anything, anything that I could do to get in front of with somebody that would consider selling. And that's kinda how it happened.

Josh Smith (04:15):

Wow. Wow. So it seems like quite honestly, a really interesting experience to be able to, to dive into, from a business perspective, you've also owned a business, owns a couple of several businesses. So what are some of the primary differences that you've found between running a business versus selling a business? I'm sure there's a lot to dive in into there, but what are the things that resonated with you more when it came to selling businesses versus running a business?

Patrick Lange (04:39):

I'm still self-employed. So, I mean, I've got to run my own business. So I get to steal a lot of ideas from successful companies that I see every day I'd love successful businesses. And so, so to me, it's so neat to kind of peel back the layers and see what works that, and I've always, I've always thought of certain industries and certain businesses that I thought people were getting rich, and that was an incredible business to be in and are making all this money. And the reality is when you look at the tax return, it's farthest from the truth as you could possibly be. And so, so that's been eye opening for me doing that, but, but seeing what's successful and what's not successful, and there's a fine line that separates the two. And so that, part's extremely exciting to me.

Josh Smith (05:16):

Yeah. You know, there's, um, there's also, uh, I feel like a lot of these kind of companies that are coming in and buying out several businesses, there are these investment firms that are buying us over business. Maybe they not, and specifically in the trades to HVAC plumbing, electrical companies, and they may or may not have like tradesmen experienced or businessman coming in to buy businesses and similar to what you're helping kind of facilitate as a broker. What qualities do you look for that make a business sellable that if a business owner is thinking, well, I'm going to eventually sell my business. I gotta be focusing on these things. What are some of those qualities

Patrick Lange (05:51):

Specifically in the heating and air? And we'll talk about that because obviously that's what I do on a daily basis. There's several key factors. First thing is repetitive. Income buyers, love maintenance agreements. They love relationships with customers where you're in their home a lot. They love clean books and records. So many people, myself included get creative with their accounting and treat their business like as their personal checking account. And so when a buyer comes in or a bank comes in to finance it, if it's like, where's Waldo to find the profit, that's not good for you to sell. So clean books and records companies that are focused on service as opposed to new construction, generally do better once again, because of that repetitive nature. So if it's a construction job, once a job's done, typically that jobs over your income stops, where if it's a neighborhood that you're servicing and have maintenance agreements new there all the time, that income will continue.

Patrick Lange (06:40):

So they love that. And the last part is really an owner. That's not the entire business. You know, you see a lot of businesses, it's their name. They turn the wrenches. They're the only ones in the truck. And so, so they really don't have a business. They have a high paying job, which is fantastic if that's what they want, but it doesn't lead to a lot of sellable value. So if you're coming in to buy them and the minute they leave, every customer leaves with them, there's nothing there to buy. So separation of service, clean books and records, repetitive income, and a business built on service. Those four things. If they build their heating and air company and plumbing company and electrical company, that way they'll be able to cash a bigger check.

Josh Smith (07:16):

Yeah. Are there any misconceptions you feel like owners have when it comes to selling

Patrick Lange (07:20):

The business? Yeah. I think especially you talk about the private equity push. That's the biggest thing. I've talked to a lot of private equity companies on a daily basis. The reality is some of them aren't even buyer they're dreaming of being buyers. And so I think the heating and air space is a people business. And you have to understand the people side of that business and the trades in general, the customers, the employees you're that you're in the people business. And so people hear the guy down the street sold for $10 million. So this person sold over here and nobody's going to say, I sold my company and I didn't get a good deal. So when they're bragging about selling their company, they may not be a hundred percent accurate what they sold it for. So I think people, when people are looking to buy something, they, they expect the price to be down here and below. And when they're looking to sell something, they expect the price to be a few behind. So I think that misconception is on value.

Josh Smith (08:08):

Yeah. Well, let's get into valuations, you know, I know there's a lot of different things that can happen with respect to valuations, how companies valued, any listeners who have listened to, or watched shark tank, you know, they, they, they're probably pretty familiar with somebody taking a look at a four or five times valuation, but what's really interesting. Is it varies by industry right? In your experience? What, tell us a little bit,

Patrick Lange (08:26):

Yeah, absolutely. I think, um, people are buying cashflow and that's the reality of it. And they're comparing your business to what they do with that money. Another location, it's another industry or another business down the street. And so typically the higher, the cashflow or positive cashflow is the higher that multiple becomes. Because once again, it's not dependent on you. They don't have to be in the van turning ranches. They're more of a management capacity and they're willing to pay more for that. And so it does vary by industry, but the reality is the biggest variance is going to be on a cashflow basis. Yeah.

Josh Smith (08:57):

You know, it's interesting. I remember looking at businesses with my dad when he was looking to purchase back when he was in, in the, in the business of businesses. Right. So, and, uh, one of the things that they looked for was what the payback period would be. Right. And so typically he would, for the industries, he was looking at it, it was like three to five times for a payback. And that was a good idea evaluation. So you have a million dollar business that has a catalyst say has cashflow of a million dollars. The investment could be three to $5 million in terms of the sellable price. Is that a similar way to how you would look at an HVAC company when you're assessing valuation?

Patrick Lange (09:31):

I mean, we, we use comparables. And so that's, the reality is, is, is I track heating an air-conditioned sell across the country. I'm also, I'm broken state of Florida and I'm on the board for business brokers of Florida. And we actually have an MLS system in Florida for businesses. And so we're the only state in the country that has that, but it allows me to track every sale that takes place. And so I can see what they sold for what kind of asses were included with them. How long were they on the market for just when he put on a house. And so I'm able to use that as well. And I subscribed other services at track it, but payback period is important. And that's what people are looking at because they're going to, once again, they're going to compare it to something else, but your numbers that you're quoting or are relatively similar once again, depending on the VAT and the size of the company. Yeah.

Josh Smith (10:10):

Yeah. Are there any aspects about selling a business that are typically overemphasized, just with respect to, from your point of view, like as a broker, with respect to a business owners, do they typically fluff up certain things in certain areas will

Patrick Lange (10:24):

A lot of business owners that I meet with, they'll say, well, it could be doing this now. Or we used to do this in sales and a, buyer's not going to buy what it could do or what it used to do. They're going to buy what it's doing today. They're gonna buy the cashflow today. And they also want to talk about the great bands that they have and they just bought this equipment. But the reality is that's all figured into the profit you're making, you're making that profit because of the vans you drive because of the way you guys are uniformed because of the things you're doing. So you're getting paid that and that sale price. Multiple. Does that make sense?

Josh Smith (10:53):

Yeah. Yeah. Yeah. Tell me a little bit about too. Now you, you went out, you're selling these businesses. You find an HVAC company that you decide to buy and you start running that business. And then years down the road, you're focusing pretty exclusively on HVAC and the trades and buying and selling businesses are what made you want to buy that HVAC company? Tell me a bit about it. Oh,

Patrick Lange (11:16):

As I mentioned, I'll have businesses with barriers to entry first off, and if your air conditioner breaks, you can't go to home Depot and buy the part to fix it. Sure. And so I love that that aspect of it licenses are typically required in most states. And so not everybody can come compete on price. If you want a lawn service company, obviously the next guy in a truck with a lawnmower can compete against you on price. And so you have to find another way to separate yourself and, and, and the trades are a little different than that. So that part I loved. And when I went to go sell it, I realized I love the blue collar aspect of it. And if that makes any sense and it, and it's not in a demeaning way, I love dealing with salt of the earth. People who had a business for 30 years and they've employed people and they taken great care of their company. They've taken great care of their employees, of their customers. 95, 90 8% of the sellers I deal with are just incredible people. And so when I sold the first few, I really fell in love with it. Sure.

Josh Smith (12:08):

I want to take a bit of a different approach here too. We've been talking a lot about business owners who potentially set themselves up to be bought, right? What, what do you need to be sellable? What about the people who are looking to acquire somebody who's looking to acquire a business, you bought a business and HVAC business, and you had probably a set list of things that you're like, I'm going to go in and do this, this and this. And that's going to help kind of expand profitability. Is there any consistency in terms of people who are actually going out and being the buyers of these businesses that they repeatedly they're going? And they're like, yep. I know exactly what I need to do. And there's some sort of consistency with it or does it vary by business, I guess?

Patrick Lange (12:44):

Yeah. It varies by business and by buyer and by seller, because the reality is there's some businesses who do an excellent job at marketing. Sure. And so when that buyer comes in, they may need to tighten up customer service a little bit better, the systems that are in place, or they may do no marketing at all. And so it's coming in and bringing a marketing approach to it is going to blow that business up and take it to the next level. So it really depends on what's going on in that business. Oftentimes specifically with the older companies, a lot of low-hanging fruit, a lot of maintenance agreements. I use that as an example, a lot of people that I deal with don't believe in charging somebody for a service they haven't provided. So they don't do a maintenance agreement. That's their whole reason, or they don't have, they don't have time to get to them. And, and, and so they're just not a priority. Well, a buyer who focuses on maintenance agreements and come in and automatically put maintenance agreements in place and blow that business up on the service side. So, so it really depends on, on all three parties, kind of what the business is doing, what the seller has been doing, and then what the buyer's looking to achieve.

Josh Smith (13:40):

What about the company you bought when you bought it? What were the things that you knew needed to be done that you went and put into action as the owner?

Patrick Lange (13:46):

Well, customer servers was the biggest thing was absentee run. So the gentleman who I bought it from it only owned it for five years. Company had been in business for 60 years. The guy had bought it from was only, had only under it for five years and ran it absentee. So initially he focused on customers and sales and service, and then as time went on, he just let the business kind of run. And so there was nobody was, you know, nobody was watching the business, so to speak. So tightening up, uh, the processes in servicing the customers in a way that they want it to be service was the, the first things that we did, because it was, it was starting to get a bad reputation as being expensive and not having consistency in pricing, charging one person, one thing, and another person another in ours were inconsistent and how they service people and what they charged on on a weekend call was inconsistent. So, so bringing consistency was my first thing. I didn't know anything about the business and I still can't fix an air conditioner, say I've got to call my son when my breaks. And he goes to my house and fixes it. So, so I still can't do that. And so I was forced to rely on the employees to handle that part of it. And I focused what I knew about, and that was the business side. Yeah. You know,

Josh Smith (14:52):

What's interesting is you bringing such a, obviously a business focus to it, which a lot of business owners, especially in the trades, I find if you've grown up in the trades, it's not as second nature to just think about it like a business I'm thinking right now of a business owner of we've worked with who, um, is very, very emotionally tied, how he prices. And this particular person is in a very expensive area, very expensive, very just from the housing, the jobs, the income that's around there. But so their average and it's very expensive to advertise and their average ticket is really low. And then the minute you bring up a business who actually has a higher average ticket, the association and the assumption is, well, they're ripping them off. Right. Right. But you have to kind of like take that out of the equation, think about it like a business from a business perspective. And that pulls in a lot of what you're talking about, right. Where your name is not tied to the business. It's, it's marketable above and beyond you. It goes beyond yourself. And, um, I think that's such a great point too, to just kind of rest on to, if you've been in business and you've got it tied to your name, and you eventually know you want to have an exit strategy or an exit plan, there's just some of the things you got to think about.

Patrick Lange (16:01):

Absolutely. And two points of that first thing is no one wants to buy the low price leader. Yeah. So if they're coming, looking, if that person's ultimate goal is to sell, and you're the cheapest guy in town, when somebody buys you out and they raise prices, all your customers are going to leave and they know that. So that's the first thing. It can hurt you from a sale by being the low price leader. Second thing with that is I see it all the time. People hit plateaus and they typically get stuck because they believe they're the only person who can fix that air conditioner. Right. They won't, they won't even trust younger employees to come in and fix it. Cause they're just not going to do a good job. So they limit their income and limit the size of their company because they're so focused on doing such a great job on the technical side.

Patrick Lange (16:41):

I didn't have that to lean on. I can't fix an air conditioner. So I had to focus on the experience side, the experience for the customer and try to deliver as much value as I could there when I got there. But I bought the company, we had one installer, one tech, the first week I fired the tech. He was ripping people off and I found out about it and fired him instantly. So I had to go to my installer and say, can you, can you fix air conditioners? He's like he said, I've been an installer for 20 years. I probably could. And so I said, great. So we climbed in the van together and I did the talking to the customer and he did the repairing. And that was how we started with when I took over the business, what we did until I was able to bring in another tech, get somebody hired because I didn't know. And that's the other thing, I didn't know what to hire for now. I didn't know if somebody came in and said that they could fix a capacitor contact, ready, know what? That meant much less if they could do it. And so, so it was more challenging for me on that end, but I didn't have the ability to say, you're not doing a good enough job, go home. I'm going to do it myself. I had to focus on generating more revenue for the business, increasing our reputation and delivering more value to the customer

Josh Smith (17:44):

That I love that. So after you, you did the business ownership, you ended up selling it to your son, right. And so your son owns it today.

Patrick Lange (17:52):

The office is in his office. So that's awesome. So he gets advice on a daily basis, which I'm sure he's like hearing. Um, but he's glad I'm like in California today. So he's not having to listen to me. So, so I get to see that's the beauty of it. I get to see these companies that are successful. And then I come back into him and say, Hey, you need to change this. You need to do this. We do these things, but yeah, he still runs it.

Josh Smith (18:12):

Oh, that's awesome. And you miss brokering. So you're returned selling, right. And you're focused on, on HVAC primarily. Is there anything specific that you've learned in working with that niche

Patrick Lange (18:22):

So much? I mean, I, I could, we could spend the entire podcast talking about what I've learned. I think it's an incredible industry. I never understood the revenue that could be made in the trades first off. And I was so ignorant to the income levels that that could be made in the trades, but the value that it delivers to the customer as well, and the employees, I think of how many business I've sold, where their technicians are making 50, 60, $70,000 a year. How many comfort advisors I've met that are making a hundred, 150, $200,000 a year. They're feeding families. They're taking care of people. It's incredible. I was so ignorant to that. Um, and now, and now I just love it so much that once again, my, my oldest son is in it. I mean, he would have, he was working someplace else. It would have never been an opportunity for him.

Patrick Lange (19:07):

And I wouldn't have known to steer him there. Had I not been in it. So now I kind of try to be the spokesperson of, you know, as you're looking at career paths, I can tell you, I know more people in, in the heating and air business that make more money than the people I knew in the financial planning business. Yeah. And so those were college educated, taking care of people's life savings. They're making a lot less income and it's not all about income and I'm not trying to make it that it is, but the opportunities that the trades offer that I didn't realize existed, I get to see that on a daily basis and that's incredible to be at it. Yeah.

Josh Smith (19:40):

And that was one of the Mo I that's one of the biggest things you talk about, like there's a tech shortage, you know, there's totally different conversation, but there's a massive tech shortage when it comes to the trades. And a lot of that, I know there are some really successful companies and they, they build schools around it and they're in the education system. They're showing the career path, just like you said, six figure incomes just for being somebody who who's great with people and can turn a ranch and knows how to like actually solve these problems because these jobs aren't going away. Right. And what's really cool is the movement of women in the trades too. And there's been a lot of companies we work with where women are the preferred person to come into their home. And they just, there's a different dynamic there and something that historically hasn't been explored,

Patrick Lange (20:21):

Which is really cool. Absolutely. And I think, and I think you'll see that continuing to grow. I know you see different groups, uh, women in HVHC. I believe one of them, there's a few other ones out there that are promoting that. And I think, I think it's through education. I think people don't know it exists. And once again, I was ignorant to it. I didn't have a clue that it existed either. And so, so I think it's incredible as the word keeps getting out. I think it, it, I think it makes it better for everybody that's involved.

Josh Smith (20:44):

Yeah. Well, Patrick, this has been awesome. Um, well, you know, we're actually, for those listening, we're going to have Patrick back-end for a second episode. We're going to talk a bit more about his focus on buying and selling HVAC companies. So if you're an HVAC contractor you've been interested in curious about buying or potentially selling your business, buying another business, or potentially selling a business, you don't want to miss this episode, but Patrick, this episode has been awesome. Very informative. I really appreciate your time. Thank you for the opportunity. I

Patrick Lange (21:07):

Really enjoyed it now. Where

Josh Smith (21:08):

Can people find out more about

Patrick Lange (21:10):

Absolutely. I'm on Facebook, on LinkedIn, you can visit my website, business modification, I'm happy to answer any questions that I can reach out at anytime. Anything I do to help out. I'm happy to help. No.

Josh Smith (21:19):

Awesome. I really appreciate your time, Patrick. Thanks for being on. Thank you for having me and for everybody listening, wherever you might be listening at. If you're watching us on YouTube or you're listening to us on any of your podcast channels, iTunes, Spotify definitely drop some comments down below. If you have questions or leave us a review on our iTunes page, some more people can find out about the sharpest tool podcasts and those who need to hear it and share the episode around. If you think this is valuable and you know, somebody, maybe a business partner or somebody else in the industry who needs to hear what Patrick has to say, this is definitely something you want to share around and stay tuned from all of us here at the sharpest tool. We'll catch you next time. Thanks.

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