Fictional company. Illustration only, not an appraisal or an offer.
Underwriting report: Harbor Ridge Mechanical, Inc.
Commercial HVAC service · Inland Empire, CA · founded 1991 · 34 employees
Normalized earnings
| Reported EBITDA | $910,000 |
|---|---|
Owner-pay normalizationWhy?The owner’s pay is above what a hired general manager would earn. A new owner would pay a market salary, so the difference is added back. | +$185,000 |
One-time legal costWhy?A lawsuit settled last year will not recur, so its cost is added back. | +$55,000 |
| Normalized EBITDA | $1,150,000 |
Two views of value
Example values. Bank view: $3.0M to $3.5M. Buyer view: $3.4M to $4.1M. Up to $0.6M of the buyer view is above what a bank would lend against.
| View | Low | High | Multiple of normalized EBITDA |
|---|---|---|---|
| Bank view | $2,990,000 | $3,450,000 | 2.6× to 3× |
| Buyer view | $3,392,500 | $4,140,000 | 2.95× to 3.6× |
The $690,000 between the top of the bank view and the top of the buyer view is what a seller note or partner capital would fill: Take some money off the table.
How we got the bank view
- Normalized EBITDA of $1,150,000 × 2.6×–3×, the total debt a lender would typically support for this business (example) = $3.0M to $3.5M.
- Cross-check: a $3,450,000 loan over 10 years at 10% (example) costs about $561,000 a year. Earnings after capital spending cover that 1.9 times; lenders typically want at least 1.25 times.
- What caps the bank view at 3× is total debt, not coverage: many lenders limit a business this size to about that multiple of earnings (example), even when payments are well covered.
How we got the buyer view
- Normalized EBITDA of $1,150,000 × 2.95×–3.6× from comparable private sales in this industry (example range) = $3.4M to $4.1M.
- Working capital: the price assumes about $620,000 of normal working capital stays with the business (example).
- Capital spending: about $85,000 a year (example), deducted before sizing the loan.
- Equipment: service vans and tools average 6 years old (example); replacements are in the capital-spending figure.
Transferability
62 / 100 Moderate
How well the business would run, and keep its customers, under a new owner.
- Customer concentration
- OK
- Top customer is 14% of revenue
- Owner dependence
- High
- Owner holds 70% of key accounts
- Recurring revenue
- Strong
- 48% of revenue from service contracts
- Records
- Good
- Books reconcile to tax returns
Recommended path
Take some money off the table
Partial liquidity
Service contracts support financing today. Keeping a stake while key accounts move to a general manager protects the value the owner built.
What would change this: move key accounts to a general manager over 12 months to open a full sale to a partner.
Why not the other paths
- Sell to a partner now: The owner holds 70% of key accounts, so a full buyout today would be priced down.
- Sell on the open market: Possible, but owner dependence would widen the gap between the asking price and the offers.
- Not yet: Earnings and records are strong enough to act now, while the owner hands over accounts.