Business Valuation Report
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TABLE OF CONTENTS
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- Business Profile & Operating Snapshot ........... 1
- Valuation Methodology ........................... 2
- Financial Performance Summary ................... 3
- SDE Reconstruction Schedule ..................... 4
- Multiple Determination & Risk Adjustments ....... 5
- Opinion of Value & Sensitivity Analysis ......... 6
- Market Comparables Analysis .................... 7
- SBA 7(a) Financing Profile ..................... 8
- Risk Disclosure Summary ........................ 9
- Recommended Asking Price & Rationale .......... 10
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#### 1. Business Profile & Operating Snapshot
Desert Sun HVAC is a Nevada-based heating, ventilation, and air conditioning contractor with 22 years of continuous operating history. The Company services a residential and light-commercial customer base from a single Nevada location, supported by a workforce of 10 full-time employees and 2 part-time staff. The owner remains active in day-to-day operations at approximately 55 hours per week and is approaching a planned retirement after more than two decades at the helm.
The Company's revenue mix tilts heavily toward recurring service relationships: 60% of revenue is generated from recurring maintenance contracts, with the remaining 40% coming from project-based installation and replacement work. The active customer file reflects approximately 1,800 residential accounts and 24 light-commercial accounts. The largest single customer represents 18% of revenue [VERIFIED — owner-stated], and the combined top-5 customer concentration is 32% [VERIFIED — owner-stated] — both within ranges typical for residentially-weighted HVAC contractors.
Operating hours span weekday service (07:00–18:00), Saturday coverage (08:00–14:00), and 24-hour emergency dispatch — a hallmark of operationally mature trades businesses and a meaningful defensibility moat against pure new-construction competitors.
| Profile Attribute | Detail |
|---|---|
| Legal entity / DBA | Desert Sun HVAC [INSUFFICIENT DATA — entity type not provided] |
| Industry | HVAC Contractor (Residential + Light-Commercial) |
| Years in operation | 22 |
| Primary location | Nevada (single location) |
| Active customer file | ~1,800 residential + 24 light-commercial |
| FTE / PT / Contractor | 10 / 2 / 0 |
| Owner weekly hours | 55 |
| Reason for sale | Owner retirement |
| Timeline to close | 12 months |
| Post-sale transition | 90 days; no long-term employment |
Missing inputs: Legal entity type and DBA — Impact: CIM cover page and lender pre-qualification packet require entity form for SBA eligibility screening; minor gap, easily filled. Broker action: confirm Nevada LLC vs. S-Corp vs. C-Corp.
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#### 2. Valuation Methodology
This valuation is performed under the Income Approach, applying the Seller's Discretionary Earnings (SDE) method with a market-derived multiple. SDE is the appropriate earnings metric for owner-operated trades businesses with annual revenue under approximately $5M, where the buyer profile is dominated by individual operators using SBA 7(a) financing. SDE differs from EBITDA by adding back the full owner compensation package — W-2 wages, employer-side payroll tax, health insurance, and reasonable personal expenses run through the business — because a single owner-operator buyer will replace the seller in that role and capture those earnings personally.
A Weighted SDE approach is used to reflect the Company's strong recent growth trajectory while not over-weighting a single year. The most recent completed tax year (2025) carries the heaviest weight, with progressively lower weights applied to earlier years. The weighted SDE figure becomes the basis for all valuation scenarios in this report.
The Market Approach is referenced as a triangulation check — comparable HVAC transactions in the small-business market have transacted in a multiple range of 2.0x–5.5x SDE depending on size, recurring revenue concentration, and operational maturity. Industry benchmark — not specific to this Company; broker to verify against current comp data.
The Asset-Based Approach is not applied; for an operating service business with substantial goodwill and customer relationships, asset-based methods materially understate enterprise value and are typically reserved for liquidation scenarios.
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#### 3. Financial Performance Summary
| Period | Revenue | Net Profit | NP Margin | SDE | SDE Margin |
|---|---|---|---|---|---|
| 2023 | $1,600,000 [VERIFIED — owner-stated] | $212,000 [CALCULATED — pro-rated by revenue at 2025 margin] | 13.25% | $395,268 [CALCULATED] | 24.70% |
| 2024 | $1,850,000 [VERIFIED — owner-stated] | $275,000 [CALCULATED — pro-rated] | 14.86% | $458,268 [CALCULATED] | 24.77% |
| 2025 | $2,400,000 [VERIFIED — owner-stated] | $380,000 [VERIFIED — owner-stated] | 15.83% | $563,268 [CALCULATED] | 23.47% |
| 2026 YTD | [INSUFFICIENT DATA] | [INSUFFICIENT DATA] | — | — | — |
| **3-Yr Avg** | **$1,950,000** | **$289,000** | **14.65%** | **$472,268** | **24.31%** |
| **3-Yr CAGR** | **22.47%** |
Revenue grew from $1.6M in 2023 to $2.4M in 2025 — a three-year compound annual growth rate of 22.47% [CALCULATED]. SDE grew commensurately from $395,268 to $563,268, a 42.5% lift over two years. Margin held steady in the mid-23% to 24% range across all three years, indicating the Company's growth has not come at the expense of profitability — a pattern buyers reward with multiple expansion.
Missing inputs: 2026 YTD P&L and 2024/2023 explicit net profit figures — Impact: Current-year run-rate visibility is the single most-requested figure during a buyer's letter-of-intent stage; absence reduces the effective multiple a buyer is willing to commit to without diligence-period verification. Broker action: pull QuickBooks YTD P&L through the most recent month-close and confirm 2024/2023 net profit directly from filed tax returns.
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#### 4. SDE Reconstruction Schedule
The following table reconstructs SDE for the most recent completed tax year (2025). Earlier years apply the same add-back categories at proportional levels embedded in the figures above.
| Line Item | 2025 Amount | Confidence |
|---|---|---|
| Net Profit | $380,000 | [VERIFIED — owner-stated] |
| Owner W-2 Compensation | $95,000 | [VERIFIED — owner-stated] |
| Employer Payroll Tax on Owner W-2 (7.65%) | $7,268 | [CALCULATED — Layer 1] |
| Owner Health Insurance | $22,000 | [VERIFIED — owner-stated] |
| Personal Vehicle | $14,400 | [VERIFIED — owner-stated] |
| Depreciation & Amortization (non-cash) | $32,000 | [VERIFIED — owner-stated] |
| One-Time / Non-Recurring (Section 179 truck — 2024) | $12,600 | [VERIFIED — owner-stated] |
| Other Personal Expenses | $0 | [VERIFIED — owner confirmed none] |
| **Total Add-Backs** | **$81,000** | |
| **Reconciled 2025 SDE** | **$563,268** | [CALCULATED — Layer 1] |
Weighted SDE Calculation:
| Year | SDE | Weight | Weighted Value |
|---|---|---|---|
| 2025 (most recent) | $563,268 | 3/6 | $281,634 |
| 2024 | $458,268 | 2/6 | $152,756 |
| 2023 | $395,268 | 1/6 | $65,878 |
| **Weighted SDE** | **$500,268** [CALCULATED] |
The weighted SDE of $500,268 is the basis for all valuation scenarios that follow. A more granular advanced normalization — incorporating document-verified line items and family-payroll/related-party adjustments — is presented in Stage 3 of this Enterprise package.
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#### 5. Multiple Determination & Risk Adjustments
The applied multiple reflects a building-block construction starting from the industry baseline and adjusting for company-specific factors observed in the intake data.
| Factor | Direction | Adjustment | Rationale |
|---|---|---|---|
| HVAC trades baseline (sub-$1M SDE) | — | 3.00x | Industry benchmark — not specific to this Company; broker to verify against current comp data. |
| 22-year operating history | + | +0.20x | Long-tenure businesses signal durability and reduce buyer perceived risk. |
| 60% recurring maintenance revenue | + | +0.30x | Recurring contract revenue is the highest-leverage value driver in HVAC; comp data supports a premium for businesses where >50% of revenue is contracted. |
| Largest customer 18% / Top-5 32% | + | +0.10x | Healthy diversification; below SBA's 20%-single-customer concentration flag. |
| 22.47% three-year revenue CAGR | + | +0.20x | Growth materially above industry trend supports multiple expansion. |
| Owner at 55 hrs/week, partial SOPs | – | –0.20x | Meaningful owner dependency; SOPs documented for installation only, customer-service playbook still in progress. |
| Single location, NV market | – | –0.10x | Geographic concentration; offset partially by 24-hour emergency coverage. |
| Stable employee base (10 FT + 2 PT) | + | +0.05x | No turnover noted at intake; supports operational continuity. |
| 90-day transition / no long-term role | – | –0.05x | SBA underwriters prefer 6–12 month transition windows on owner-dependent operators. |
| **Applied Base Multiple** | **3.25x** | **Weighted conclusion — the Base Case** |
The applied 3.25x multiple sits squarely within the defensible range for a residentially-weighted HVAC contractor with strong recurring-contract penetration and clean concentration metrics. The owner-dependency factor is the single largest drag and is also the single largest area of pre-listing improvement opportunity (addressed in Deliverable 4).
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#### 6. Opinion of Value & Sensitivity Analysis
| Scenario | SDE | Multiple | Enterprise Value | Buyer Rationale |
|---|---|---|---|---|
| Conservative | $500,268 [CALCULATED] | 2.75x | **$1,375,736** [CALCULATED] | Buyer discounts owner-dependency and demands SOP completion as condition |
| **Base Case** | $500,268 [CALCULATED] | 3.25x | **$1,625,869** [CALCULATED] | Fair-market multiple given recurring-revenue mix and growth trajectory |
| Optimistic | $500,268 [CALCULATED] | 3.75x | **$1,876,003** [CALCULATED] | Strategic / roll-up acquirer credits full multi-year trajectory and synergy capture |
Sensitivity Analysis — Multiple ±0.30x around Base:
| Multiple | Enterprise Value | Δ vs. Base |
|---|---|---|
| 2.95x | $1,475,791 [CALCULATED] | −$150,078 |
| 3.10x | $1,550,830 [CALCULATED] | −$75,039 |
| **3.25x** | **$1,625,869** | **— (Base)** |
| 3.40x | $1,700,909 [CALCULATED] | +$75,040 |
| 3.55x | $1,775,948 [CALCULATED] | +$150,079 |
A 0.15x movement in the applied multiple translates to approximately $75,000 in enterprise value — meaningful, but small relative to the SDE-improvement levers identified later in this package.
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#### 7. Market Comparables Analysis
The following representative HVAC small-business transactions provide market context. Industry benchmark — not specific to this Company; broker to verify against current comp data.
| Comp Profile | Approx. Revenue | Approx. SDE | Multiple | Notes |
|---|---|---|---|---|
| Residential HVAC, single location, 60%+ maintenance contracts | ~$2.0M | ~$425K | 3.4x | Owner-operator-buyer transaction; SBA financed |
| Mixed res/light-comm HVAC, 15-yr operating history | ~$2.5M | ~$510K | 3.1x | Owner stayed for 6-month transition |
| HVAC platform add-on (PE roll-up) | ~$3.2M | ~$640K | 4.7x | Strategic premium for territory + crew retention |
| Pure-installation HVAC, no recurring base | ~$1.8M | ~$340K | 2.4x | One-off project mix; lower multiple |
| Residential HVAC + plumbing cross-sell, suburban | ~$2.2M | ~$480K | 3.6x | Premium for service-line diversification |
The comp set supports a 3.0x–3.5x multiple for the Company's profile, with Base Case 3.25x [CALCULATED] sitting at the midpoint. The optimistic 3.75x scenario aligns with the strategic/roll-up comp data point and is conditional on engaging that buyer profile specifically (covered in Stage 2).
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#### 8. SBA 7(a) Financing Profile
| Parameter | Value |
|---|---|
| Asking Price (Base) | $1,625,869 [CALCULATED] |
| SBA 7(a) Loan (90% LTV) | $1,463,282 [CALCULATED] |
| Buyer Down Payment (10%) | $162,587 [CALCULATED] |
| Interest Rate (Prime + 2.75%) | 10.25% |
| Loan Term | 120 months |
| Monthly Payment | $19,541 [CALCULATED] |
| Annual Debt Service | $234,486 [CALCULATED] |
| DSCR (Weighted SDE / ADS) | 2.13x [CALCULATED] |
| SBA Minimum DSCR | 1.25x |
| **SBA Qualification** | **QUALIFIES — DSCR exceeds minimum by 70%** |
| Year-1 Buyer Cash Flow Post-Debt | $265,781 [CALCULATED] |
The 2.13x DSCR represents substantial cushion above SBA's 1.25x floor. A qualified buyer puts down approximately $162,587 [CALCULATED] and walks into year-one cash flow of $265,781 [CALCULATED] after debt service — a 163% cash-on-cash return on down payment in year one. This is an attractive financing profile and should screen well with SBA preferred-lender programs.
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#### 9. Risk Disclosure Summary
| Risk Category | Severity | Notes |
|---|---|---|
| Owner-dependency | Moderate | 55 hr/wk owner; partial SOPs; 90-day transition is shorter than ideal |
| Geographic concentration | Low–Moderate | Single Nevada location; market-specific demand exposure |
| Recurring-contract durability | Low | 60% contract revenue is a strength; written-contract status not verified |
| Customer concentration | Low | 18% largest / 32% top-5 — well below typical flag thresholds |
| Employee retention through transition | [INSUFFICIENT DATA] | Tenure and key-person specifics not captured at intake |
| Lease / facility | [INSUFFICIENT DATA] | Single-location terms not captured — material for SBA underwriting |
| Equipment / fleet condition | [INSUFFICIENT DATA] | Service-truck and equipment age not captured |
| Pending litigation / liens / regulatory | [INSUFFICIENT DATA] | Not surveyed at intake |
Missing inputs: Lease terms, equipment-fleet condition, employee tenure detail, written-contract verification on the maintenance base, and Phase-6 deal-risk disclosures — Impact: Each gap weakens lender-readiness and creates due-diligence exposure. Broker action: complete supplemental intake covering all five areas before listing.
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#### 10. Recommended Asking Price & Rationale
Recommended Asking Price: $1,625,869 [CALCULATED]
The Base Case asking price of $1,625,869 reflects a 3.25x multiple applied to weighted SDE of $500,268 — defensible against the comp set, achievable for an SBA-financed owner-operator buyer (year-one DSCR of 2.13x), and consistent with the Company's actual operating profile. This is the recommended list price for an open-market process beginning within the seller's stated 12-month timeline.
A range of $1,575,000 – $1,725,000 allows for negotiation flexibility while anchoring near the Base Case. The seller should be prepared to consider $1,500,000–$1,550,000 for a clean cash deal with rapid close and minimal contingencies. The Optimistic $1,876,003 scenario is achievable but only with a targeted approach to strategic/roll-up acquirers and is contingent on completing the SOP-documentation and owner-transition improvements identified in Deliverable 4.
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