Buying Then Losing a $2.1m HVAC Business | Dan Burnside Interview

Deal facts

purchase price

$2.1m

multiple

less than 3x SDE

sde ebitda

EBITDA ~$800k (stated; actual post-close significantly lower)

revenue

$2.1m (prior year revenue)

financing structure

SBA loan (10% equity down, no seller financing; seller received full payout); $400k revolver also tapped during operations

notes

Seller retained the building; Dan rented it. ~15% of revenue was from illegal plumbing work. Additional ~15-25% of EBITDA was from unreported cash payments to employees. SBA timed with Silicon Valley Bank collapse which delayed closing. Seller reneged on promised 3-month training period, giving only 2 weeks.

Why this business

Dan was drawn to HVAC because of his belief that the world is only getting hotter and demand would grow. He wanted to avoid competing with private equity roll-ups happening in major metros, so he targeted rural markets with lower competition. He also had some hands-on mechanical background (wiring security systems, working at Jiffy Lube and CarMax) and was looking to build equity rather than trade time for money. Colorado was convenient because his parents lived 3.5 hours away.

What's working

• Built a strong referral relationship with a local general contractor (Craig) that accounted for about a third of revenue in year two
• Partnered with a local electrician for reciprocal referrals on complementary work
• Enrolled in a state-funded LEAP/crisis intervention program for furnace replacements, which became 21% of winter revenue in year two
• Obtained master mechanical contractor license in 18 months (typically takes 5 years), opening up state-funded commercial bidding outside his region
• Automated office functions, reducing from three office staff to one through software and process automation
• Reduced working capital needs by ~$100k through inventory rationalization

What's hard

• Seller reneged on 3-month training commitment one week before close, leaving Dan with only 2 weeks of handover
• 15% of revenue came from illegal plumbing work that had to be immediately discontinued
• Key employee (John, the only refrigeration-certified tech) was already building a competing business and left immediately, taking a third of profits and the hospital as a client
• Competition tripled in week one: the sole competitor's employees split off and started four new competing businesses, all underbidding Dan who had SBA debt service to cover
• The summer Dan bought was the coolest in nearly 25 years (La Nina), devastating AC demand—no 100-degree days until September, normally multiple from May
• Up to 25% of EBITDA had been paid to employees as unreported cash; Dan could not replicate this and employees were unhappy
• Former owner's son (the only other refrigeration tech) was hostile and resistant to any changes; threatening to quit gave him outsized leverage
• Rural community was extremely difficult to break into as an outsider; marketing was nearly useless since relationships drove business
• Rural internet (Starlink latency issues) and lack of cell coverage hampered technology adoption
• Employees violently resisted even minor tech changes like a digital time clock app
• Large portion of the historical EBITDA came from COVID-era school renovation funds that dried up exactly when Dan bought
• Accounts receivable became severely delinquent in year two as inflation hit the low-income rural customer base
• Trump administration cut the federal LEAP furnace program that had become 21% of winter revenue
• Family suffered greatly: wife and kids isolated in a 400-person Hispanic farm-worker town, daughter struggled in kindergarten as the only non-local child, family eventually separated with wife and kids moving to Colorado Springs
• Dan never took a salary in the first 9 months; eventually had to take a second full-time job as an analytics consultant to survive
• Filed personal bankruptcy; gained roughly 70 lbs from stress during the process

Notable quotes

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