Selling a plumbing, electrical or HVAC business in Canada

A plumbing, electrical or HVAC business is a phone that rings, a list of clients who call you first and a team with the tickets to do the work. Buyers pay for the calls that keep coming after you leave, so most of the work in selling is showing that the clients, the licence and the people will carry on without you. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a plumbing, electrical, HVAC, gas fitting or similar trades business ask the same questions early. Have clear answers ready before you list:

• The mix of work. How much comes from repeat service calls and maintenance compared with new construction and one-time installs.
• Maintenance plans. How many clients are on a furnace, boiler, backflow or service plan, what they pay and how many years they have renewed.
• The licence. Which contractor licences the business holds and who the qualified person on each one is.
• The team. Each tech's trade certificate, apprentices and their hours, and who plans to stay.
• Vans, tools and stock. What is on the road and on the shelves, its condition, and what is leased or financed.
• You. How many hours you still quote, dispatch, answer the phone and work on the tools yourself.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Service numbers that make sense

Pull sales by month for the last two or three years and split them into service, maintenance plans and install or construction work. Make sure the totals match your bank deposits and the sales on your tax and GST/HST returns. Cash jobs that never reach the books cannot be shown, so a buyer generally will not pay for them. If you pay yourself a wage or run a family vehicle through the business, list it clearly as an add-back with proof.

Repeat service and maintenance revenue is usually valued more highly than construction work, because it is more likely to carry on. A simple table helps: each maintenance plan client, the plan, the price and the year they started, plus your top commercial and builder clients with their share of sales. If one builder or property manager makes up a large share of sales, say so early. A buyer who finds it on their own will trust the rest of your numbers less.

Contractor licences and the qualified person

This is often the biggest question in a trades sale. Licences are usually held by the business but depend on a qualified person. In British Columbia, an electrical contractor licence from Technical Safety BC must name one designated Field Safety Representative, and the licence can only cover the class of that person's certificate. If you are the FSR and you are leaving, the buyer needs a qualified FSR ready to be named the day you step off, with no gap, or the licence can be suspended. Regulated gas work also needs a Technical Safety BC contractor licence, licensed gas fitters and a bond that stays in force.

Plumbing, refrigeration and other trades have their own certificate and permit rules, and every province has its own regulator. Write down every licence, bond, permit account and certificate the business relies on, who holds each one, and when it renews. Then ask the regulator how it is handled when the business changes hands. Our guide to transferring contracts, licences and permits has a wider checklist.

Open jobs, warranties and holdbacks

A trades business always has work on the go. List every open job at closing with the client, contract price, amounts billed and paid, deposits taken and the work left. A common approach is for the buyer to take on the open jobs, with the price adjusted for deposits and work in progress. These items are part of closing day adjustments.

On construction jobs, part of each payment is often held back for a time. In British Columbia, the Builders Lien Act generally requires a 10% holdback, and other provinces have similar rules. List each holdback owed to the business, the job and the expected release date, and agree who collects it. Also list the jobs still under your workmanship warranty and agree who handles callbacks, since an unhappy client will call the number on the van.

Maintenance plans and service agreements

Prepaid maintenance plans are money you hold for visits the buyer will make. List each plan with what has been paid and what visits are left. In an asset sale, written service agreements are with you, so they may need the client's consent to move to the buyer, and commercial contracts can include notice or change of control clauses in a share sale. Where a few commercial clients make up much of the value, buyers often ask for their consent before closing or tie part of the price to them staying, through an earn-out or a holdback.

Techs and apprentices

Clients often trust a particular tech, and certified techs are hard to hire, so buyers look closely at the team. Prepare a list of each person's role, trade certificate, pay, start date and written agreement, plus apprentices and their progress. Note any subcontractors you use regularly.

Employment law is provincial. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, which can affect vacation and length of service for staff who stay on. Ask your lawyer what you owe on closing, and plan when and how to tell the team. See what to tell employees.

Vans, tools and parts stock

Write a full list of each van with its year, kilometres and condition, plus major tools such as camera and locating gear, jetters, recovery machines and lifts. Note anything leased or financed, because those agreements need the lender's consent or must be paid out on closing; see selling a business with debt. Vehicle ownership must be transferred properly, and the buyer needs their own insurance from closing day.

Parts on the vans and in the shop are usually counted on closing day at cost; see selling a business with inventory. Also list the accounts that keep the phone ringing: the phone number, website and domain, Google business profile, dispatch and invoicing software, payment processor and supplier accounts with their pricing. If you rent a shop, see the commercial lease guide.

Client privacy and clearances

Client names, addresses, equipment history and billing details are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers and employees with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has agreed to use it only for the deal. Many sellers share totals and an anonymous client table first, under a confidentiality agreement, and the full list at closing. See telling customers when selling.

WorkSafeBC asks buyers to get a clearance letter before buying the assets of a firm, because unpaid premiums can lead to a lien. Keep your account current and expect the buyer to ask for a letter near closing. Other provinces have their own workers' compensation boards.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, vans, tools and stock. See asset sale vs share sale, goodwill when selling and taxes when selling a business. If you run the business on your own without a company, see selling a sole proprietorship.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. In British Columbia, PST generally applies to taxable goods in the sale such as vans, tools and parts, but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. See GST and PST when selling a business.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Who will be the qualified person on each licence after closing, and how do we avoid a gap?
• Which service agreements and maintenance plans can be assigned, and whose consent do I need?
• How should open jobs, deposits, prepaid plans and warranty callbacks be handled in the price?
• Who collects the lien holdbacks still owed on finished jobs?
• Which vans and tools are leased or financed, and should I pay them out on closing?
• How should we split the price between goodwill, vans, tools and parts?
• Can we use the section 167 election for GST/HST, and how are PST and WorkSafeBC clearance handled?

For more, read what your lawyer and accountant do. Running a mechanic shop instead? See selling an auto repair shop in Canada. Running a trucking or hauling company? See selling a trucking company in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.