$1.46M asking. $335K EBITDA. The multiple is the trap.

BY THE NUMBERS

Asking: $1,464,000

EBITDA: $335,000

Score: 1/5 — PASS

The Deal Snapshot

Industry: HVAC (residential install, maintenance, indoor air quality), national franchise brand

Location: Central Illinois

Established: 1996 (under franchise system)

Asking Price: $1,464,000

Gross Revenue: $4,545,000

EBITDA: $335,000

SDE: Not Disclosed

Employees: 19 full-time

Facility: 8,143 sq ft leased at $10,500/mo (about $126K/yr)

Financing: Seller financing available, SBA-eligible

Owner training: 2 weeks (plus franchisor onboarding)

Bulletproof Score Card

The 80/10/10 Deal Structure

Run this through the standard structure and watch what happens to the math. The SBA carries $1,171,200 at 10.5% over ten years. The seller carries $146,400 interest-only at 5%. You put $146,400 down on a 30-year HVAC operation with franchise infrastructure.

Your cash in: roughly $1,320,000 (down payment, three months working capital cushion, closing costs). That's almost equal to the asking price.

Your annual debt service: $196,860 (SBA $189,540 plus seller note $7,320)

Your annual cash flow before owner draw: $138,140 on disclosed EBITDA

Your owner cash flow after a $75K GM replacement: $63,140

I ran this through the Bulletproof calculator at DealScore Pro. The DSCR on disclosed EBITDA comes in at 1.70x. Stress it at a 20 percent revenue decline and it collapses to 1.36x. That's below where any disciplined buyer should go, and well below what an SBA lender will want to see after a real underwriting pass.

Now look at the missing line. The listing reports EBITDA but doesn't disclose SDE. On owner-operator deals, SDE is usually EBITDA plus owner compensation and discretionary add-backs. If we generously assume $120K of owner comp gets added back, SDE lands around $455K and the multiple drops to 3.22x. Still over the Bulletproof ceiling of 3.0x. Still in trouble on stress.

What's Working

Thirty years and a franchise system. Operating since 1996 under a major national brand means the playbook is built. Marketing assets, supplier relationships, technician training, software, and warranty backing all come with the territory. A first-time operator gets a real running start.

Real revenue, real headcount. $4.5M in top line with nineteen technicians is a serious operation. This isn't a route or a one-man book. The business survives the owner walking out the door tomorrow, which is the test most listings fail.

Recurring service agreements. HVAC service contracts produce predictable seasonal revenue. The customer base in central Illinois sits on aging housing stock with hot summers and cold winters — the demand curve doesn't care about the economy.

Seller is offering paper. Seller financing available is the line that tells you the seller is willing to stay accountable. That's leverage you can use in negotiation if any of this gets restructured.

Watch Out For

Multiple over the Bulletproof ceiling. At a 4.37x multiple on disclosed EBITDA, this is priced like a strategic acquisition, not an individual buyer's deal. PE roll-ups will pay 5-7x for HVAC right now. You can't compete with them on price. You compete by finding the deals they aren't fighting over.

DSCR breaks under stress. 1.36x stressed DSCR means a 20 percent revenue dip puts you within striking distance of missing debt payments. SBA lenders are tightening on exactly this number under SOP 50 10 8. The deal as listed isn't financeable on standard terms.

No SDE disclosed. A serious buyer doesn't accept an EBITDA-only listing on a sub-$2M deal. EBITDA can hide owner comp, family payroll, vehicle add-backs, and discretionary spending. Demand the SDE workup, the add-back schedule, and last three years of tax returns before you spend another hour on this.

Franchise royalty drag. Franchise systems usually take 5 to 8 percent of revenue as royalty, plus brand fund contributions. On $4.5M, that's $225K to $360K a year coming off the top before EBITDA. The listing doesn't break out the franchise economics. That gap matters.

Working capital is enormous. A $4.5M revenue business needs about $1.13M of working capital sitting in the operating account at close. Not disclosed in the listing. If the seller is walking with no working capital left behind, your cash in jumps from $146K to over $1.3M, which makes the payback math punishing.

The Analysis

Here's where the math gets honest. On the surface, this is exactly the kind of deal buyers tell me they're hunting. Established. Recurring. Franchise-backed. Real scale. Located in a market with stable demand.

Pull the structure and three of the five Bulletproof criteria fail.

Start with the multiple. At $1.464M on $335K of EBITDA, you're paying 4.37x. That's PE territory. The reason private equity pays that on HVAC is because they're rolling up four or five operators in a region and bidding the platform exit at 8-10x. They can pay a higher entry multiple because they have a different exit. You don't. Your exit is whatever a future buyer will pay, which means buying at 4.37x and selling at 3x is a guaranteed loss — even if the business doubles.

Then look at the DSCR. The Bulletproof method exists because I've watched smart people get crushed by debt service they assumed they could carry. A stressed DSCR of 1.36x means a single bad year takes you to the edge. Two bad years in a row — and HVAC has plenty of those, especially during housing downturns — and you're calling the lender.

I had a buyer in a midwest market last quarter ask me about a nearly identical setup. Franchise HVAC. Multi-million revenue. EBITDA in the mid-$300s. Listed in the high $1s. He'd talked himself into it on the franchise brand alone. We sat down with the franchise disclosure document and the actual royalty schedule. After royalty, brand fund, technology fees, and software licensing, the real cash flow available to service debt was eighteen percent lower than the listing implied. That kills the deal at the multiple they were asking. [ANECDOTE — verify/replace with specific story if available]

After 35 years of looking at these, the test that matters on a franchise resale is simple: get the actual franchise economics in writing before you spend another hour on diligence. Royalty percentage, marketing fund, technology fees, transfer fees, renewal fees, required capex on rebrand cycles. All of it. The listing tells you what the seller wants you to know. The franchise disclosure document tells you what you actually own.

That's the question every franchise buyer should ask before anything else.

If you want to make this deal work, you have three paths. One, negotiate the asking price down to roughly $1M, which puts the multiple inside Bulletproof range and rebuilds the DSCR. Two, demand SDE disclosure and a full add-back schedule — if true SDE lands closer to $500K, the math improves but doesn't pass. Three, walk. The fourth path — buying at list — isn't a path. It's a slow loss disguised as a Tuesday opportunity.

Run your own numbers through DealScore Pro before you push this any further — the franchise overlay alone can move the math by twenty percent in either direction.

Mike's Verdict: PASS

This scores 1 out of 5 on the Bulletproof criteria at the listed numbers. The multiple is over ceiling. The DSCR breaks under stress. Owner cash flow lands at $63,140 after a real GM replacement. The franchise economics aren't disclosed, and the working capital requirement isn't addressed. There's a real business underneath all of this — thirty years of operating history, nineteen technicians, recurring agreements, and a franchise system that does part of the work for you. But at $1.464M you are buying the seller's story, not the math. If the price drops by $450K and the seller leaves working capital at close, the conversation changes. At the current ask, walk.

What This Means For You

If you're hunting HVAC right now, anchor on stressed DSCR and the franchise disclosure document before the headline EBITDA. Most franchise resales priced over 3.5x are priced for PE buyers, not individuals — and competing with PE on price is a losing game.

Want to see how I stress-test every deal against cost shocks, revenue dips, and hidden liabilities before I'd put a dollar at risk? I walk through the entire Bulletproof method in a free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.