Originally published as a featured column in the July/August 2025 Issue of Indoor Comfort Marketing.
As we move into the summer planning season, business owners in the fuel distribution and HVAC industry commonly focus on growth either organically or through acquisition, improving profitability, or preparing for external financing. Whether you’re talking to banks, private capital firms or acquisition prospects, it’s important to understand you are always being quietly evaluated. That means having your house in order is no longer optional—it’s essential.
In my role as both an investor and advisor to businesses in this space, I’ve seen the same challenges surface time and again. It’s completely understandable that small business leaders get caught up in the day-to-day grind and lose focus on long-term strategy. But it’s that lost focus that will complicate things for you down the road. If this sounds familiar to you, or you’re preparing to raise capital or pursue a deal, here are some of the most common (and avoidable) mistakes business owners should work to avoid in 2025.
Weak or Slow Financial Reporting
It may sound simple, but many businesses still struggle to produce timely and accurate monthly financial statements. Without this, you’re flying blind. Worse, if a bank or investor asks for financials and you take weeks to respond—or provide incomplete information—it raises red flags.
Monthly variance reports compared to budget aren’t just accounting exercises. They tell a story about how well your business is managed and whether there’s discipline behind your numbers and the actions you take. Inconsistent or delayed reporting undermines your credibility and can derail financing conversations before they even begin.
Not Understanding Key Financial Metrics
You don’t have to be a seasoned CFO, but if you’re leading a business and negotiating with a lender, investor, or acquisition target, you need a solid grasp of your company’s working capital, leverage, and fixed charge coverage ratios. Demonstrating this fluency and putting forth a reasonable request builds confidence with capital providers, who often operate within defined lending or investment frameworks.
And due to the unique characteristics of the fuel distribution and HVAC industry, common criteria that banks use may give a false reading that masks the true strengths of your business. For example, companies experiencing organic growth over decades may fail to meet equity or tangible net worth requirements which disqualify you if you don’t proactively explain why they may not be an accurate measurement of our industry. Understanding these requirements—and your company’s position relative to them—helps you stay ahead of potential issues that could derail your growth plans. A
good accountant or advisor can help you frame your business in the best possible light.
Focusing Solely on Sales Instead of Value Creation
Many owners focus on top-line growth without assessing which business lines actually create the most long-term value. In this industry, services like HVAC repair and propane delivery often command higher multiples in sale or financing scenarios than traditional fuel oil. Substandard margins and a low proportion of recurring revenue streams can turn off partners and potential investors.
Rather than chasing low-margin volume or low-demand business lines, take time to understand what buyers and capital partners value most. Are you investing in the areas of your business that will generate the best return? Analyze the best use of capital and shift resources to lines that not only grow profits but also maximize potential enterprise value. If you are unsure what maximizes value, consult with your advisors.
Struggling to Meet Bank or Vendor Terms
If you’re having trouble meeting loan covenants or vendor payment schedules, that’s a sign of underlying problems that need to be addressed—not ignored. Adjusting your cost structure, pricing strategy, or margin targets can relieve pressure and restore confidence.
It’s especially important to stabilize cash flow before pursuing an acquisition. If your base business is not healthy, layering on debt or operational complexity to tackle an acquisition will only make things worse. Capital partners want to see consistent baseline performance and enough cushion in your numbers to weather the unexpected.
Choosing Capital Partners Who Don’t Understand Your Industry
Not all investors or lenders are created equal. In recent years, many new entrants—especially private equity firms—have been drawn to the recurring revenue and consolidation potential in our industry. But generalist investors may not understand the volatility driven by weather, commodity prices, seasonality or the potential impacts of emerging state environmental regulations, causing instability in your financial support when the tides shift.
The right capital partner brings more than just money. They bring industry insight, help you find growth opportunities, identify talent, and navigate challenges. A conservative or misaligned partner could hold you back, or pressure your company with unrealistic expectations where industry-savvy partners would not.
Failing to Act on Known Weaknesses
Knowing your weaknesses is a start—but taking action is what matters. Whether it’s subpar gross margins, low employee productivity or poor cash conversion, demonstrating that you’re actively addressing problems builds trust with financial partners.
When capital providers see a leadership team willing to make difficult changes in pursuit of sustainable profitability, they’re far more likely to provide support, even during challenging cycles.
Lack of Flexibility in Deal Structuring
When it comes to acquisitions, valuation matters—but so does deal structure. Cash at close is just one part of the puzzle. In some cases, seller financing, earnouts, or equity rollovers can tip the scales in your favor during negotiations.
HVAC and fuel distribution deals often involve unique seller motivations—retirement, succession planning, or local market relationships. Understanding what matters to sellers (for example, keeping their brand or staff intact, providing an opportunity for continued equity participation or tax mitigation) allows you to craft more competitive offers without overpaying.
Final Thoughts: Build Momentum and Strength
Following a colder-than-normal winter in many regions, businesses across the HVAC and fuel sectors are coming off a strong season. Don’t simply enjoy the short-term fruits of your labor – use this welcome boost to make lasting changes that enhance value. Now is the time to invest in operational discipline and strategic clarity. The industry is consolidating rapidly, and those with strong financials, forward-looking leadership, and
reputable capital partners will be in the driver’s seat.
There’s an old saying that business leaders should “run their businesses like they’re planning to sell it.” Whether or not you’re planning to sell your business any time soon, you’ll benefit from avoiding these common mistakes. And you’ll have a stronger business —one that is resilient, growth-ready, and attractive to all stakeholders in an increasingly competitive market – as a result.
Jeff Simpson is the founder and managing member of Notch Capital, a private investment firm specializing in buyouts and recapitalizations of lower middle market businesses in the heating, cooling and home services industries. Notch Capital also provides advisory services to help these businesses strengthen their performance and analyze acquisitions.