Home services is the strongest category in this market and it has the single largest hidden trap in it. The trap is the license, and it is worse in Chattanooga than almost anywhere else in the country because the metro sits across a state line where the licensing rules do not line up.
Get that right and these companies sell well. Get it wrong and you find out in week nine of a deal that your buyer cannot legally do half of what your company does.
Why These Companies Sell Well
HVAC, plumbing, electrical, landscaping and pest control businesses carry the characteristics buyers and lenders both want: essential and non-discretionary work, repeat customers, the ability to raise prices with cost, and in many cases contracted recurring revenue.
Chattanooga adds a demographic tailwind that is specific and verifiable. Residential development has run ahead of commercial in two directions, north through Hixson and North River, and east through Ooltewah, Collegedale and East Hamilton. That pattern produces rooftops before it produces the service infrastructure to support them, and it is the reason a well-run trade business in those corridors has a growth story it can actually document.
The License Does Not Come With the Business
This is the section to read twice.
Tennessee requires a contractor license before contracting, bidding, or negotiating a price whenever the total project cost is $25,000 or more, administered by the Tennessee Board for Licensing Contractors. Subcontractors need their own license when contracting directly with a contractor to perform electrical, mechanical, plumbing, HVAC or roofing work at or above that same threshold. The state looks at the complete project cost including labor, materials and equipment, and separate phases, purchase orders or contracts cannot be used to get under the number. The license has to be held at the time of bid, not merely at signing.
The license attaches to a qualifying individual. If that individual is you, it walks out with you at closing.
The State Line Makes It Worse
Three of the six counties in this metro are in Georgia. A Chattanooga trade company almost always works both sides, because Fort Oglethorpe and Ringgold are fifteen to twenty-five minutes from downtown and the customers do not think of themselves as being in another state.
Licensure is required in both, and the reciprocity is uneven in a way that decides who can buy your company:
• Electrical. Tennessee and Georgia have a trade exam waiver arrangement, though the Tennessee business and law exam still has to be passed. This is the easy case.
• HVAC and plumbing. Georgia does not offer reciprocity here. A contractor licensed in Tennessee cannot perform compensated HVAC or plumbing work in Georgia without holding a Georgia license.
So if you run a plumbing company in East Ridge with 30% of your revenue in Catoosa and Walker Counties, your buyer needs a Georgia license to keep that 30%. If they do not have one and cannot get one quickly, they are buying a business 30% smaller than the one you are selling, and they will price it that way once they work it out.
What to Do About It Before You List
There are three workable answers and you should pick one deliberately:
• Move the qualifying credential to an employee who is staying. If a service manager or lead technician holds or can obtain the license, the business retains its own qualification independent of you. This is the cleanest solution and it takes time, which is why it belongs twelve months before a sale.
• Build the timeline into the deal. Structure a transition period long enough for the buyer to obtain licensure in both states, with you remaining as qualifier under a defined arrangement your attorney documents. This works and it lengthens your involvement.
• Market to buyers who already hold both. An existing operator on either side of the line, or a regional platform, may already be licensed in both states. This narrows the pool and can raise the price, because a strategic buyer with the licenses already in hand is buying pure revenue.
What does not work is leaving it unaddressed and hoping it resolves during diligence.
Who Buys These Companies
Home services draws the widest buyer pool of any category in this market, and the types want different things:
• The individual operator buyer. Frequently someone from the trade, or a manager from a larger company going out on their own. SBA financed, motivated, and constrained by the licensing question above all else.
• The corporate executive buyer. This market produces a real supply of them. Employment at Erlanger, BlueCross BlueShield of Tennessee, the Tennessee Valley Authority, Unum and Volkswagen runs into the thousands each, and a share of those people want to own an operating business without leaving the city. They bring capital and management ability and they need a strong number two who stays.
• The regional strategic buyer. An operator in Knoxville, Nashville or Atlanta expanding into the market, or a neighboring competitor. They frequently already hold the licenses on both sides of the state line, which removes the largest obstacle in the deal, and they are buying revenue where an individual operator is buying a job.
• The consolidator. Platforms buying in this category are real. They are demanding on financial reporting and on recurring revenue quality, and they price accordingly.
The practical consequence is that these businesses reward a properly run process more than most, because the four buyer types value the same company differently and only competition surfaces which one values it most.
Recurring Revenue Is the Other Half of the Value
The gap between a home services company with contracted maintenance agreements and one without is the largest single valuation spread in this category.
A signed agreement produces predictable revenue, gives the technician a reason to be in the house before the equipment fails, and converts into replacement work at a rate that cold leads never match. A buyer is underwriting future cash flow, and a contract is evidence. A customer list is not.
What a buyer will actually examine:
• How many agreements, and what is the renewal rate. Count and attrition, over three years.
• Are they transferable. Read your own agreement. Some contain terms that complicate assignment.
• What is the revenue per agreement, and what proportion of service and replacement revenue originates from agreement holders.
• Are they on automatic renewal and automatic payment. Both materially improve retention and both are visible in the numbers.
If you have informal relationships instead of agreements, converting them is the highest-return work available in the year before a sale. It is also slow, which is the point of starting early.
The Other Things a Buyer Tests
• Technician retention. In a tight labor market a crew that stays is a substantial part of what is being purchased. Expect questions about tenure, compensation against market, and whether your technicians hold their own licenses. Skilled trade labor is genuinely scarce here.
• Customer concentration. Residential work is naturally diversified. Commercial and new construction work concentrates fast, and a company with two builder relationships driving half its revenue carries a risk that belongs in the price.
• The mix of service against installation. Service and repair revenue is stickier and higher margin. Heavy new construction exposure is cyclical, and a buyer underwrites it as such.
• Fleet condition. Vehicles are a real capital line in this business. A fleet with three trucks past replacement is a deduction from the price, and a pattern of annual replacement is capital expenditure that will not survive as an add-back.
• Warranty and callback exposure. Rework rates and outstanding warranty obligations both get examined, and both are quantifiable.
Tennessee Tax and What You Keep
Tennessee has no state personal income tax and the Hall tax on interest and dividends was repealed for tax years beginning January 1, 2021. That does not mean the state takes nothing on a sale. Tennessee taxes entities: excise at 6.5% of net earnings, which starts from federal taxable income and therefore includes gain on an asset sale, and franchise at 0.25% of net worth with a $100 minimum. Corporations, LLCs, limited partnerships and business trusts are subject to both; general partnerships and sole proprietorships are not.
One item specific to equipment-heavy trade businesses: Tennessee assesses commercial and industrial tangible personal property at 30% of value, so a fleet and a well-equipped shop carry a recurring property tax cost a buyer will model. Your equipment sale itself generally falls within the casual and isolated sale exemption from sales tax, though the burden of proving it sits with the taxpayer.
What the Financials Have to Show
Trade businesses have a characteristic set of accounting problems, and every one of them costs money at closing if it is unresolved:
• Personal vehicles in the fleet. Ordinary, and a legitimate add-back, provided you can identify which vehicles and document the expense. If the fleet line is one undifferentiated number, a lender will not let you add any of it back.
• Equipment purchases treated as expense. Section 179 makes this attractive during ownership and confusing at sale. A buyer wants to see what is genuinely recurring capital expenditure and what was a one-time investment, and only the second is an add-back.
• Work in progress. Jobs started and not billed at year end distort the picture in both directions. Consistent treatment across three years matters more than which treatment you chose.
• Warranty reserve. Most small trade companies carry none. A buyer will impute one, and it comes out of the earnings a multiple is applied to.
• Owner labor. If you are still turning a wrench, that labor has to be replaced. A buyer values the business after paying someone to do what you do, and an owner who bills 20 hours a week is a larger adjustment than most expect.
Seasonality and How It Gets Underwritten
HVAC in particular has a revenue shape, with peaks in summer and winter and troughs in the shoulder seasons. Landscaping is more extreme. A lender assessing debt service coverage looks at whether the business carries its note in April, and an owner presenting only annual figures gets asked for the monthly detail anyway.
This is another place recurring maintenance agreements do real work, because agreement revenue lands in the shoulder months by design. A company with a strong spring and fall tune-up program has a flatter curve, and a flatter curve finances more easily and sells for more. That is a concrete financial reason to build the program a year before you sell.
The Twelve Months Before You Sell
• Solve the licensing question, in both states, deliberately.
• Convert informal customer relationships into signed, transferable maintenance agreements.
• Reconcile the books and separate personal vehicle and equipment spending.
• Document dispatch, pricing, warranty and callback procedures.
• Lock in the lease on the shop and yard.
• Review technician compensation against market, because a crew that leaves after closing is the buyer’s worst outcome and they will be looking for the risk.
Thinking About Selling?
Home services companies in this metro sell well when the licensing and the recurring revenue are both in order, and the work to get them there takes about a year. I would rather have that conversation early than be solving it inside a live deal.
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