The 2026 Pro Forma Reality Check: Why Your SBA Revenue Projection Is Modeling a Market That No Longer Exists

Tax credits expired. Tariffs hit. Prices doubled. Here’s how to adjust your acquisition pro forma for the triple headwind — before your lender does it for you.

Your SBA lender wants a revenue projection for the next three years. You pull the seller’s trailing 12-month revenue — $2.4M — and project modest 3–5% growth. Standard approach. Reasonable assumptions.

Except the trailing revenue was earned in a market where homeowners got a $2,000 federal tax credit for upgrading to a heat pump, equipment cost half what it costs today, and a full system replacement was $7,000 instead of $14,000. That market ended on January 1, 2026.

Your pro forma is projecting revenue from a parallel universe. Here’s how to build one that reflects the market you’re actually buying into.

The Three Headwinds — and Why They Compound

Each demand suppressor is documented individually. The problem is they hit simultaneously, and their effects multiply rather than add.

Headwind 1: Section 25C Tax Credits Expired December 31, 2025

The One Big Beautiful Bill Act terminated Section 25C of the Internal Revenue Code, eliminating the $2,000/year tax credit for qualifying heat pumps, central air conditioners, and furnaces. Section 25D (30% uncapped credit for geothermal systems) was also terminated, except for geothermal heat pumps which retain the 30% credit through 2032.

What this means for revenue: The $2,000 credit was the primary financial incentive driving heat pump upgrades over conventional AC replacements. For a $13,000 heat pump installation, the credit reduced the homeowner’s effective cost to $11,000 — a 15% discount that tipped the decision from “maybe next year” to “let’s do it now.”

Quantifying the impact:

• States with electrification mandates (NY, CA, OR, CO, WA) will sustain heat pump demand regardless — mandates override price sensitivity
• States without mandates will see an estimated 15–25% decline in voluntary heat pump upgrades
• Conventional AC replacements aren’t affected, but they’re also lower-ticket ($8K–$11K vs. $12K–$16K for heat pumps)
• If your target derived 30% of install revenue from heat pump upgrades in non-mandate states, expect that segment to contract by $100K–$180K annually

For a deeper analysis of the Section 25C impact on HVAC acquisition targets, see our dedicated guide.

Headwind 2: Tariffs Added 25–50% to Equipment Costs

The IEEPA tariffs imposed 25–50% duties on steel, aluminum, and copper components — the raw materials in every piece of HVAC equipment. Recent modifications apply tariffs to the entire product value of equipment assembled in Mexico, effectively raising rates to ~25% on brands with Mexican manufacturing operations.

OEM price increases have followed:

• Carrier: 8% across residential lines
• Lennox: up to 10% residential, 8% commercial (effective May 18, 2026)
• Additional OEM surcharges ranging from 3–8%, some already partially rolled back

What this means for revenue:

• Equipment cost pass-through inflates trailing revenue. If the target passed through a 10% equipment price increase to customers, trailing 12-month revenue includes that inflation. But inflation-driven revenue is not demand-driven revenue — the same number of jobs at higher prices looks like growth on the P&L.
• Contractor margins may be temporarily inflated. Some companies added markup on top of the surcharge pass-through, temporarily boosting gross margin. When surcharges roll back (Lennox has already begun reducing them on select lines), those margins compress.
• Revenue per job is up, but job COUNT may be flat or declining. Your pro forma should separate price-per-job trends from job-volume trends. Rising revenue from fewer jobs is a very different business than rising revenue from more jobs.

Our guide on the tariff surcharge margin illusion breaks down how to separate real growth from inflation-driven revenue.

Headwind 3: System Prices Doubled Since 2019

The average residential HVAC system replacement cost has gone from $6,000–$8,000 in 2019 to $12,000–$15,000+ in 2026. This isn’t just tariffs — it’s the compound effect of multiple cost drivers over 7 years:

• Refrigerant transition (R-410A → A2L systems cost ~10% more)
• OEM consolidation reducing price competition
• Labor cost increases (HVAC tech wages up 18–22% since 2020)
• Supply chain disruption aftermath
• Now tariffs on top

The consumer response is measurable:

• 60% of homeowners are deferring HVAC work (Today’s Homeowner 2026 survey)
• 88% of HVAC jobs in Q1 2026 were repairs, not replacements (Housecall Pro 2026 Home Services Report)
• 77% of homeowners say rising costs are delaying or reducing project scope
• 43% of Americans can’t cover a $1,000 emergency expense (U.S. News 2026 Financing Wellness Survey)

A $14,000 HVAC replacement is now a major financial decision for most American households. It’s no longer an “of course we’ll replace it” conversation — it’s a “can we get one more year out of it?” conversation. And for acquisition buyers, that means the install revenue base that supports most HVAC valuations is structurally smaller than the trailing financials suggest.

See our analysis of the repair-first consumer shift for the full revenue model implications.

The Compound Effect: These Three Headwinds Multiply

Here’s why treating each headwind separately underestimates the impact:

A homeowner with a 15-year-old heat pump in a non-mandate state faces this decision in 2026:

• In 2024: Replace with a new heat pump for $13,000, get $2,000 tax credit, net cost $11,000. Tax credit makes the decision easy.
• In 2026: Replace with a new heat pump for $15,500 (tariff-inflated), no tax credit, net cost $15,500. That’s a 41% increase in out-of-pocket cost for the same upgrade.

At $15,500, many homeowners choose to repair. The repair generates $400–$800 in revenue. The replacement would have generated $15,500. That’s a 95% revenue reduction on that single customer interaction.

Multiply this decision across thousands of homeowners in your target company’s service area, and the trailing install revenue starts looking like a peak that won’t be repeated — not a baseline to project forward from.

The Pro Forma Adjustment Worksheet

Here’s how to build an honest revenue projection for a 2026 HVAC acquisition. Walk through each adjustment with your CPA and present the adjusted numbers to your SBA lender.

Step 1: Segment Revenue by Type

Pull the trailing 12-month P&L and break revenue into four categories:

If the seller’s books don’t separate these, use dispatch records or job-level data to estimate the split. A company that can’t tell you its revenue mix by type has bigger problems than pro forma accuracy.

Step 2: Apply the Tax Credit Adjustment (Residential Install Only)

If the target is in a non-mandate state:

• Identify the portion of residential install revenue that came from heat pump upgrades (vs. conventional AC or furnace replacements)
• Apply a 15–25% decline factor to heat pump install revenue
• Leave conventional replacement revenue unchanged (these homeowners aren’t choosing based on tax credits)

If the target is in a mandate state (NY, CA, OR, CO, WA):

• Minimal adjustment needed — mandates sustain heat pump demand regardless of credits
• Minor adjustment (5–10%) for homeowners who may delay despite mandate, choosing repair in the interim

Step 3: Normalize for Tariff-Inflated Pricing

• Compare the target’s average job ticket in Q1–Q2 2026 against the same period in 2024 (pre-tariff baseline)
• Isolate the price increase: is the higher ticket from more jobs, bigger jobs, or just higher equipment costs passed through?
• If the increase is primarily equipment cost pass-through, your revenue projection should model the job count forward, not the inflated ticket
• Also check for temporary surcharges that have already been rolled back or announced for rollback — those margins will compress

Step 4: Model the Install-to-Service Revenue Shift

The 88% repair job mix in Q1 2026 (per Housecall Pro) represents a structural shift, not a seasonal blip. Your pro forma should reflect a revenue mix closer to current reality than historical averages.

Adjustment:

• If the target’s historical mix was 60% install / 40% service, and the current market is trending toward 30% install / 70% service, model Year 1 at 40/60 (midpoint), Year 2 at 35/65, Year 3 at 30/70
• Recalculate gross margin at each mix level — service revenue typically generates 55–65% gross margin vs. 35–45% for installations
• This means total revenue drops but gross margin percentage improves — the business generates fewer dollars but more profitable dollars

Step 5: Stress Test the Adjusted Pro Forma

With all adjustments applied, check:

• Does the adjusted revenue support your SBA debt service? The DSCR requirement is typically 1.15–1.25x. If adjusted revenue drops DSCR below threshold, your loan is at risk.
• Does the adjusted revenue support your owner’s draw? After debt service, operating expenses, and a reasonable reserve, is there enough left for you to live on?
• What’s the recovery thesis? If your adjusted Year 1 revenue is 10–15% below trailing, when and why does it recover? The equipment bullwhip (excess R-410A inventory clearing by late 2027), interest rate cuts reducing financing barriers for homeowners, or the housing vintage replacement wave (homes built 2000–2006 hitting 20–25 years) are all valid recovery catalysts — but they need to be specific, not hopeful.

What This Means for Your Offer

A pro forma that honestly reflects the 2026 triple headwind will show lower Year 1 revenue than the seller’s trailing numbers suggest. That’s not a reason to walk away — it’s a reason to adjust your offer.

If the adjusted revenue is 10% below trailing:

• On a $2.4M revenue business valued at 4x SDE, a 10% SDE reduction drops the value by approximately $100,000
• Your offer should reflect the adjusted numbers, not the trailing numbers
• Present it to the seller clearly: “Your revenue was earned under tax credits that no longer exist and at equipment prices that are now tariff-inflated. Here’s the adjusted model.”

If the adjusted revenue is 15–20% below trailing:

• The conversation shifts from negotiation to structure. Consider seller financing with earnout provisions tied to actual post-close revenue performance.
• If the seller won’t budge on price, the deal may not work at current terms — and it’s better to know that before you sign the purchase agreement than after you’ve made three SBA payments on a business generating less cash than projected.

The Silver Lining: You’re Buying at the Trough

Every piece of bad news in this article is also good news — if you adjust your acquisition price accordingly.

• A market with 60% homeowner deferral has a deferred replacement pipeline that will convert eventually. Those 15-year-old systems aren’t getting younger.
• The housing vintage wave — 8 million homes built 2000–2006 entering the 20–25 year replacement zone — creates structural demand that’s independent of tax credits, tariffs, or pricing.
• Service revenue is more recession-resistant, higher-margin, and less seasonal than install revenue. A business that’s been forced to shift toward service may actually be more valuable on a margin basis than one that’s still heavily install-dependent.
• Interest rates will eventually decline, making both SBA financing cheaper for you and consumer financing more accessible for customers.

The key is buying at a price that reflects today’s market, not yesterday’s. A seller who quotes you a multiple based on 2024 revenue — when tax credits were active, equipment was cheaper, and consumers were willing to replace — is pricing a business that doesn’t exist anymore.

Your pro forma should tell the truth. If it does, you’ll negotiate a better deal, satisfy your SBA lender’s scrutiny, and avoid the cash flow surprise that kills first-time buyers in year one: the revenue they modeled never materializes because it was modeled from a market that expired.

Building an SBA pro forma for an HVAC acquisition? Lendesca provides resources for buyers navigating acquisition financing, including the market adjustments and stress testing that separate solid deals from wishful thinking.