There is a lot involved with running an HVAC contracting company. At the risk of grave oversimplification, here are nine vital practices that will guide you as a business owner toward generating a sustainable, successful contracting business.
The first step in any business is to set goals for the company and define how you'll achieve them. Before you begin the number work, review and, if necessary, update your mission, your vision for the next five years, and your unique selling proposition.
What is your target for sales, gross profit, and net profit? Ideally, you are departmentalized and can break these down by department.
This is a seasonal business. Some months are better than others, so break it down by month. To achieve the revenue, how many service calls will be required? How many installations?
This leads to manpower requirements. How many technicians will you need? How many installers? How many salespeople? Remember to look at the calendar and make adjustments for holidays and weekends.
Of course, the calls won’t flow of their own accord. Well, some will. How many will you get based on repeat business from past customers? How many will you need to generate from marketing?
How many of the service calls will result in replacement leads? What percent of those will you close? How many additional installations will you need to generate from marketing efforts to reach your target? Given close rates for planned replacement sales, how many appointments are necessary?
Next, project your cash requirements by month. You know what you can expect to flow into the company from service and installation sales, what must flow out that is directly related to those sales, and what is required to cover overhead. Is the remainder positive or negative? If it’s negative for a month, where will you get the cash to stay open? Cash flow budgeting is important for all businesses, but especially companies with a strong commercial or new construction focus where payments come in lumps after the expenses are paid.
This planning process sounds overwhelming. It’s not. It’s a straightforward approach. It takes some homework and some tweaking to ensure the plan is internally consistent, but once you start an annual planning process, you will be surprised how often you hit your numbers.
It’s cliché, but failing to plan is a plan to fail.
Every month you should review full financial statements (many believe this should be done weekly). This includes your balance sheet, income statement, and cash flow statement. Calculate your ratios, especially your liquidity ratios. Companies do not close because they are not profitable. They close because they run out of cash.
In addition, you want to track other key metrics like gross profit, your average service call ticket, average installation sale, sales per co-worker, sales versus budget and last year, labor as a percent of service, labor as a percent of installations, service agreements customers as a percent of total active customers, and so on. Track these weekly or monthly.
Track incoming service calls, leads, service revenue, installation sales, new service agreements, non-renewal service agreements, total service agreements, and cash balance daily. Assign responsibility for the preparation of a daily dashboard to your bookkeeper. Look these over at the start of each day.
Most contractors hate going over the numbers. Still, it’s necessary. Pick one day a week, or one half of a day a week and devote it to analysis.