Thankfully, the election is finally over. Americans, it appears, voted for more of the same. We’ve got the same guy in the White House. We’ve got his party in the Senate. We’ve got a different party in the House. Here’s what you can expect as a result of this election and what you should do for your business.
What to Expect
Knowing what to expect from the election will help you plan your future and determine your responses. No election is as important to your company as you are. Nothing Washington does will match or nullify your own initiative, effort, and decisions. Remember, you control your destiny. The only way anyone else can control it is for you to give it away. Here are five things to expect…
1. Expect Gridlock
Nothing much will happen legislatively, which isn’t the worst outcome. Personally, I like Congress more when it’s out of session than when it’s in session. In this regard, the rest of the country could learn a little from Texas. The Texas legislature only meets every other year for 140 days, minimizing the potential damage. In Texas, the legislators are only paid $7,200 per year and offered a $150 daily per diem when in session. That wouldn’t cover room service for our Senate Majority Leader (he lives in the DC Ritz Carlton). Since our congressional representatives seem to have an uncanny knack for increasing their net worth from virtually nothing to multi-millionaire status after a few years of “public service,” why pay them anything?
I digress. The chance of compromise for the next two years is slim. The president hasn’t shown much inclination to compromise in his first term, preferring to bludgeon opponents. Expect a lot of bludgeoning aimed at the opposition controlled House.
2. Expect an Activist Bureaucracy
The inability to get much done legislatively won’t restrain the White House. The president can accomplish a lot of his agenda through Executive Orders. He can get more done through the bureaucracy, which is largely unaccountable. Expect more red tape and hidden costs.
3. Expect Taxes to Rise
The Bush tax cuts are set to expire. One of the few substantive promises the president made during his campaign was that he would tax the rich (though he really means taxing the productive, not the wealthy). This will be interpreted as a mandate. The House will likely roll over and taxes will rise on the most productive citizens, earning the highest incomes. If the House leadership discovers a spine, taxes will rise across the board as the Bush tax cuts expire, allowing the president to blame the House (i.e., he’ll bludgeon the House). Raising tax rates won’t boost tax collections (see my Contracting Business column, “Why Tax Rates Really Do Matter”), though it will make the envious feel better.
4. Expect to Pay More for Energy
Don’t expect much effort expended on the exploitation of domestic fossil fuel energy. There will be drilling on private lands, but not federal. The feds will attempt to shift the energy mix of the nation away from coal and towards renewables, making electricity more expensive and less reliable.
Despite a weak global economy, gasoline prices doubled during the president’s first term. Not all of the increase can be attributed to his policies, but much can. Lowering the price of fuel doesn’t seem to be important to the administration and might even be seen by some as beneficial since it reduces driving and encourages the purchase of hybrids and electric vehicles.
5. Expect Inflation
Fiscally, the United States is imitating Greece. Ultimately, there are three possible responses the government can make. First, they can raise taxes stratospherically, by increasing marginal rates, implementing a value added tax, and imposing taxes and fees across the board. Second, the feds can slash government spending. Third, the feds can reduce the size of the debt through inflation.
Taxes will be boosted in every possible way that gridlock will allow, but they won’t make enough of a difference. Cut spending? Yeah, right. That leaves inflation. Expect the cost of everything to rise as the purchasing power of the dollar declines.
What You Should Do
Remember, nothing Washington does or doesn’t do will affect your business as much as you personally affect it. You can make the decisions and put forth the effort that leads to greater prosperity or you can take your business down. That’s the dichotomy. Increasingly, muddling along will not be an option.
Normally, I agree with the adage, “If you do what you’ve always done, you’ll get what you’ve always got.” These aren’t normal times. If you do what you’ve always done now, you’ll get less.
Here are five things you should do…
1. Price Higher
Your prices have gone up and will continue to rise. Don’t absorb the cost increases. Pass them along to your customers. If your customers balk, find new ones. While this is easy to say and hard to do, the alternative is subsidizing your customers. The alternative is unacceptable.
2. Expand Your Offering
What should you sell when energy is getting more expensive and electricity is getting less reliable? If you do not offer solar, this is the time to add it. Let your customer decide if he wants it or not. Don’t decide for him. Offer a solar option with every replacement.
Offer standby generators. Our regional electric reliability grids are witnessing shrinking reserve margins, leading to more frequent and sustained blackouts from extreme temperature, weather events, and power plant breakdowns. Market natural gas generators to your customers every quarter.
3. Join a Buying Group
With costs increasing, you will have to buy smarter. Just as the HVAC industry evolved and accepted the retail sales channel (e.g., Home Depot, Costco, etc.), it’s also evolving and accepting contractor buying groups. Several are available and all reduce your costs. Join one.
4. Tweak Your Fleet
Are you prepared for $6/gallon gas? How about $8/gallon? Probably not. Who is? However, if you were to prepare for it, what would you do? How would your vehicle mix change? Would your maintenance procedures change? If your fleet is large enough, would you consider propane or NGV? What could you do to reduce the impact of even higher fuel prices?
Think through the answers and start working on it now. If higher prices come, you’re ready. If not, you still lower your marginal cost of business.
5. Upgrade Your Business Practices
Over the past four years, the industry’s better contractors have not only weathered the economy, they’ve thrived. In part, this is due to aggressive marketing. When it became harder to find a customer, the competition tried to save its way to prosperity. In contrast, top contractors increased their marketing spend dramatically. As a result, they are enjoying double digit year-over-year growth with double digit net profit.
Marketing doesn’t tell their whole story. These companies also seek and implement industry best practices. The owners work “on” the business, not “in” it. They work on improving business practices and processes. The processes keep the business running even when the personnel turnover. They are process driven, not personality driven. Make your business one of these.
Tough times squeeze the middle the most. You can see it in the larger economy where the middle class is under increasing pressure. The squeeze also affects HVAC contractors. Contractors at the top take share from the middle. Contractors at the bottom multiply and take share from the middle. The middle loses share and contracts.
Going forward, you have a decision to make. Do you want to become one of the contractors at the top or face a continuing and unrelenting squeeze? If you join the contractors at the top, you can forget all about the election.
To learn more about HVAC’s largest buying group, adding an easy bolt-on solar solution, or business best practices, contact the Service Roundtable at 877.262.3341.