Many economists are looking at the economic policies of the Biden administration and concluding inflation is all but a foregone conclusion. Possibly. Regardless, we are already seeing HVAC equipment prices jump and gas prices rise. Here are seven things you can do about it.
Raise Prices Now
If you believe your costs will rise in the coming months, do not wait to raise your prices. Raise them now. Raise them to the level where you will maintain your targeted net profit under the anticipated costs structure.
Keep an eye on changes in prices and be quick to make adjustments. Pay attention to the commodity metal futures markets. They will signal what you can expect. Right now, they are signaling higher prices for products made from steel and copper.
Remember, Everything is Negotiable
Just because a manufacturer announces a price increase does not mean you have to receive said price increase. Negotiate. Figure out what you can do to justify holding off the price increase for your company. If you expect to grow, share your growth plans. Can you give a manufacturer a greater share of your business? Will the manufacturer pay you a rebate to offset the price hike? Can the price hike be offset by greater co-op with fewer restrictions or applied in creative ways?
Just because a manufacturer announces a price increase does not mean you have to receive said price increase. Negotiate
Floorplan
Except for some rural markets, floorplanning is not usually recommended. However, when prices are going up, it can make sense. This is especially true if there are early season specials. Remembering that everything is negotiable, ask the manufacturer to finance your floorplan. Do not forget to get the manufacturer to agree to rebalance the inventory after a few months, so that slow moving units are exchanged for better selling ones.
Consign
A financed floorplan is tantamount to consignment, so why not simply consign parts and inventory. If you are large enough, many suppliers will even provide vendor managed inventory solutions, which can further reduce costs since the supplier performs a warehouse manager function on-site.
If you operate under an S-corp or LLC, it is especially important to legally shield as much business income as possible.
If you do consign, try to lock in prices based on the day the inventory is delivered, no matter when you use it. While consignment is a benefit to you, it is also an effective enlargement of the supplier’s warehouse space. In that light, holding price levels constant is not so big of an ask.
Do Some Tax Planning
There is a good chance Congress will pass a major tax increase, likely to take effect in 2022. If you operate under a pass through tax structure such as an S-corp or an LLC, it is especially important to take steps to legally shield as much business income as possible. Work with a good CPA to explore every legitimate approach you can take. Work on this now. Make sure you are taking advantage of the ability to expense capital investments in the year of the purchase. In other words, push as many equipment and truck purchases to 2022 as possible.
Change Equipment Lines
Make sure you are buying from a distributor who values your business. If not, shop around. Remember, it’s the brand on the truck, not the brand on the box that matters. You can do well selling any brand you want. Can you get better pricing and/or better service from a different supplier.
Join a Buying Group
There are literally thousands of contractors who belong to one of the industry’s buying groups. These contractors get cash back on purchases in some cases, credits for training or services in others. If you do not belong to a buying group, you are paying more than your competitors. The playing field is not level.
Roundtable Rewards is the industry’s largest buying group. It is included with membership in the Service Roundtable. Join the Service Roundtable for $50 per month, without a long-term contract or commitment. Learn more at www.ServiceRoundtable.com or call 877.262.3341.