Can You Handle Your Own HVAC Business?
September 13, 2010
Economic hard times have changed the overall landscape of business in America. Companies are learning to operate leaner and more efficiently and in the process, some have lightened their workforces to maintain profitability; others have lightened their workforces to survive. Leaving many skilled workers without a place to go, there is a growing trend of displaced workers starting their own businesses.
Knowing this, The NEWS began asking HVACR contractor owners what it took to start, maintain, and grow a successful HVACR business. The answers were diverse, but all seemed to agree that it took hard work and a lot more than they ever expected. According to these contractors, the entry fee was more than just a truck, a few customers, and some tools; and the price to stay in the game required a skill set beyond technical expertise. The risk is great and the rewards are great, but if an HVACR industry professional is considering a start-up company, it is imperative they ask themselves, “Can I really handle my own HVACR business?”
STARTING THE BUSINESSGut check time has passed and you have decided to start your own HVACR business. The question now is, “Why?” Many contractors choose to start their own business because they want to be their own boss and run the company their way. Over the years, what Russ Donnici, founder and president of Mechanical Air Service Inc. in San Jose, Calif., has found is that being the boss comes with great freedom and even greater responsibility.
“If someone is going to take on the responsibilities of owning and growing a business with good employees, they have an obligation to pay them well,” he said. “Unfortunately, most new businesses start out under capitalized and without enough business expertise. Running a solid company is a complex operation that requires constant evaluation and the willingness to adapt to changing market conditions.”
When Donnici began his business 34 years ago, his goal was not to get rich but to provide a valuable service to his clients. According to him, making money would be a byproduct of doing a great job.
“Integrity is key; never take customers from your former employer,” he said as he emphasized the importance of integrity when offering advice to fledgling contractor owners. His other piece of advice came as a warning.
“Most contractors start out as good technicians but not good businessmen, which ultimately can make the difference between success and failure. Success is not just keeping your doors open, it’s paying your employees well, paying yourself well, providing good benefits, saving and investing for retirement, and giving back to the community.”
MAINTAIN QUALITY PRACTICESOnce the business is up and running, creating and maintaining quality business practices is the next challenge contractor owners must work through. Although being the boss theoretically allows for flexible schedules and being the master of your fate, the responsibilities of maintaining a successful HVACR company can be all encompassing. As a jack of all trades, contractor owners of a start-up company often find themselves working in the field, in the office, and during their free time. Many have stories of their business attempts consuming them and causing damage to the balance between business and family. Avoiding this pitfall is possible, according to James Herndon, president of Controlled Conditions Corp. in Chesapeake, Va. One of the most important things contractor owners can do to avoid this pitfall is correctly define their role in the company and change their mindsets to reflect that new role.
“I am a manager and not an HVACR technician,” he said. “I think this is an advantage. I have friends in the business who are tradesman running their own business and they continually get sucked into the daily activities of doing the work, consequently ignoring the business side of the business.”
In an interview, Herndon outlined three other important concepts a successful business manager must grasp - solid business principles, adequate working capital, and an understanding of the actual cost of doing business.
“Lack of knowledge regarding the real cost of doing business can be a fatal mistake,” he said. “I recently had a discussion with an employee regarding a price we had provided to a customer for a small job. The employee thought the price was way too high, based on his pay rate. He did not understand that cost had to include insurance and other overhead expenses like training, office staff, trucks, fuel, etc.”
Thomas Spall, president of T.E. Spall & Son Inc. in Carbondale, Pa., encouraged contractor owners to face these daily business practices with optimism.
“As the owner, sometimes when dealing with what’s not going right in the company, I lose sight of everything that is going right,” he said. “I need to ground myself and remember that. My goal is to create a business that works for me, not because of me.”
GROWING SUCCESSFULLYWith the business running and the contractor owner spending more time in the office and less in the field, the new question that will inevitably come up is, “When is it time to grow?” The answer to this is often not as simple as many think. Popular opinion leans toward the philosophy of grow or die. There are contractors, however, that feel growth comes at a price, one they can choose not to pay.
Corey Hickmann, president of Comfort Matters Heating and Cooling Inc. in Hanover, Minn., plans to grow, “to a size that has proper management positions to run the company on their own with little input from me.”
John Sedine, president of Engineered Heating & Cooling in Grand Rapids, Mich., employs 32 people and said, “To go to the next level would be a monumental leap, and at my age I would rather be a manageable-size company making money rather than the biggest company struggling to survive. I know many folks who think the opposite and most are now gone.”
Tom Grandy, president of Grandy & Associates in Owensboro, Ky., agrees with Hickmann and Sedine in that growth is not an HVACR business owner’s rite of passage. He warned owners that there are distinct points of growth that can cause a contractor owner to go out of business.
The first is when the owner moves from the field to the office. “What a contractor must understand is that when he makes this move, his salary now becomes an overhead cost,” said Grandy. “To support that role, the company needs to raise its rates.”
The second level of growth that seems to cause owners some problems is when gross sales begin to measure approximately $750,000 to $1.2 million.
“At this point, there is usually not enough of the owner to go around and if the company is going to get any bigger he needs help, which will once again increase overhead,” he noted. “Quickbooks is not sufficient enough to provide the complete customer history that is now needed. More orchestration requires a dispatching and an inventory system. More services are now provided and the business needs to be further broken into sectors, which takes investment in fully integrated computer systems and someone to run them.”
All these investments in growth are considered to be good company investments, but each adds overhead. Contractor owners will likely struggle to reach profitability if they continue to grow without examining the rates charged and the growing overhead of the company. Grandy suggests that contractors take this into consideration not just at the early levels of business growth, but also when they begin to reach higher levels, especially $2.5, $5, and $10 million.
“If you are going to grow, you need to be doing better on the business side,” he said. “I suggest you examine price sheets every six months because the cost of doing business goes up with growth.”
GOT BUSINESS ADVICE?George “Butch” Welsch, president of Welsch Heating and Air Conditioning Co. in St. Louis, had this final piece of advice to offer those who are asking themselves, “Can I really handle my own HVACR business?”
“My main warning to someone thinking about going into business, especially a technical person, is to make sure that he/she realizes how complex business is at this time,” he said.
“While I was fortunate enough to get a B.S. in mechanical engineering along with some graduate business courses, I wish I had studied law, psychology, more business, and plenty of other things.”
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Publication date: 09/13/2010