Contractors Need to Have a Solid Business Plan

November 1, 2000
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TORONTO, ON, Canada — The business plan of some hvacr contractors is to sit around and wait for the phone to ring. Obviously, there should be a lot more to it than that.

Ron Collier of Collier Consulting Group, Dripping Springs, TX, spoke on planning procedures at the 15th-annual Mechanical Service Contractors of America (MSCA) conference.

“A plan is a projected course of action. Plans must relate to objectives.”

Those objectives must be defined, he said. For example, does the contractor/owner want immediate maximum profits for the short term, or lower profits over a longer term? “Some contractors plan to be in business for just five to 10 years, then sell the business and get out,” he said. Their sights are set on large, short-term profits.

Growth is another objective. Planning for 10% growth a year really means 20% growth annually in a new business, assuming that 10% of existing customers may not be customers in the year ahead for reasons that may not be related to the job the contractor is doing. “If we plan for 20% growth and you lose 10% a year, at least we are ahead.”

A third objective to consider, Collier said, is a willingness to make a foray into “high-risk enterprises.” He said this might be some new controls technology, or a business outside the realm of traditional hvacr.

A fourth factor, he said, is “retrenchment and conservation of resources.” This means “perhaps selling less and doing less in order to maximize profits.”

Contractors also have to evaluate their reputation and goodwill. “Ask yourself, ‘Why do they buy from us and not somebody else?’”

A sixth objective carefully considers the competition and ways to outflank them.

Don’t Plan Too Far Out

A basic principle of planning, he said, is to “plan ahead only as far as can be projected.” He called these “one-year plans with three-year projections.”

Actually, he said, the three-year plan, which factors in growth, allows for the one-year plan to have a budget firmed up. Then, he said, that budget should be divided by 12 and the monthly budget assigned to departments.

Contractors should consider their companies as a good investment. “You invest your money into your company because you assume you can make more with mechanical contracting than you can in investing in the market. Otherwise you would invest in the market and stay home.”

However, Collier also cautioned contractor/owners not to short themselves with their salary or the paychecks of other key people. “If you are paying yourself $30,000 a year, remember what [kind of person you may get to replace you] when you are gone.

“Pay yourself what you are worth. Pay yourself a salary close to what it would cost for your replacement.”

He also said a similar situation exists when a spouse works for free. “How is that position filled if the spouse steps aside?”

Publication date: 11/06/2000

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