Contractors Track and Trim Expenses

August 11, 2008
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If you would like to learn what Arizona and Michigan contractors (pictured above and below) are doing about their expenses, click here to visit the Extra Edition page and read the Web Exclusive articles “Michigan Contractors Discuss Cutting Expenses” and “Arizona Contractors Watch Their Expenses.”

One of the dangers that face any business owner, let alone HVACR contractors, is complacency. When times are good and profits are healthy, business owners have a tendency to overlook the various expenses or neglect to read all of the fine print on contracts. If things are running smoothly there should be no reason to upset the apple cart, right?

But when things are not going smoothly, like in 2008, these expenses that get glossed over are now looming very large and threaten to erode profits from an already shrinking customer base. What appeared to be minor glitches or annoyances in the prosperous times are now cause for HVACR contractors to rethink how they do business, and change some of their operations to become leaner and meaner.

The Big Three automakers often cut expenses by mothballing factories and laying off employees. Those are the most drastic measures and ones that HVACR contractors try to avoid at all costs. But short of reducing a staff or closing down a location, what are the best ways to streamline a business? The NEWS wanted to know and asked some contractors how they are watching their expenses in these slow economic times.

It is a given that many contractors continue to stay busy and never slack off when watching their expenses. However, many contractors need to keep some type of checklist of ways to cut or reduce expenses - not because they are poor business managers - but because they need to maintain reasonable profits to grow their businesses and pay their employees. The smallest added expense can throw their budgets into a tailspin and put their balance sheets in the red.

For some contractors, merely tweaking existing systems and procedures can have a substantial effect on cutting costs. Take company vehicles for example: it is obviously possible to reduce gasoline consumption by routing service calls by geographic location. It is also possible to save gas by changing driving habits.

One contractor, Josh Mitchell of Mitchell Mechanical Inc., Seattle, Wash., said he cut his fuel bills by over 15 percent by having his company mechanic limit the vans to 62 miles-per-hour and teaching the techs how to “manage their gas pedals.” Mitchell added, “As an incentive, we give a $100 bonus each month to the guy who gets the best mileage improvement.”

Another contractor eased off on the gas and bought a gauge to tell him how to read engine problems. “I’ve learned to get the lead out of my foot and coast, as in put it in neutral, down hills,” he said. “My overloaded pick-up used to get about 15.5 mpg, now it’s at 19.5 for this last tank. I got help from this cool tool, which gives real-time gas mileage readings (www.scangauge.com). It will also read your error codes and reset the check engine light.”

Here is another list of driving tips suggested by a contractor:

• Under-inflated tires suck up lots of extra gas. Check the tire pressures cold, and add air to meet the required pressures, usually found on a sticker on the doorframe or in the trunk, or in the vehicle owner’s manual.

• Drive the speed limit. Every mile-per-hour over 55 uses more gas.

• Open windows create drag at highway speeds, using more gas.

• Maintain your vehicles properly.

• Avoid jackrabbit starts, and eliminate all unnecessary weight from your vehicles.

Rocco Pace of Oliver Heating & Cooling, Morton, Pa., said there are many ways his company has altered driving habits to reduce costs.

“Installing a GPS on all your vehicles will help,” he said. “We have automatic alerts sent when a vehicle idles for more than 20 minutes or drives over 70 miles per hour for more than three minutes. Plus, there is the efficiency of sending your closest mechanic to emergency jobs, to the closest supply house, or even to another truck to pick up a part. These are just some ways of saving.

“We have all service techs set up in zones, and very rarely will they get called out of their zones. We utilize self-storage spaces around our service area and have the suppliers deliver the parts to lockers. This stops a lot of travel and prevents the techs from going to a supply house or into the shop. We have the suppliers make up kits for every type of add-on/replacement or residential new construction job that we do. They package the kit and deliver it to the jobsites or to our shop for our delivery trucks.

“We try to have all our installers start their day at the jobsite, not the office. This prevents them wasting time in the office, and us from having to pay travel time to the jobsite. All service techs are dispatched to their first calls for the same reasons.”

CHANGING THE WORKWEEK/GAS CONSUMPTION

A lot of businesses are toying with the idea of moving to a four-day, 10-hour-a-day workweek to combat the rising fuel costs and deal with a productive workforce, which is also an expense that is difficult to substantiate.

One contractor said he is experimenting with a shorter workweek this summer. “I’m doing four days a week, nine-hour days,” he said. “This saves me the extra day of gas, unless I have an emergency or estimate to go to, and four hours less in employee pay. (And the employee is still happy.) I get to use the Friday to do office work or material orders for the next week.

“This schedule works for me as I do mostly new or renovation type projects, and little service calls. I may make this a permanent thing come fall.”

Another contractor added, “I’ve had great success with that especially during the summer. You can virtually eliminate overtime with the right shift hours and customers are taught to be patient. No one ever froze in the Northeast in July.”

A contractor with a larger company that employs over 40 technicians said that he has had to layoff some people, but that his company is looking at altering work schedules to cover hours that would normally be overtime, i.e., “Having some techs work Sunday all day, then Monday to Wednesday from 2 to 10 and guarantee them 40 hours,” he said.

By working closely with one particular gas station, a contractor has realized substantial savings in his fleet’s fuel bills. He described how he started the program. “We opened a gas account nearby from the guys who had the lowest gas prices around,” he said. “At first they told us they didn’t offer credit on gas but I said I had seen other drivers signing sheets, so why not us? He said they were long-time customers and the revenue was large.

“I mentioned our six vans and four personal cars. The first monthly statement was mailed and the day it came I drove over and paid the amount due, schmoozing with the tough-to-get-credit owner, letting him know he would get paid before I fed my family. He thanked me profusely for buying all that gas from him. His comment? ‘I had no idea you had so many vehicles.’”

While at the gas pumps, contractors are finding more options to conventional unleaded gasoline, which has topped the $4/gallon mark and continues to spiral upward. Some contractors are implementing fuel surcharges to make up for the higher prices but others are looking into alternative fuel sources.

Richard Kontny of Plumbing Components LLC of Neosho, Wis., has seen an increase in the demand for ethanol and mixed blend gas. “Ethanol, while having its own set of manufacturing concerns, is getting farmers record prices for corn and many are buying Flex Fuel vehicles where they can use regular unleaded or E-85 (the ethanol blend).”

OTHER CONTRACTOR TIPS

A number of contractors offered other cost-saving ideas including those from Alex Walter of Alex Walter Furnaces, A/C & More, Aurora, Colo.

“Don’t advertise in the Yellow Pages,” he said. “Take digital photos of every job so you can look at photos instead of having to go back to a job to look at something you missed. Be businesslike on every house call. Tell the owner you have allocated time for their specific need, and after that is fixed/installed, you will explain, educate, or discuss additional items needing attention. Keep the idle chitchat to a minimum. Also, don’t be afraid to ask the customer to let you concentrate on your job. Talking and distractions slow you down. And scrutinize your phone/communication system(s).”

Ronnie McClements of Ron’s Oil Burner Service, Springfield, Mass., has a checklist, too. As a one-man shop, he said expenses do get tough, and the first thing he does is try to get all money owed, up front, as he leaves the job and added that for every payment he receives he takes $25 out to apply to summer downtime.

“I also plan on emergencies, like what if’s,” he said. “I have money saved so if my truck needs fixing, or I have an accident, I can replace it in a moment’s time without much distress.”

His other cost-savings measures are, “Because of fuel costs, I had to go up on my prices. I use only one business charge card so keeping accounts is easier.

“I save money on inventory costs by noting what sells the most so I keep two or three items ahead in my service truck. I keep a written inventory in my truck, believing that if I use a part once I know I’ll be using it again. So I always replace it when I’m at the supply shop. This way, running back and forth for parts has been reduced.”

Speaking of inventory, Robert O’Brien of Technical Heating Co. Inc., Mt. Sinai, N.Y., said that buying bulk is a cost-savings measure he uses.

“Buying in quantity can make sense if the item moves and the discount is large enough,” he said. “I look for a quantity that I can move within one year, preferably less, with a savings of 20 percent or better to cover the costs of carrying that much inventory.

“If it makes sense, it makes sense in any economic climate.”

One contractor, Glen Aspen of Aspen Gas & Oil Services, Cranbrook, British Columbia, said that correctly pricing your services is ultimately the best way to watch your expenses. “Is your hourly rate appropriate for the skills and knowledge base offered?” he asked.

“As my coach plainly told me, ‘stop looking at the other guys and concentrate on your services - and get paid for them.’ Our ability to reduce costs is finite, while our opportunity to correctly invoice is not. Know your costs - all of them.”

Feedback also provided by visitors to www.heatinghelp.com, www.oiltechtalk.com, and www.serviceroundtable.com. If you would like to share some of your cost-saving tips, please e-mail NEWS’ Business Editor John R. Hall at johnhall@achrnews.com.

Sidebar: More Cost-Saving Tips

More tips from NEWS’ readers:

• “Does your wholesaler or anyone else offer a 2%-10, net 30? If not ask him if you can have it. I was amazed to find you have to ask for terms.”

• “Shop for insurance like a micro-economist. One year we reduced our premiums from 30K to 19! The coverage limits? Better than the 30K insurer.”

• “Recognize billable versus non-billable hours and explore the question of converting non-billable time to billable.”

• “We found using Mobil One instead of plane-Jane oil increased mileage by one MPG on all vehicles. We also extended oil changes from 3,000 miles to 5,000 which made a substantial gain.”

• “We found our invoice forms for ½ the price, despite buying a one year supply, by simply using QuickBooks heavily modified forms and the increase in ink costs to be negligible.”

• “Prefabrication of a lot of the installs in my shop now keeps field labor to a minimum.”

• “We found buying 1,000 checks from NEBS, one-third the cost of letting our bank provide them.”

• “We now use a purchase order system with authorization from an office manager or warehouseman first.

Publication date: 08/11/2008

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