Arizona Contractors Watch Their Expenses
August 11, 2008
PHOENIX - The air conditioning season lasts almost the entire year in sunny Arizona but that doesn’t mean that HVACR contractors have more than enough work to stay profitable. They may stay busy but they may not be making as much money as they would like. Cutting expenses is still a high priority item for Arizona HVACR contractors, say members of the Arizona Chapter of the Air Conditioning Contractors of America (ACCA), who recently sat down with The NEWS in an informal roundtable meeting.
The group included Louis and Paul Hobaica of Hobaica Services, Ditza BenShalom of Air Dynamics Refrigeration, Tim Graves of Wolfgang’s Cooling and Heating Corp., and Mike Donley of Donley Service Center. Each contractor talked about ideas for running their businesses more efficiently and with predictability, two factors which have a huge impact on keeping expenses in line and leading to more profitability.
Without profits, the business survival rate goes down. “We are seeing more contractors go out of business in our area than ever before,” said Louis. Even being busy does not guarantee success.
“The year that we lost the most money was also the year we were the busiest,” said BenShalom. “We just didn’t know how to manage people or how to correctly price a job.”
Labor management is one area where dollars can be wasted, but when managed within a budget, can also be an area where costs can be controlled. The key word, according to Louis Hobaica, is being able to set a budget and stick to it.
“It all starts with setting a budget,” he said. “We keep a close eye on our budget, our financial statements, and our balance sheets. We normally check these regularly but I admit that when business is good, we sometimes don’t always check them as often as we should.”
MENTORING AND OTHER IDEASPaul Hobaica said that one of the benefits of belonging to a group like ACCA is the ability to learn cost-saving ideas from his peers. “Sharing ideas and picking brains is very important,” he said.
Donley agreed, adding that he looks for ideas beyond ACCA. “I belong to industry groups outside of the HVAC trade to get ideas,” he said. One of the ideas that Donley shared with other contractors is his return to signing company checks. “It is amazing how much you can catch by signing checks,” he added. “Sometimes it may be too late to catch a problem but you can avoid making that same mistake again.”
Louis Hobaica said that he doesn’t sign checks but he certainly knows where the money is going. “I have all of the bank statements sent to my home,” he said. “I may not sign the checks but I have to approve every single payable.”
Donley recently hired a financial officer to oversee his company’s accounting and financials, what he called a “good decision.”
BenShalom, who has a background in financial management, recently started working with her husband Steven Pillow, the business owner, and it has been an eye-opening experience. She has cleaned up the bookwork and kept financials up-to-date, giving her “more time to look at other sources like tax accountants and payroll specialists” to help her company run more efficiently.
Donley takes advantage of the many business analytical tools available to him and compares it to a mechanic who has some of the best tools in his toolbox. “It is very important to take the time to analyze your expenditures,” he said. “Use all of the analytical tools you can - think of them like tools in your toolbox.”
All contractors agreed that cash flow is very important for a healthy business, enabling them to pay bills on time and get cash discounts for doing so. “We always take advantages of discounts when paying invoices on time,” said Graves.
Part of the cash flow “problem” is getting deadbeats to pay bills on time, something that the Hobaicas take very seriously. Louis gets a collection report on his desk on the first and third Friday of each month. He wants his workers to devote a good deal of time to collections. “We want them to take ownership and help cut costs,” he said.
Donley has an accounts receivable “white board” which tracks customers who have promised to make payments but who are slow in doing so. He also has a practice of scanning customer’s checks in the field so the money is immediately deposited into his company’s bank account. These are little things that help the cash flow and he encourages employees to contribute, using money as an incentive. “We give bonuses to managers because they are responsible for making the company money,” he added.
Donley also looks at each service van as its own revenue center. As employees watch their usage of tools, parts, and supplies, they can usually see company profits go up, too. “There is an incentive for our guys to be efficient,” he said. “They are mindful of waste and paying for more things than are necessary to complete a job.”
It is an individual thing, according to BenShalom. “It is important to improve the productivity of each person and track their profitability,” she said.
Graves is exploring the idea of adding performance-based pay to his company’s incentives as a way to keep an eye on costs. “We want to offer performance-based pay to managers in order to make their departments run well - and to make money for the company,” he said.
Cost-cutting ideas can and should come from employees, too, Paul Hobaica noted. His employees are involved in the “belt-tightening process.” “We share how the economy affects us and come up with all kinds of ideas as a group,” he said.
Graves said, well into the roundtable discussion, that there was a “500 pound gorilla in the room we are avoiding: how to deal with rising gas prices.” Some of the contractors praised the impact of GPS systems as a way to eliminate unnecessary trips and too much “windshield time.” Dispatchers can identify where trucks are and have them service customers in the same geographic area. Louis Hobaica said his company makes fewer trips to the bank, having a runner pick up checks a couple of times a week.
A few other ideas included:
• Researching credit card processing companies to get lower rates.
• Getting techs to bill properly. “They are responsible for inventory control such as eliminating shrinkage by not throwing away pieces that could be used in other jobs,” said Graves.
• Adjusting inventory today to reflect the type of work you do, i.e., repairs versus installation and keeping parts in stock that you use more for repair work.
• Work with distributors to see if they are willing to stock your parts on a consignment basis, thereby cutting down inventory costs.
And even in good times, HVACR contractors should never forget some of the basics that have made them successful. “Just remember that when times are good you still need to track your financials,” said Louis Hobaica.
Publication date: 08/11/2008