HVAC Contractors and the Recession: Its Effect on Business
June 27, 2011
It has been compared with some of the worst economic downturns in U.S. history, ranking right up there with the stock market crash of 1929. It was the recession of 2009. This event had a sudden and lasting impact on U.S. consumers, both in jobs and homes lost. But how did it impact HVAC contractors?
According to contractors interviewed for this article, the recession may have impacted their businesses in a negative way but they were able to remain solvent because of cost-cutting or “staying the course” measures. Yes, some contractors were forced to take some drastic action, including laying off employees, cutting overhead, and putting tighter controls on expenditures. But for others, it was business as usual. After all, a down economy had no effect on the weather. People still needed warmth and air conditioning - and comfort.
People still needed comfort in 2009 - and HVAC contractors still needed a comfortable profit margin to stay in business beyond this tough time. Some used the difficult times as a motivation to stay in business. “While being in business for 27 years back in 2008, I had my dreams on my 30th business anniversary,” said Paul Nowak of Nowak Heating & Air Conditioning (Hayward, Calif.). “Then the economy tanked on all of us. I came to a realization that I may not make it to see the big 30!
“A good economy can mask internal problems and allow you to overlook simple things. Maybe I had become a little too complacent. 2009 came around, and I was barely hanging on.”
Nowak realized that his business plan had not prepared him for 2009. Fortunately, other contractors were a little more prepared.
Rick Brown of Lyons Service (Bowling Green, Ky.) was one of them. “Before the beginning of each year, we formulate an operating plan for the coming year,” he said. “We anticipated a slowdown in selling preventive maintenance agreements and focused primarily on maintaining the agreements and customers that we had in place.
“Knowing that our competitors were also going to feel the downturn, we knew they were probably going to beat the bushes and bring on new customers. We made special efforts (above and beyond) to maintain close relationships to our existing customer base so they would have no reason to replace us.
“At the same time we made special efforts to call on potential customers with no hard selling but with the attitude that we know times are tough, and we’re here to help in any way we can.”
Both contractors are still in business today. Here is how some other contractors weathered the economic storm.
IN IT FOR THE LONG HAULBusiness survival depends on the ability to answer the “what if?” question. That question is often asked when economic conditions reach highs or lows. In the HVAC contracting world, the what ifs usually center around temperature spikes. The year 2009 provided an unfortunate blend of both. Luckily, most contractors are adept at planning for moderate weather. But what about a bad economy?
“We had dropped about 18 percent in sales in 2008 and I anticipated dropping again, so I planned a 2009 budget to reflect another decrease in sales,” said Tammy Denton of DHC Comfort Inc. (White House, Tenn.). “I decided to do a worst-case scenario budget just in case. Our sales declined over 38 percent in the next two-year period. I let my salesmen go and I backed my office staff down to two people. I let everyone go that was not a team player and was not necessary. I priced shopped everything that I could. If it was not a necessity - it went.”
Dewey Jenkins of Morris Jenkins (Charlotte, N.C.) began preparing for the worst in 2008. “In January 2008 we noticed a softening in our business,” he said. “We began to experiment with our marketing to see if we could stimulate demand. The softening continued through the spring. Then we had the hottest June in years. It seemed like the good times were back. However, we soon learned that they were not.” That’s when Jenkins got tough.
“Not only did I channel more energy into the business, my entire management team did,” he said. “Even though our business was down in 2009, we maintained our profitability. In the toughest year of our lifetimes, our management team turned in the finest performance I have ever seen. We didn’t lay off any employees, we reduced expenses, and we maintained margins.”
Maintaining employee levels and wages/benefits during a recession is quite an accomplishment - but increasing benefits is even more amazing. That’s what happened at Isaac Heating & Air Conditioning (Rochester, N.Y.). “We actually added employee benefits,” said Ray Isaac. “We have the ‘pay it forward’ philosophy for our employees because they come first. We didn’t want to eliminate a single benefit during the downturn.” But the downturn wasn’t really a downturn at all for Isaac - mainly because his company maintained their successful business philosophy.
“We are very disciplined,” Isaac said. “We focused even more on our expenses and made sure we had a good cash flow. We didn’t have to go into a recessionary mode.”
That included no price cutting, which is often the byproduct of a slow economy. “We kept our prices the same,” Isaac said. “If you start cutting prices, you can’t necessarily lower your costs. If you run an efficient operation, there is less temptation to cut costs.”
Mike Salmon of Anderson Air Corps (Albuquerque, N.M.) wasn’t fortunate enough to maintain a level playing field through the recession. He had to actually increase some of his pricing while cutting back on other expenses. “We had to adjust AOR [add-on and replacement] pricing for rising costs associated with increasing consumer use of credit cards and cash rebate programs,” he said. “The service department factored a fuel surcharge fee in each invoice.
“But full-time shop fabrication finally went from two down to one - six months later than hindsight says it should have. Finally, a year later, we let the remaining shop fabricator go and picked up the slack by having management and senior installers rotate into the shop as needed. Office staff was cut also.”
The recession had affected contractors in different ways, but it was important to maintain a steady course and smooth over the rough edges.
STAY CALM AND DON'T PANICIf the phones aren’t ringing and employees are standing around, there is the natural tendency to overreact and make changes to the business model - in an effort to jump-start the service or replacement business. That is not always the best solution, according to some HVAC contractors.
Joseph Nichter of Comfort Systems USA – Southwest (Chandler, Ariz.) said, “In times like these one of the most important things to remember is not to lose sight of your vision for the company. You can’t let a detour like the recession make you lose your focus on the future; especially in a service-related business because it’s not going away. It might look different in the future, but we are here to stay.”
Frank Detmer of Detmer & Sons (Fairborn, Ohio) said that while he made changes to make his company more efficient, there were some things he would not change during the recession. “During this entire period there were two areas we refused to cut,” he said. “They were advertising/marketing and employee training. It is our belief that there is always a need for HVAC. Certain sectors may be down at certain times, but people will always need heating in the winter and cooling in the summer. It is important that customers know we are out there and our people are able to handle any issues they might have.”
For Bill Brink of Kettle Moraine Heating & A/C (Genesee Depot, Wis.), the biggest change he made was getting more personally involved in the business. “If I wasn’t at my desk, I was driving to an estimate, and if I wasn’t in my car, I was on the computer at home working,” he said. “It’s not for everybody I’ll tell you that. It’s always go, go, go. I put every ounce of energy that I had into my estimating and it paid off. Once I found a process that worked I stuck with it. I spent many late nights in the office.”
Was the recession a wake-up call to HVAC contractors to change their business model or to stay the course? In part three of this series, we’ll find out how some have managed since 2009 - and will provide some advice on how to succeed during an economic downturn.
Editor’s Note: This is part two of a three-part series on surviving and thriving before, during, and after the recession.
Publication date: 06/27/2011