Have you been dreaming about starting your own business? What will it take for you to put your plan into action — and succeed? According to the Small Business Administration, about half of all new companies survive the first five years. So, what are the common pitfalls that doom the other half? And, how can entrepreneurial HVAC contractors avoid these mistakes?
According to contractors who have “been there, done that,” new company owners must be able to grasp certain business fundamentals and develop a support network they can rely on when they’re just starting out.
Not Enough Funding
“Harvard University states the reason most small businesses fail is due to undercapitalization,” said Michael Goater, cofounder and motivator, Success4others LLC.
Yet, Goater said, “The reality is most entrepreneurs start with next to nothing.”
However, many who’ve been planning to open their own doors have been saving for some time and are able to afford the basics, such as a “contractor’s license, tools, vehicle, computer, printer, software, insurance, and some sort of inventory to get started,” he said.
While the range of initial investments contractors make to open their own doors varies widely, many agree they wish they’d started with more.
Greg Crumpton, president and founder of AirTight FaciliTech in Charlotte, North Carolina, started his business in 1999 with his
“We started with a small cash reserve we had stuck back, begged, and borrowed — I think around $65,000,” Crumpton said. Looking back, he said, they were underfunded with capital.
“Being cash-strapped is not a favorable position,” Crumpton said. “You really have to work at accounts receivable, accounts payable, and cash management, in general. We recovered by billing daily and collecting hard and diligently.”
Similarly, Fred Kobie, president of Kobie Kooling, Fort Myers, Florida, said his company started out underfunded, and he recommended would-be entrepreneurs avoid this mistake.
“Many individuals enter this venture without the capital they need and start out already in debt. They’re trying to rob Peter to pay Paul, and it rarely works,” Kobie said.
Kobie started Kobie Kooling with his three brothers in 1995.
“It took $20,000 cash to buy phone lines, parts and supplies, a copier, a fax machine, computers — and we had to turn a barn into a usable office,” he said. “We already had two trucks, licensing permits, and incorporation paperwork, but expenses add up quickly. If I were going to do it again, I would have funded the business a lot better with a loan or more savings,” Kobie said.
Failing to Prioritize Profitability
Yet, no matter the initial investment, there’s no hope for a new company’s future if the founder doesn’t start by concentrating on profitability.
“Business success is directly proportional to its ability to sell products and services at a profitable level,” Goater said. “Most new business owners don’t have a good handle on what it actually costs to perform a repair or replacement and, therefore, end up pricing themselves way too low. This is the recipe for a painful death.”
According to Alex Walter, owner of Alex Walter Furnaces A/C and More, Aurora, Colorado, success is not just due to an extensive technical background, but also to the ability to stay financially solvent.
Walter founded his company in 1992 and has chosen to stay small, growing from just himself, a truck, and a trailer to three employees, two trucks, and three trailers. Early on, he said, “I should have charged more for what we did.”
His recommendation for all HVAC contractors is simple: “Charge much more than you and your accountant think you need to in order to stay in business. Resist doing anything for free, and never let your price be the lowest a homeowner can find.”
Of course, in order to tell potential customers what your price is, you have to talk to them. That’s why Jim Hamilton, business coach, Nexstar Network, said, “The No. 1 area of focus for a contractor taking the leap is daily call count — because, if there are no calls, there is no business.”
Hamilton suggests entrepreneurial contractors start selling service agreements prior to opening the company’s doors.
“You can hire your first employee after you’ve sold 200-250 service agreements,” Hamilton said.
“This is important because it’s not practical to hire yourself or your first employee [a technician] because you will have no place to send this person on day one. With a supply of service agreements under your belt, you can now cash flow this employee as well as
Seeking Support and Training
As they test the waters and experiment with ways to make their contracting company successful, new business owners shouldn’t be ashamed to seek help.
“Find a mentor,” Kobie recommended. “I’ve had people tell me they are going out on their own, and I helped them do it.”
Walter also recommended new contractors find a mentor or join one of the many industry groups offering training and support for contractors.
Hamilton noted the benefits of joining Nexstar include training, networking opportunities with experienced contractors, and business coaching.
Paul T. Stalknecht, president and CEO of ACCA, also discussed the importance of training and networking when starting a new business.
“The top two things contractors can do is get involved in the industry and invest in training,” he said. “By getting involved in the industry, through organizations like ACCA, contractors give themselves access to a large group of knowledgeable contractors who are willing to share experiences and help answer questions they have about running a new business.”
In addition to the networking available through ACCA, Stalknecht pointed out ACCA provides members with resources ranging from technical training to legal and human resources articles.
Another approach to seeking experienced advice is to “surround yourself with like-minded people, even those outside your industry,” Goater said. “Create a mastermind group or peer group consisting of other entrepreneurs who have done what you are setting out to do,” he suggested, adding the group should meet regularly to discuss goals, action plans, and results.
Ultimately, though, the success of the business will depend on the new owner. “When you decide to jump, do it headfirst and commit yourself 100 percent,” Goater said. “You owe it to yourself, your family, and your customers to never give up — to never stop fighting.”
SIDEBAR: Root of Failure
• Lack of business acumen;
• Selling at the wrong price;
• Poor cash-flow management;
• No profits;
• Lack of operating processes;
• No plan;
• No mentor; and
• Lack of focus.
Source: Jim Hamilton, business coach, Nexstar Network.
Publication date: 4/13/2015