Michel, CEO and president of The Service Roundtable (www.serviceroundtable.com), went in search of finding an elusive fact in this industry. He was curious to find out how many contractors close their doors annually. As he stated in his recently released white paper, "Business Closure Rates For Plumbing & HVAC Contracting Companies," the concrete answer is impossible to nail down.
"Most or all will be guesses, estimates, or hearsay," he stated in his paper. "Most or all will be without an empirical source. In this white paper, the best empirical dataset available is analyzed to determine the business closure rate within the service trades."
Rather than spill the beans here (at least not yet), I am glad he included a section titled "Not All Closures Are Failures."
That is so true.
Nothing Wrong With Being SmallEvery state in this great nation has more than a few small towns. Small towns, in my opinion, are what make this country great. They are the backbone of this economy.
There's nothing like a local hardware store where the people behind the counter know practically each and every customer that comes through the door. There's that ice cream shop on the corner that everyone frequents on a hot summer evening and catches up on each other's lives. There is also a local pub, where breaks are taken from time to time, to talk about everything under the sun, including politics and religion.
And, in this mix, is the local HVACR contractor - the person who everyone turns to when there's a cooling or heating problem, whether it's the Fourth of July or Christmas Eve. This is the person the neighborhood children go to when they need a sponsor for their summer baseball team. The person who puts an ad in the local church bulletin, not only for advertising's sake, but as a way of giving back to the individual's faith.
These contractors enjoy being their own boss, enjoy helping others, and wouldn't have it any other way. The fortunate ones are able to pass along the business to their son or daughter. Not all offspring follow that path, though. So, these contractors either close the shop or sell it. This, in my book, is not a failure. And, I am glad Michel made that distinction.
"A business closure is not necessarily a business failure," he noted. "Businesses close for a variety of reasons. In addition to outright failure, businesses close due to acquisition, the pursuit of better opportunities by the owner (i.e., the owner takes a job), and the close of an unsalable business at retirement."
I appreciate his conclusion in that section of his report, too.
"The close of a business is its cessation, whether from failure, acquisition, retirement, or some other reason. This antiseptic definition overlooks the fact that most business closures represent the cessation of someone's dream. That, no matter how clinically it is expressed, is always a tragedy.
"In short, businesses close for many reasons. Not all are failures. The close rate should not be confused with the failure rate."
I Salute YouKeep this in mind, as Michel's final conclusion is this: One contractor in five closes annually. He notes that it's the smallest that die the quickest. Contractors with one to four employees experienced a closure rate of 14 percent. Meanwhile, more than half (51 percent) of payroll employers employ one to four people. Translation: The smaller, the shakier.
What to do?
"There's fairly solid data on larger shops, but little is available for the smallest contractors," said Michel. "They're overlooked by nearly everyone. They are the industry's underclass."
According to Michel, the statistics reveal that the surest ways for a contractor to increase his or her business success rate is to grow. The close rate drops rapidly with contractor size. For example, only 6 percent of contractors with five to nine employees close every year.
I salute all of the small contractors in this industry. If you have a suggestion on how The News can help in making your business world run smoother, please let me know so we can supply the needed answers in this publication.
Mark Skaer is senior editor. He can be reached at 618-239-0288 or firstname.lastname@example.org.
Publication date: 03/07/2005