HVAC contracting is overwhelmingly an industry of family businesses. More than 70 percent of HVAC contractors in the U.S. have been passed down at least one generation. That’s not to say, though, that inheriting a family business is the only way to become an owner — after all, even the family businesses started with someone striking out on their own. Following are seven time-tested do’s and don’ts, courtesy of business owners from The ACHR NEWS’ “40 Under 40” honorees who forged their businesses from the ground up, to help transform a dream into a profitable success.
1. DO: Hustle hard.
Michael DeRitis, president at Madison & East Mechanical on Long Island, New York, worked at his uncle’s HVAC business and then — at age 25 and with his uncle’s blessing — left to start a competitor company of his own. At the time, he had just bought his first house and was engaged. That helped light a fire under him to get the business up and running.
“I was working late at night, early mornings,” he said. “It's all about the hustle.”
DeRitis found his first job as a business owner while looking at a job website at 12:30 in the morning. Proposals were due the next day.
“Bills were piling up, so I told myself, ‘I can do this,’ and I hand-delivered it the next day to the general contractor,” he said. “They loved my vibe, coming into their office … which was basically unheard of, and a couple days later, I was awarded that job and was able to profit about $30,000 over the course of two months, which gave me some capital to work with.”
2. DO: Have financing in place.
Dustin Ebersole, president at High Efficiency Solutions in Lancaster, Pennsylvania, started his business in his garage and financed it out of his personal savings.
“The very first van I bought was very used; it was about $4,000,” he said.
He paid for it with cash because the bank wouldn’t give him a loan.
“Self-employment affects a lot,” he said. “Banks will look at you completely differently, as a self-employed person, than somebody who gets a paycheck every two weeks from an employer — and it’s justified statistically, because it’s a riskier loan. So if you're looking to buy a house or anything substantial, I would try to do that before you’re on your own, or be prepared to put it on hold for a year or two.”
He also recommended establishing the business an entity, to set the company apart from the owner as a person. Ebersole set his up as an LLC.
When DeRitis opened his business, he did his banking with Chase but switched to a local neighborhood bank instead.
“That was one of the best things I could have done,” he said. “I went to that local neighborhood bank and explained what I was doing. They believed in me, and they gave me a $25,000 line of credit.”
With that financial backing, he was able to cover equipment costs and the expenses required to really operate correctly.
He added a word of caution: Once you do start making money, don’t spend it on yourself.
“In the beginning, you're not taking paychecks — you're paying everybody else, you're paying vendors — and once you get a nice chunk from a job that comes in and you see this profit, you definitely have to fight that urge to spend the money in the beginning, because you need that capital to use and for certain credit terms,” he said.
For instance, one big job opportunity, early on, required 50 percent down to even order the equipment. If DeRitis hadn’t saved up a nice little nest egg in the company account, his fledging company wouldn’t have been able to take on that job.
“The moral is, don’t spend it stupidly just because you have all this money,” he laughed. “Sure, I was 25, 26, 27 years old and doing pretty well. That urge is very strong. But if you don't spend that money, it can change your life.”
3. DO: Invest strategically.
Of course, some expenses are justified as an investment in the company’s future.
Jason Thompson, president at Sensible Air Systems Inc. in Kernersville, North Carolina, said his most valuable investment was an in-house fabrication shop, which he added in 2018, three years after starting the business.
“We have a high demand of ductwork that we're buying from third parties, and we're kind of at their mercy and on their timeline,” he said. “We do a lot of rush jobs, and certain things we can't wait four weeks for.”
As a side benefit, the shop has proved very profitable.
For DeRitis, the expense with the biggest payoff was a company shop. While the garage-turned-office had minimal overhead, having an office allowed him to keep an inventory of parts.
“We have service calls all the time, so having something that’s in stock here — instead of waiting for a manufacturer to get it, or supply has to send it to us — allows us to act quickly,” he said. “That’s really big.”
Investment also means investing in manpower.
“Especially as a startup company, it’s really hard to get good, talented employees — you have to be willing to spend money to get them,” Thompson said. From day one, those investments have included health insurance, 401(k), tool accounts, uniform reimbursement, and continuing education. It also requires a time investment.
“It’s not just a week-long process, anymore, to find the right employee,” he said. “It’s hard!”
One investment Thompson recommends against is a partnership.
“I heard that a thousand times before I started,” he said — but he did it anyway, giving someone interest in the business as an incentive to come on board. Although the partner was a great guy, Thompson ended up having to buy him out later.
“He was a huge asset; still is,” he said. (The former partner is now the company’s senior product manager.
4. DON’T: Underestimate the costs.
People looking to start a business “severely underestimate” the cost of what it takes, Ebersole said.
“I usually tell people — it’s a humorous thing, but also some truth to it — is sit down and figure out how much you think it's going to take, and then multiply that by about 20 and you’re probably getting close to it,” he said. “When in doubt, go higher when you're estimating costs, overhead, working capital, and what you want to pay yourself.”
5. DO: Use your networks.
DeRitis, Ebersole, and Thompson all started out working as technicians, and they had a lot of networking opportunities during that time.
“For my end goal of starting my own company, the No. 1 thing that really helped me was contacts, from vendors to clients to contractors that we do a lot of work with,” said Thompson. “Those relationships were very, very important for me to hit the ground running. Not to say that I couldn't have done it without them, but it made it a whole lot easier, and the business kind of grew from that.”
6. DON’T: Grow the business too fast.
In year four as a business owner, DeRitis took on a really big job that he thought was going to take the company to the next level.
“And I realized that the bigger the job, the bigger the headache, sometimes,” he said. He went out and hired five new guys — but when the job was complete, he didn’t have work for them.
“Even my uncle, who was my mentor, told me the same thing when he heard that I had 27 guys working for me … he said, ‘You know, 27 guys, that's a lot more vans, a lot more overhead, a lot more expenses. Your payroll skyrockets, so you need to make sure you have that cash flow coming in to cover the payroll. It’s just a lot more.’”
“Thankfully, we didn’t completely faceplant,” DeRitis said, “but it was very close. The way to grow the company is not fast, especially in the beginning. You don't want to go from a $100,000 company to a million-dollar company the first year. You want to find that sweet spot of how many guys you can handle, and make sure that you're growing with the company to handle those workloads.”
7. DO: Believe in yourself.
If DeRitis could give his former self any advice when he was starting out, it would be to believe in himself more than he did then.
“When you go to own your own business, now it's on you — so that fear of messing up or missing something might alter the way that you're responding to what's at hand, where you really just need to dive in and you have to trust your gut. You have to go with it,” he said. “And that was huge for me. When we're on site, the guys count on me to have that answer or make that executive call, and I'm always trusting myself first.”
It wasn’t always that way, he said. At first he second-guessed himself, such as the way he should handle things, or how to act as an owner.
“But today, I act from what I know from my gut and what it tells me, and that's the way you need to go with everything,” he said.
Thompson, who had wanted to start his own business for three or four years before he took the plunge, added, that he wished he wouldn’t have procrastinated so long in getting started.
“Don’t get me wrong, but it’s not as complicated as I thought.”