Frisco Air Conditioning and Heating Contractor secret of longevity.
Frisco Air Conditioning and Heating Contractor Steve Lauten, President of Plano based Total Air and Heat, shares with his peers how to NOT go out of business quickly.
Some Like It Hot, but not on a Tin Roof
As I sit here writing this message the forecast is one that I really like, mid to high 90’s for the next 5 days. Most people outside our industry think we are crazy! Just for the record we are not crazy, just extremists. The perfect outdoor conditions are 10 degrees or 110 degrees without a cloud in the sky and nice dry pavement. You know we are not the only ones that like a real hot summer, swimming pool contractors, outdoor water themes parks, the “Ice Cream” man, Just Add Water swim suit store, sun tan lotion makers, boat dealers, and everybody that makes treatment for sun burns are just a few that also like hot weather. Every industry has their “season” to make a profit. However, unlike most of the other industries I have listed it seems ours is plagued by guilt when we talk about making a profit. I know of no other industry that averages 2%-3% net profit for the risks we take.
Disclaimer-All of the discussions I am about to review are just comparisons of contractors that will remain nameless. However they do exist and hopefully this discussion will let you know what is achievable.
To be quite frank, it seems many of our peers are completely content to beat everybody’s price regardless of profit. It’s the old tried and true method of beating your competition by saying “if they can do it for that price I can beat them by xx percent”. Unfortunately Contractor #1 priced the job at cost, and Contractor #2 just lost 5%! Let me be real clear and say this applies to both Residential and Commercial contractors. The sad reality is this is the normal situation rather than the exception to the rule. A staggering 35% of all HVAC contractors fail every year and there are 35% new contractors to take their place. So when will we break out of this mold?
Do you calculate when you will reach your break even for the year? There are several aspects tot his question. Assuming you are like most contractors, you lose some money in several months per year. It varies depending on your mix of Residential vs. Commercial work. For the sake of discussion let’s assume you almost always lose money in Jan and Feb, and sometimes in March.
- Scenario #1: At what point do you make enough profit to actually be in the black after losing money in Jan., Feb. and March? Do you turn a profit by April, or May? I do not consider myself to be any kind of expert on making a profit; however I am a good listener and spend a lot of my time attending seminars trying to learn more about the financial side of what we do. I have never seen a contractor go broke due to the lack of TECHNICAL KNOWLEDGE; I have seen plenty of contractors go bust because of their lack of BUSINESS KNOWLEDGE. The Experts seem to agree that you should be in the black for the year by the end of May. Those of you achieving a break even for the year in April will likely have an excellent year and are way ahead of the game. Those contractors in the black by sometime in April typically have yearly net profits in excess of 5% and many are in the 8-10% range.
- Scenarios #2: At what point do you make enough profit to cover the entire yearly overhead for your company? What I am asking is when does your company make enough profit to cover all of its yearly overhead? Many contractors don’t cover the overhead for their companies until sometime in Nov. or Dec. assuming they operate on a normal calendar year. That statistic is real scary, yet it’s absolutely true for the majority of the HVAC contractors who net 2%-3% net profit for the year. You work the entire year and don’t cover your yearly overhead until December? However, there are also HVAC contractors who cover 100% of their overhead by mid to late May! That’s right; these guys are netting yearly profits of 15%-25%.
Hopefully you have taken advantage of the outstanding training offered by ACCA-NTX. We have made available to you every tool we can find to make you successful. The difference between a high profit contractor and a typical contractor is “implementing the plan.” Most of us plan, and just “fail to implement.” Keep in mind your employees must understand the plan and “buy in”.
If you have not taken the time to departmentalize your company’s financial statements, do so ASAP. I think you will be very surprised to know that in many cases the department you thought was the most profitable is actually your lowest profit department. I was shocked to find out my Service Department was operating at a “break even” on a yearly basis. That was 5 years ago. My goal is to make my Service Department the most profitable in my company. I will tell you a great place to start is by reviewing every service ticket. I found out that we gave away more revenue than we billed! This is true for most Service Departments! Billing mistakes, math errors, failure to charge for all of the work we perform, non-billable time (wind shield, waiting to be dispatched, good will, warranty) all add up to more than what you bill out. Small improvement is huge because 100% of what you capture goes to the bottom line!
In closing I would like to thank each and every one of you for supporting ACCA-NTX. A huge job well done to the Habitat for Humanity Ad Hoc Committee, CSF, and our Associates who donated equipment and materials for the 2006 Blitz. We completed 20 homes this year and 10 of those were on Mother’s Day! I was amazed by how many mothers showed up Sunday at 7:00am on “their” day to serve others. It only seemed appropriate after getting hot and sweaty that I took my wife to Bone Daddy’s for some Mothers Day BBQ.
Here’s hoping all the training and preparations you made this winter pays off this summer. Have a safe and profitable season and hopefully we will see you at the June or July social events.
Frisco Air Conditioning and Heating Company, Total Air and Heat, is owned by Steve Lauten, the second generation owner. Founded in 1957 by Steve’s dad, Fred Lauten, Total Air and Heat is proud to have received some of the highest awards for quality and service that are offered in the Industry. Among those awards are the Readers Choice Awards from the Collin County Newspaper, the Trane Pacesetter Award in 2002, and designation as a Trane Comfort Specialist. Call Steve at (972) 535-8066 for a personal consultation.