The Four Profit Leaks You Should Plug in Your HVAC Business

One of the most important decisions a business owner makes is whether they’re building a business to make a living or building a business to sell. There’s nothing wrong with making a good living in a trade that pays well, but many owners tend to get complacent about their financials. When it finally comes time to retire or sell, they realize they’ve been leaking profits for years.

My friend, Lynn Wise, with Contractor In Charge, has made a career of making business operations and accounting simple for Plumbing, HVAC, and Electrical, and other trades companies. She’s also the author of Build It, Grow It, Sell It! Nine Steps to a Thriving Contracting Business. Here’s what Lynn says are the four profit leaks most owners need to plug:

Revenue you leave on the table. If you’re not reviewing your pricing every year, you’re probably not billing what your services are worth. Not only are you not maximizing what comes in, but you’re also lowering your profit margins, which is critical to your bottom line and the value of your company.

Cost of goods sold. There are two ways to become more profitable: increase revenue (see above) or reduce expenses. Patrick always says that in order to grow your business, you have to sell another dollar or cut another dollar. And nobody ever cut their way to greatness – it’s a better use of your time to chase dollars than chase dimes. But overspending on labor, equipment, or supplies is something that’s pretty easy to fix, as long as you’re paying attention. Tracking expenses and looking for trends is easier when you have a good bookkeeping system in place, so it’s worth the investment.

Marketing and advertising. Are you strategic with your marketing budget? Or are you buying leads you can’t convert? You should have at least a 50 percent closing rate on leads that come into the company. If not, you’re wasting money.

Patrick says your best investment is making sure your website is up to date, optimized for all kinds of devices, and contains plenty of testimonials from satisfied customers. Pay attention to your Google reviews and instruct your customer service staff to ask for referrals and testimonials from both sales and service customers.

Throwing people at problems instead of processes. If your processes are outdated or too complicated, it doesn’t matter how many hard-working people you have trying to implement them. If you do something more than once a month, it’s probably a candidate for automation. Once you automate a process like payroll, requesting quotes, notifying customers about their service agreement referrals, and billing, you’re making a difference to your bottom line. Use your technology to make your employees more productive. You can free up your valuable staff to focus on other tasks, such as ensuring a good customer gets a fast response to their service request or resolving issues and soothing unhappy customers.

When you sell your company, whether it’s within a year or two, or when you reach retirement age, offers will be based on Seller’s Discretionary Earnings. Your profitability is what a buyer is really buying. Never forget that when you get an offer of any multiple for your company, SDE is what is being multiplied.

All that to say, every dollar counts.

If I can help you understand what your company is worth in today’s market, contact me for a free and confidential valuation.