- Series Intro (0:00)
- Profit and Loss statement (3:30)
- Scaling up (5:00)
- Hiring a Sales Manager (7:30)
- Increasing profits (9:00)
- Having the Right Tools and Training/Reading the Financials (11:00)
- Selling Maintenance Contractor (12:16)
- Pitfalls of scaling (13:30)
- Key indicators of your business (14:02)
In this rapid-fire Q&A interview, HVAC Entrepreneur, Consultant and Author Ruth King shares her business profitability expertise and answers the question: how to grow my HVAC business?
How to grow my HVAC business?
Q: Can contractors learn how to run and grow their HVAC business?
Entrepreneurial spirit and its challenges
King: Oh, absolutely. Most contractors started out as a tech. Or an installer. Or, something like that. Until one day, they get the entrepreneurial spirit and say: I'm going to start my business. They only see the part where they're in the office or whatever. They don' see the whole picture. And, they know their part really, really well. But, that's not all it takes to basically have a profitable business.
Becoming a well-rounded HVAC business owner
King: You've got to learn the financial side. Some have to learn the sales side. Everybody learns the marketing side! And, all of these things, they're easy to learn. As I've often said, if you can read a wiring diagram, you can do the rest of it. Because that's the hardest part! Learning to read a wiring diagram--at least, from my perspective.
Understanding profit and loss (P&L) statement to grow my HVAC business
Q: What critical business skills do contractors need to learn to grow their HVAC businesses?
P&L Statements = Addition & Subtraction
King: Well, number one, they have to understand what a profit and loss statement and balance sheet actually are. It's not hard. Accounting was developed in the 1300s by the Venetian monks who didn't have QuickBooks. They didn't have calculators. It's addition and subtraction. That's really all it is!
Read up on the industry (or, if you prefer, listen)
King: The book that I wrote, called The Courage to be Profitable, explains it in English, in terms they can understand. And it's available on audio if they prefer to listen. I mean, go get a book like that. Go read the industry publications: HVACR Business, The News, Reeves Journal. Whatever I'm missing. I mean, there's a lot of them! And take 10 minutes a month to read those. Or, scan through most of them until you get an article--that's not technical-- that you're interested in. Go to trade shows. There's a lot of industry events. Invest the time to work on your business rather than in it.
Growing my HVAC business successfully
Q: What are some of the biggest contrasts between HVAC businesses making $600K in revenue and those above 5 million?
No Man's Land Dilemma: to grow or not to grow?
King: You ask me a question about No Man's Land. So, I'm going to answer that question. Because, if you're under or around $600K to about a million, you're in what I call the first level of No Man's Land.
You've got to make a decision. Either, I'm going to grow the business; or, I'm going to stay at $600K, drop it a little bit and do it myself. Most contractors want to grow it; so, they've added layers of overhead. They've got to have their first dispatcher--maybe a technical field supervisor, maybe a salesperson. You're adding all this overhead in the office at that point. And you don't have the revenues to support the office. It's like: oh my gosh, I'm making a whole lot less money than I was making all by myself. Why am I doing this?
The verdict: I want to grow my HVAC business! Here is how
King: If you can do all of that, you'll grow to about $1.2-1.3 million--somewhere along these lines--getting out of No Man's land. Then, you've got this phenomenal time period from about $1.3 million thereabouts to about $2.5 million. And a lot of contractors stay in that range. They really and truly do. Because it is comfortable. They can manage it. They do not need another layer of management or overhead.
No Man's Land again, but I want to grow my HVAC business even more! Here is how
King: And, that's a comfortable stage for a lot of contractors to stay there, but there are the few who say: okay, I really want to grow this thing. And, so you enter the next level of No Man's Land, where you need a real service manager. You need a real installation manager. You need real salespeople. And you physically can't even do it yourself anymore.
You need the managers to manage the people, and you manage the managers. And that happens somewhere between 2 1/2 and 3 1/2 million to about 5 million. And, it's a frustrating time because: you know how to read financial statements. You know what good, bad, or indifferent is. And, you've got to find the right people.
Over the final hump. Now you are in the HVAC Promised Land!
King: And, that's the toughest part. It's not the field people anymore, it's the management people. But, once you hit over 5 million. And, 5 million seems to be a stumbling block for a lot of contractors. And you just have to push through it. Yeah. And, then you can go to 10 to 15 million. You got it. After that!
Hiring the right sales manager to grow my HVAC business
Q: What characteristics does an owner look for in a stellar rockstar salesman?
My rockstar managers know to manage people, not sell
King: A rockstar sales manager, number one, does not have to be able to sell. It's like a great service manager doesn't have to be a good service technician. Well, you've got to be able to manage people, alright. So, that's the thing.
Your sales manager must manage the process. Make sure the leads come in. They can ride with the salesperson. They make sure that the closing ratios are there. The reports are there. They help the sales team out when they run into problems. And those types of things. But, the sales manager manages the sales process. Just like the service manager manages the service process.
Salesman? How about a woman manager!
King: And I have phenomenal service managers and sales managers who are not guys--they are women. And the reality is that women can do this job very, very well! I'm not saying guys can't. If you have a woman service manager, she either has the technical skills, or she has field supervisors under her who handle the technical side. So, the sales manager has salespeople, under him or her, who handle the day-to-day sales.
Keeping tabs on your financial statements to grow my HVAC business
Q: What tools and training do contractors need to successfully grow their HVAC businesses?
Becoming an A+ student in reading your financial statements
King: It's funny because--in the beginning--contractors hate looking at their financial statements because they don't get them. But, I promise you, once you learn them, it's gonna be fun.
I mean, they are your scorecard. They are what you get at the end of every month. And some people look at them every day, every week. Which, you really should look at your bank balance every day, and what your sales were that particular day.
Work on learning how to read your financial statements until it's easy...and fun!
King: But--getting their financials is fun! And I know a lot of people who are watching this going, oh, my gosh I can't believe financials will ever be fun! But, they really can be, as you get more and more comfortable with them.
Again, it's like learning to read a wiring diagram. The first time it's hard. The second time, it's a little bit easier. And, by the time we went through it in six months, it's like, huh, why did I ever think this was hard. Same thing with financials. It's exactly the same thing!
Training my team everyday to grow my HVAC business
Q: What are some successful companies doing about the training gap?
The key to training my HVAC team is consistently
King: Okay, I'll give you a perfect example. One of the things with maintenance agreements is, you ask the customer in the beginning--if they're not a maintenance agreement customer--Ms. Jones, are you interested in saving 15% on this call?
It's very easy to ask. I promise you. With some contractors, I've harped on it for nine months now--and, they're still not asking it consistently! It takes the owner, saying: this I want to do. You work for me. And every time they find them not asking that question, they correct them on it. And, eventually, it gets done.
So, training, especially from a sales perspective, has to be done consistently. It is every week. It is going through what went right. Going through what went wrong. And, how to figure out: what can they do better next time?
Tracking all efforts to identify what works and what doesn't
King: And, it's looking at the reports. It's looking at the tracking. It's looking at the leads. You send out a direct mail piece. It either works. Or it doesn't work. And, if it doesn't work, what can we do next time? Do we need to let the same person have 3 different messages or 3 consistent messages to make sure it works? I mean, there are all sorts of things. Track & train.
Avoiding pitfalls so I can successfully grow my HVAC business
Q: What is the most common mistake that you see when an HVAC business owner is scaling beyond No Man's Land?
Know Thy Numbers
King: I hate to go back to financials. But, it really and truly is: you got to know your numbers. I can create marketing programs. I can create all the programs you need. If you don't know your numbers, you're in trouble. You really got to know your numbers.
Identifying the most important KPI to grow my HVAC business
Q: What is the key performance indicator contractors should be looking at?
Zeroing in on my net profit
King: What net profit per hour do you want? And, are you achieving it? And that means for every hour you bill, what are you bringing home? It's not a percentage. You can't take a percentage to the bank. It's not gross margin, because gross margins don't matter.
It is how much you are bringing home--on the bottom line--that you are putting in the bank for every billable hour. That's it. That's what you need to know.*
* Adapted transcript of Ruth King's interview with host Nmadi Nwoke.