Starting and staying in business

       According to statistics from the U.S. Department of Commerce, more than 1 million new businesses are started in this country each year. Nearly 50% of those fail in the first year. After 5 years only 20% of the original companies remain. At the end of ten years about 5% of those in the original group are still in business.

New companies spend much of their energy just on surviving. Even old established companies have their good times and bad times, but they have experience in doing what it takes to stay in business.

Many HVACR businesses are started by technicians who are very good at what they do, but believe they can make more money on their own than working for someone else. When they start their one-man operation, the first shock is the cost of doing business. Each time the tech collects from a customer it seems like there are so many people waiting for some of his revenue.

The distributor needs to be paid for parts and materials.

There are taxes (federal, state, and FICA) on both his personal income as well as the company’s.

There is the rent on the company space (even if it is his home), utilities, maintenance, truck payments, more taxes on personal property, gas expenses, and repairs.

There are insurance costs for health, truck, building, and the liability insurance and license bonds for the company. 

Although this is only a partial list of business expenses, it illustrates how little is left for the technician from each sale, and even less for him to put into savings (profit).

Knowing a company’s cost of business is the first step to setting the prices that a company must charge to be successful. Pricing should be based on the cost of doing business plus a reasonable profit, not necessarily on what competitors are charging.

Example: Company A is charging higher prices than its competitors. The management believes they can charge more because they give more than other companies in terms of good service and quality of work.

Example: Company B tries to charge less than its competition. The owner of this company may believe they will attract more customers by offering a lower price. 

Both companies may be successful, or not. In any case, there are many pathways to business success, as well as failure. The direction the company takes is up to the owner and his management team.    

Just about every decision an owner or manager makes involves costs in some way. Following are some examples of a few things a manager may have to consider before making a decision:

·         To work the techs overtime to get a job done, even though it will lower profits.

·         To discount a sale in order to get the customer’s business, reducing profit.

·         To go to a higher priced supply house that is closer to the job, rather than spend more time and gas to travel farther to a cheaper supply house.

·         To buy a new truck, or repair an old one.

·         To hire a new technician, or have the other technicians work more overtime.

·         To lay someone off because there is not enough work, or to keep them and hope that more work will come.

·         To pay a technician for a full week’s pay during slow times, or send them home when there is no work.

·         To add employee benefits to keep them from going somewhere else, or to lower employee benefits in order to keep from having to raise prices.

Technicians should be aware of the many concerns management must consider before making decisions. This knowledge may help the technicians understand the choices their employers have to make. 

With so many things to consider owners and managers cannot be expected to please everyone all the time. The first rule of management decision-making is to do what is best for the company. If the business fails everyone loses: owners, employees, and customers. In addition, the owners must benefit because they have invested their own money and energy into building the company. Then there are the employees who take care of the customers. And finally the customers, the sole reason the company is in business.