HVAC Profit Examples
I will bet my morning coffee that the business you run is your single most important asset. It is also the one asset that you have the most ability to influence.
If your goal is to sell, or reduce the time you spend in your business over the next 5 years, there are several things you need to put in place.
As the owner, you have a role that is hidden – the investor
“the role as investor in your own company, next to your role as CEO, Founder and Hustler in Chief,…create that role for yourself to the best of your ability. We believe that by extracting the role of investor and giving it form, content and a place in your business life and teaching you to fill that role, you will significantly improve your chances of creating lasting value in your company and to create lasting prosperity for you and your family. “
Sir Steven WIlkinson – The Entrepreneur as Investor Course 2019 Beta ”
As you sit outside your business and look in as the investor, think about whether you would buy this business that you have created and live with every day. If you would, how much would you pay and how much as an investor (doing no work or hustle for the business) would you expect as a return on that money?
Comparing your business to others will help you decide what good profit should be.
Comparing your operation with ones like yours is useful and is called bench-marking. Benchmarks can be found in industry associations, for example.
Better Buildings Neighborhood Business Models Guide has the following information for HVAC Contractors:
“HVAC contractors rely on a pricing system for their jobs that builds in a high gross profit margin on equipment and that limits labor. The gross profit margin (i.e., revenues minus the cost of goods sold, divided by total revenues) on equipment is approximately 45 percent, but the gross profit margin on labor is much lower. While material costs for a given type of job tend to be relatively consistent, labor costs are highly variable and drive down the overall profit margin on a job. Therefore, it is in the HVAC contractor’s business model to generally limit the amount of labor hours on a job, focus on quickly completing the project, and move on to the next job. An HVAC contractor’s key metric is the “gross margin per man day.” This metric, which is calculated by dividing the gross profit margin by the average number of hours worked per day, allows contractors to measure how much profit the firm has realized against the time spent by technicians on a given job. As a result, HVAC contractors generally avoid labor-intensive jobs, which lower their overall profitability. The target operating income is approximately 12 percent for an HVAC contractor; this metric is calculated by dividing earnings before interest and tax by total revenues. Generally, 12 percent is a solid, average target that HVAC contractors will use as a measure of profitability”
For business sale purposes, compare your business profit to the well-run business that creates a 12% profit. If your business produces a lower profit, it is worth less money than the average in your industry. If you don’t pay a decent wage, you also lower your cash out value – what someone would be willing to pay you for your business.
Pay yourself enough so you could hire someone to do your job
Cheating by keeping your salary low, or mixing personal and business expenses will muddy the water and make it harder for you to step out of daily operations and impossible to value your business for sale.
In a world where you are too big to be small and too small to be big, the owner is often working two full-time positions.
Sales, Operations and sometimes another role as a bookkeeper are all your responsibility, paying yourself less than the market rate is an investment into your business that should produce value in the future. This should be a temporary situation to be remedied by future profitable revenue streams
Creating systems that run smoothly translate into more value and daily ease of operations.
Systems for hiring, sales, operations, marketing, all can be documented easily. I have clients recording loom videos if something is computer-based, or recording audio or video in the field for other instructions.
Growing your employees’ skills and encouraging them to step up and take ownership is a skill sometimes hard to master. I know I have difficulties with this myself and I see it with other businesses. Mistakes are learning opportunities, and care must be taken to step back and guide them towards solutions that fit your business model.
To get out in five years, you need to work hard at each of these items:
- View your business as an investor.
- Create systems so anyone can succeed.
- Keep personal and business separate
- Encourage employees to own their jobs.
In the end, you will be able to run your company and not have your company run you.
What have you done to improve your business this week? Book a 15 minute video call with me today.