Successful HVACR business owners know they can always improve how they manage things. This industry certainly has seasonal dips and peaks; but no matter what your current client list or cash flow situation, your financial health probably could be better.
These tips offer 10 ways to improve the financial health of your business in just a few months.
Analyze financial records from the past three to five years to identify spending patterns. What expenses are consistent year after year? What expenses only show up during slow or busy months? By pinpointing these spending trends, you can identify expenditures that are necessary and those that can be eliminated. Use these as guidelines for creating a new budget plan.
Once you understand your expenses, construct the new budget by incorporating a strong backbone that allows for expense cuts and seasonal dips. You can create consistency of processes by making sure to use balance sheets, statements of cash flows, and solid profit-and-loss statements. If you plan your new budget around these three areas, you ensure that your company's spending is sustained. (For more detailed explanations on these three documents, see Ruth King's column Putting It All Together: A Good Financial System).
Come up with a process to monitor spending. For example, have all employees switch to credit card transactions — if they are not already — for business purchases. The result is a complete monthly statement of expenditures that is truthful. By looking at these statements, you can determine where expenses overlap and identify unnecessary purchases. Are employees purchasing goods or supplies that are already available to them without their knowledge? Are two employees in charge of purchasing the same types of goods?
These days it is almost unheard of for a business to be completely debt-free. However, there are plenty of solutions to help minimize the amount of debt a company carries.
There are two types of debt and the two are oftentimes related. The first is debt in the form of payment from clients that have already been serviced. For whatever reason, they have been unable to fully supply payment. The second is the debt that you owe, i.e., to suppliers, utilities, and employees. These bills might be going unpaid because you're waiting on the money from clients needed to recompense. If this is the case, consider using "factoring," a specialized financial service that provides immediate financing secured by credit-worthy account receivables.
Here's how factoring works: A factoring company purchases invoices from clients, and once goods and services are delivered, it gives businesses an immediate cash advance, typically 80 percent of the invoice. Upon collection, factors pay clients the remainder of the invoice amount, minus its fee, which varies according to the amount of the invoice. This allows companies to pay their bills and employees while waiting for their outstanding client bills to be collected.
Once debts are minimized and bills can again be paid in a timely manner, remember to send checks on time. This will lower interest charges and reestablish trust with suppliers. Keeping accurate records of when bills are paid, such as the check number and payment date, will allow you to easily access financial history. Additionally, whenever you are paid by a client, make quick use of their payment in growing or sustaining your business.
Eventually all things change – prices are raised, deliveries are reduced. Maintain contact with the businesses you conduct relations with to make sure you're not being overcharged. Maybe they are distributing a certain number of an item on a quarterly basis. Is there a cheaper price for distributing smaller quantities on a more consistent schedule?
Ask what options are available to you. If you're not happy with a certain business or their offerings, research similar businesses that offer the same services at more reasonable rates.
The biggest reason that a budget plan fails is because it is never reviewed for success, allowing failures to go unnoticed. Take an honest look at the budget and realize what solutions are working and what solutions just add more work with little positive return. Make the necessary changes and decide what solutions are best for your business.
Any small- to mid-sized business owner can explain how quickly a company can go from being profitable to finding themselves in debt. Sometimes these fluctuations are just seasonal dips, especially for HVACR companies in mild-temperature regions.
Factoring can help companies remain profitable throughout difficult months as well, keeping them from getting behind on payments. The services provided by factors – including processing and ledgering of accounts receivable, credit checks, collections and receivable administration – can be implemented during slower months to allow you to focus on operating your business without worrying about falling behind.
By implementing and monitoring a budget plan, you can see where you are not only wasting money, but where you can afford to try new programs and methods. Creating a marketing plan is one way to invest in the future of your company. By maximizing consumer awareness, your marketing dollars are working hard to keep your name and services fresh in the minds of your target demographic. In fall and winter months, a well-targeted marketing campaign reminds consumers to use your company when heating systems are needed or working improperly.
Another way to use your newly discovered finances for the future of your company is to invest in new products. For example, upgrading computer systems or introducing a new program to enhance filing, inventory and management would also be beneficial down the road.
Donating to a local charity is great for all involved parties. Not only do you feel a sense of pride and purpose in your community, you are providing goods and services to people who may have otherwise never had access. Raising the standard of living in your area will motivate neighbors to further improve their own standards.
Donating to local charities also gives you a presence within your community. We are all interdependent; reaching out your hand will benefit you down the road when you need assistance.
Any time is the right time to begin taking the necessary steps to improving your business. Even the most profitable companies can benefit from a revamped budget plan. Choose one area at a time to slowing improve the financial health of your company and enjoy the results.
How to be creative and resourceful in finding financing during economic hardship.
Many business owners often sabotage their online reputation without realizing it by making decisions that harm or certainly don’t help their websites. Analytics can help to verify what improvements need to be made, but not all HVACR businesses have such statistical tools.
A number of government programs have been implemented to provide incentives for employers to hire veterans, and special incentives are available for employers who hire disabled veterans. Is this something you should consider?
Knowing how to prevent injuries and heeding warning signs when something is wrong will enable you to continue selling and servicing hvacr systems for years to come.
Once you understand your financials and start consistent monthly reviews, you must boldly implement changes based on what you see.