HVACR Business

JUN 2015

Help hvacr contractors master the critical components of business management.

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HVACRBUSINESS.Com 22 HVACR Business J U N E 2 0 1 5 W hile gross proft can vary widely from month to month depending on how busy your company is, gross margin should not vary more than a few points each month. If it does, then you must fnd out why the margin is varying. Remember, gross margin is defned as gross proft divided by sales. As I stated last month (HVACR Business, May 2015, pg. 26), there are seven major reasons your gross margins are not consistent. So far, I covered the frst three reasons: 1. Financial statement fruit salad. 2. Inventory counted as material expense. 3. Jobs over or under in labor and/or materials. Here are the fnal four reasons. 4. Callbacks and Warranty expenses You have expense with no revenues against those expenses. In the case of warranty, you may recover part of the expense when you submit warranty claims to suppliers. In the case of call- backs, you didn't do the job correctly the frst time. This is costly in terms of prof- its and customer satisfaction. If you have a warranty part then you have to make sure that the purchase of the replacement of that part is not an ex- pense to the department. You've already expensed it once against the job, you can't have it expensed twice! Warranty parts are not inventory. I have seen thousands of dollars just sit- ting in companies' warehouses where no one took the time to send back the parts. Or, they don't send the parts back in the proper time frame and miss the opportu- nity to receive credit for those parts. Or, they send them back and don't watch to see if they get the credits back. Warranty can make your direct expenses higher so that you will show a lower gross margin. Callbacks are internal mistakes. Find out why they are happening and fx the problem. Most times it is a training E x p E rt A dv i c E understand Your P&L: Gross Margin, part 2 Building Your HVACr Business BY ruTH King PRESIDENT OF HVAC CHANNEL TV Remember that when the sale is made your company has a liability until it performs the work. STEAM HEAT COOLING ELECTRICITY ENERGY COST BY 40% CUT YOUR WWW.2G-CENERGY.COM 1 (888) 976-6991 Flexible Solutions With Modular Combined Heat & Power Systems CALL TODAY TO LEARN HOW MUCH YOU CAN SAVE 100% Performance Guarantee

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