HVACR Business

SEP 2017

Help hvacr contractors master the critical components of business management.

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9 HVACR BUSINESS SEPTEMBER 2017 www. hvacrbusiness .com become slaves to their overhead. Don't let this happen. It's no fun. Another issue is fixed cost overhead verses variable cost overhead. Here is what my experience tells me: Variable cost over- head is a small part of the overall overhead as it pertains to our businesses. Yes, we do have commissions, but outside of that, our cost structure as contractors is largely fixed. I've also fallen victim to, and watched others, play the overhead game by increas- ing sales to cover the budgeted amount of overhead. You can make any budget work as long as you increase sales and margins enough to pay for your overhead. e problem here is that real life gets in the way and we don't always have the sales and margins needed to offset, with profit, our overhead. e one and only constant we know, every single day in business, is our over- head. But most business owners ignore it. Every business owner should know exact- ly what his or her overhead run rate is — weekly, monthly and annually. is is the most consistent number since it is largely fixed and not variable like sales, which is seasonally driven. Bottom line: know your overhead number. Period. Limit Downside, Maximize Upside Now, let's go back and look at the low- est performing month with the known gross margin and compare it to the monthly overhead run rate. For an easy ex- ample, let's say your lowest sales month is $100,000 and your historical margins are 40 percent. If your lowest sales month produces a gross margin of $40,000, that means your overhead has to be no more than $40,000 or you lose money. I know, this seems too easy. at's be- cause it is that easy. You limit your down- side and maximize your upside using this type of budgeting. Yes, you still need to do a thorough line item budget, but you now know what you can afford rather than hoping for sales to offset your overhead. Getting to this number is the easy part. Acting on it is more difficult, but it's worth it since you'll be a strong and profitable company. It will keep you from being a slave to growth and hoping for perfection in your business. Instead, you'll have a predictable business that creates equity to grow on rather than being leveraged and desperate for sales. Knowing your costs will allow you to make good business decisions, not poor decisions. It really is that easy. Now you just have to do it. u Wade Mayfield is president of Thermal Services Inc., Omaha, Neb. He started at Thermal Services in September of 2000 as a sheet metal apprentice, but moved swiftly up the ladder. In 2006, he took over as president and still serves in that capacity today. For additional information, visit thermalservices.com. Every business owner should know exactly what his or her overhead run rate is — weekly, monthly and annually. LOCKING REFRIGERANT CAPS • Meets IMC & IRC Code Commentary requirement for 'Special Tool or Key' Refrigerant Theft or Leaking Due to Corrosion? For Solutions, visit www.rectorseal.com REFRIGERANT LEAK SEALANT • Permanently Seals Leaks • Zero Reaction to Moisture • OEM Approved PRO What goes into your system Should STAY in your system ™ RectorSeal, the logos and other trademarks are property of RectorSeal, LLC, its affiliates or its licensors and are protected by copyright, trademark and other intellectual property laws, and may not be used without permission. RectorSeal reserves the right to change specifications without prior notice. © 2017 RectorSeal. All rights reserved. R50076-0917 RectorSeal ® 2601 Spenwick Drive - Houston, TX 77055 800-231-3345 rectorseal.com A CSW Industrials Company

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