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Getting into the HVAC business

3K views 12 replies 5 participants last post by  pcplumber 
#1 ·
First off, let me say that I find this board a great resource and appreciate all the help on my handful of posts. It's nice to have a knowledgeable community to tap into when you have a question. :thumbup:

Now, for the background. I have a subcontractor friend whom I use for my hvac work, whenever I can get him. He is amazing on a couple levels: He's great technically with all aspects of HVAC, generous with pricing, amiable with his customers, suppliers, other vendors, subs, and even competitors. What he has not had time to do for his business is the transitioning of himself from working in the business to working on and owning the business, while other people work in the business. I understand that position, as a previous sole-proprietor, who did everything for my own business while getting started. I was formerly a real estate broker with a team of 5, with two administrative assistants and three agents so I am relatively experienced in finding, managing and training people and systematizing duties/roles for constant improvement and consistent results. The only experience I have with the HVAC business is evaluating subs for my rehabbing business most recently, having lack-luster experiences with various local companies on my personal residence within 10 years, and then having family out of state in the HVAC business telling me stories of the people they work with/for that make me realize the value in the partnership that I'm considering.

Here's the current lay of the land. During the last job that my HVAC friend completed for me, I saw that he was still unloading the units and taking a physical beating. Understandable since in Austin it's regularly over 90, decently humid, and sunny during working hours. He's about 60 and in better shape than me in my 30s, so I'm not ragging on him, but rather realizing that a human body has a physical labor limit later in life. I asked him about what his plans were since you can't do the work yourself forever. He said he would love to figure out how to make it work, but his problem has been finding time to find the right people and keep his reputation intact.

Seeing such a talented and great guy with so much potential for his business, with no plan to keep it going or retire with some ongoing income; while also noting an opportunity for myself to work with a friend, in a company that has such a great reputation for service that wows clients, made me approach him on buying into his business, as a minority partner. (sorry for the long run-on sentence. I was never great at writing.)

So, here's my questions to the knowledgeable:
  1. Any good resources out there on HVAC business valuation?
  2. Anyone willing to share their experience on either side of a similar transaction?
  3. If you have considered and declined such an arrangement on either side, what made the arrangement undesirable?
  4. Any advice? or cautions?

Thanks in advance for any input you can share with me.

Joe
 
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#2 ·
What I can tell you is that truly COMPETENT HVAC guys are few and far between. The competent HVAC guys I know also cross over to commercial refrigeration where there seem to be even less really COMPETENT guys.

As with any trade you can only be taught so much. You have to have the "knack" to excel in the trade.

If you are looking at it straight from a $$ prospective you probably aren't the guy to succeed.
 
#3 ·
Hey Griz,
Thanks for the response. At first glance it seems to me like you were estimating that I would be doing the actual HVAC work. I'm not trained in that, but I do have an engineering degree so I can understand the various physics, mechanics, and electronics involved in HVAC. My goal was to really help build and run the business with the existing owner retaining control and being the HVAC subject matter expert/and trainer/name of the company. I would primarily work behind the scenes to ensure all the business elements are handled, client services are performed consistently, and relieve the current owner of any portion of administrative/non-HVAC knowledge -requiring work that can be handled with my lessor domain knowledge.

Can you help me understand what makes you believe that I'm not the guy to succeed? I'm not challenging your opinion, just trying to understand so that I can make sure to consider the data point while evaluating this opportunity.
 
#10 ·
You will never be any better than the mechanics you have working for you. HVAC & refrigeration are just too technical & NEED experienced guys to make a business work.

You can have all the degrees in the world and experience too for that matter, but if your guys are not of the same caliber you ain't gonna win....
 
#5 · (Edited)
If he is 60-years old, healthy and happy then leave the guy alone, or you may create an environment that makes him miserable and unhealthy. Changing his business the way you describe takes a lot of mental energy that can drain a person and at his age I would not want to be responsible. If he wanted people to work for him he would have probably hired help.

I am 65-years old and I have been thinning my business and eliminating employees. I have been working in the field more and I love the feeling that I have less mouths to feed.

Some people don't want to have a full-blown business and many people are not mentally qualified for the tasks.

I am in exactly the same situation where you are describing that this heating contractor may retire. After 40 years in business I decided to take on a partner for construction work. Like your heating contractor, I have the licenses and less knowledge about the specialty trades we are doing. Like you, my partner has special and advanced knowledge that I don't have. I thought we would be a terrific match, so we took on a project that is currently up to almost $900k. I am going to make some fairly decent money, but every minute of the day I regret taking on this work and I hate working on this project with a passion because I was looking forward to slowing down and enjoying life.

Now, because of someone with an idea like you have, I am working harder and putting in more hours than when I was in my 20's. My point should be; even though you think you will handle everything your partner still has the liability that he has to worry about. He will still be the key man or the 'go-to-man' for every technical and business problem and he will be working harder mentally than he ever worked before because he will have alot more to worry about. At 65, if he loses his nest egg he may not be able to recover it and you could (should) be willing to share in the liability for his loss(es).
 
#6 ·
Hey Pcplumber,
I appreciate your thoughts. In our initial discussion, my friend indicated that he wanted to scale up his business a bit, but just didn't have the time or luck in finding the right people on the time he could devote to the task. I can't evaluate people based on HVAC knowledge, that will still be his job, but I have interviewed folks for 10 years in both my businesses and am comfortable judging qualities of people in general. The ability to take the administrative and less technical HVAC work was welcomed by him as well. I'm not looking to interlope at all or make his life harder than it needs to be, but I do know that he's not ready to retire with the lifestyle that he wants and that I would love to work with him and have the skills needed to run the business side of things.

Assuming the fit is good and we are both amenable to the arrangement what advice can you give either of us?
 
#7 · (Edited)
Please don't take what I am saying as being negative. The hvac business can make $millions in profit every year if you have the four necessary ingredients and if you are lacking in one then the business may linger, but will not thrive. When starting a business (not running it) these are the four requirements in order of their priority; 1) marketing, 2) sales, 3) delivery of product and 4) business management.

The very first thing I do is test the water. I do test marketing to see if I can get the sales I want. If you can't get the sales you dream about then don't waste one penny on setting up the business. I would not even write a partnership agreement until I generated some sales. Then, when you get sales you can get everyone excited, on-board and then you have something with value and a mission that needs to completed. Now, everyone has a good reason to focus on how the product will be delivered and this gives you the understanding regarding what, why and how the business will be managed.

There are hundreds of threads on CT about marketing. See if you can get the sales and then when you get excited you will figure out a way to get the work done even if you have to sub it to other companies while you are building your business.

Please understand that I only answered questions 2, 3 and 4 in your post regarding thoughts on your business arrangement and I am not negative nor am I judging you. From your writing, I get the feeling that you may have the business experience to make this business work, but if you have other irons in the fire it probably won't thrive well because a decent-size hvac business take a person willing to work no less that 5 days per week from no later than 6 am to late in the day and you can't be spending a lot of time on your other businesses. Managing sales people, office workers, installers, suppliers, permits, building regulations and customers needs to be tended to every minute during the business day. This can kill the average 60-year old man.

Are you going after residential work, commercial, or both. Residential required less technical knowledge, is easier, has a larger market and can be a great cash cow. Residential requires very expensive marketing to make the business grow.

Commercial work makes tons of cash and when you get good accounts like supermarkets, schools, industrial buildings, etc. you have customers who don't care about the cost. All they want is for their equipment to work and they want a company who can deliver. These accounts require some serious pavement pounding, but once you get a few accounts you can be set for life. The problems I have with commercial accounts is it is difficult to find the employees with the technical skills and you can't send any bozo because these accounts usually have engineers on the premises who know more than my workers. It can be very embarrassing.

There are thousands of laws and regulations for hvac and there is a lot of math for sizing air conditioner condensors, heat ducts, air movement, air speed, and thousands of other things. Then, you have to deal with all the computerized systems that are run from remote locations. You will have to deal with chiller systems, underground ice storage for chillers and a lot more.

Where do you want to start?
 
#8 ·
pcplumber,
Thanks for the information and I appreciate your thoughts as an experienced practitioner.

The business that I am considering buying into is mostly residential. I get the feel, but have not confirmed that the owner likes to deal with people and gets a warm feeling from delivering a quality service at a reasonable price. We probably need to talk more about his motivations and inspiration, but I know that currently most business is residential or small commercial. He has talked about installing giant 1M BTU chillers, but it seems like an exception rather than a rule. Personally, I'm ok with either as there are pros and cons for each.

I spent 10 years as a residential and commercial real estate broker, which is arguably the most competitive market next to maybe lending in terms of generating business consistently. I made something like 18k in total sales my first year in business and my best year was over 300k in gross sales. Not spectacular, but not an ordinary thing either. I can assure you I was working 24x7 that year. That said, I think this opportunity isn't lacking in willing customers. My friend let me know that he regularly turns down clients from a builder with 100s of starts a year to residential customers wanting annual service contracts.

I think my value add in this partnership is in service delivery and business management. My friend has all the sales opportunities he needs and if he keeps to just him and his one part time sub he can control service delivery and manage the business on his own. I want to learn how he does what he does, systematize it so that average or just above average installers can provide excellent services by using his knowledge via training, site audits, checklists, and him to evaluate/estimate/give guidance. That said, I have ideas from my real estate business to wow clients and keep them coming back for more and I want to bring those to the table as well.

I also am good at admin and my job is essentially project management. Making sure things get done on time as expected by the client. I an used to getting permits from the city. I have an account so I can do some things electronically, but I'm ok sitting at the city and talking to a planner to get the plan approved and permit issued. I won't be designing any systems, but I can parrot words of the knowledgeable with the best of them so a little prep pre-meeting with the permit office should do us well.

Any additional advice you can give?

Thanks
 
#11 ·
Hey Griz,
I used to feel the same way about being the best technically. After some research and working with a team of folks in my other business, I found that some checklists and processes helped a lot. I mean the guy who doesn't know what to do or misdiagnoses something is one thing and probably is not solvable by checklists. But those folks who are good technically, but just forget to do things like keep the client updated, set expectations properly, do the little checks after work to ensure nothing was missed can be helped with checklists/processes. No one is perfect, but at least forcing the technician to answer some questions via check list or process might bring out the issue to them or prompt them to call a senior person for help.

I also feel that folks who have a good heart and are willing to own and correct mistakes not only earn the respect of the client, but also learn to improve their skills and do a benefit to the business. I'd love to be able to hire nothing but experts who have impeccable morals with 40 years experience, but we all know that finding those guys is 1 in a million.

Anyway, I appreciate the thoughts and look forward to any additional advice you can give about partnering with a great technical guy with a great reputation. I'm also very interested in hearing what others think is a major asset that I can bring to the business. Is it doing the administration? Is it handling all the marketing? What do HVAC people most often find challenging and difficult to solve while running the business?

Thanks
JOe
 
#13 ·
Your questions regarding what you are looking for are too broad and the answers can fill thousands of pages.

It seems that the only thing your friend (partner) is bringing to the table is Good Will, experience and he is a nice guy. It appears that he has not had the ambition to run a thriving mega business and he probably does not have what it takes regarding marketing, running a larger business, book keeping, managing employees, etc.. Therefore, you have to bring everything to the table and these things require thousands of pages of knowledge and advice. Even working with a partner is a very lengthy subject and many skills are required.

Your questions have to be more specific and not as broad, or we will have to write hundreds of books in one thread. The answers for the questions you are asking are in hundreds of threads on CT, but I'm sure CT members are willing to answer more specific questions.

My recent post stated (I think) that the first thing you need to do is start with marketing and this can include going over your partner's books to see what he really has to offer. Most people (even myself) tend to exaggerate how much business we have and how much money we make. We don't do this on purpose. It is something that is built into almost everyone and it goes like this. I worked for a company for one year and my average earnings were $600 to $800 per week. One week, I earned $1800 and I naturally started telling everyone I earned $1800 per week.

Point! I don't base my decisions on words. I need to see the hard facts, numbers and then I can make an informed and intelligent decision.

Personally, I would not worry about running the business and would not even ask how to run a business if I did not have proof that I can generate sales. You can start your marketing with door-to-door flyers, newspaper ads, door-to-door canvassing, business cards, direct mail, etc. Until you prove that you have sales then don't worry about the business. When you have the sales you will find a way to run the business.
 
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