Ruth King is a nationally recognized expert in the HVAC industry focusing on business growth and operations. She has helped thousands of contractors individually, in groups, and in seminars/workshops/conferences. You can reach her at ruthking@hvacchannel.tv  or 770-729-0258.

I Did It All Myself

I grew up in the heating and air conditioning business. My father started the business in 1952 and had my brother and me working in the business from the time we were 5 years old. I wanted to buy the business from my father. However, he insisted that I have my brother as a business partner. I refused since my brother was an alcoholic and was not productively working in the business. He was a detriment and I didn’t need a boat anchor around my neck.

So, after many disagreements and ultimatums with my father, I started my own company on September 1, 1984 because that was the deadline of negotiations and the “final ultimatum” with my dad. After all, I was 34 years old, young, and could do anything. I had a degree in finance, knew how to price, and was educated technically. How hard could it be? I soon learned that it wasn’t so easy.

On September 1, 1984 I was the sole employee. I had one customer: a Jersey City businessman who knew what I could do. So I had work immediately but unfortunately with no money in the bank I was extremely over-leveraged. That much I knew.

I kept asking myself, Can you produce the work? Can you get the work done and get it done for the price that you prescribed? If I was working a job by myself I did fine. It was when I started to allocate work out.
Naively I priced my jobs and service at the rate that it would have taken me to do the job. After all, I thought, everyone has the same work ethic that I have. I hired people assuming that they would work at the level they are supposed to (i.e. my speed and quality). That was a major mistake.

I spent a lot of time working at night. One job stands out in my mind. I went home, had dinner, and while watching my daughter’s softball game, did all of the work necessary for a commercial building. The piping was totally laid out, the order was placed, and the materials were delivered. I gave it to one of my employees with the blue print that I had laid out exactly the way I wanted the whole job done. Everything was there. I got to the job two days later and there were three times the amount of fittings there. He decided to change the way he was going to do it because he didn’t bother following the paperwork. He decided he could do the job better his way and spent twice the amount of money.

So what did I do? I fired him. I said, “I don’t need you changing what I’ve laid out and I can run this damn piping faster than you can.” I proved to him, and maybe more to myself, that I could.

I was then in a no-win situation. I had to be on a job to get the work done but I couldn’t solicit more work because I had to be on a job. I was running in circles. I did the work well. However, I didn’t have time to get more work to continue doing the work well. But, if I delegated the work and it didn’t get done well and the more work I got, the worse it was.

My wife did work in the office. Unfortunately she struggled with the numbers and when the numbers didn’t work she wouldn’t want to get me upset. So, she didn’t show me the numbers. That turned into a snowball effect because I thought the numbers were fine and when I found the numbers weren’t fine I was in a huge hole.

How do you think this true story ends?

Find out by reading Ruth King’s new book: The Ugly Truth about Small Business: 50 Things that Can Go Wrong and What You Can Do about It. To order the book or the CD go to www.theuglytruthaboutsmallbusiness.com  or call 800-511-6844.

My Manager Walked Out and Took the Department Employees With Him
by Anonymous

My father started a small plumbing company and grew the business to approximately $500,000. After college and experience working for a another company outside the industry, I decided to join him with the purpose of growing the company. I built it to over $15 million. Along the way I learned many valuable lessons in working with people. The story here was probably the most expensive.

One of the ways that I grew the business was to add another division that served our customers’ heating and air conditioning (HVAC) needs. This was a natural addition because we were installing plumbing in new houses and it wasn’t that difficult to install the heating and air conditioning in those new houses too. Our builders liked dealing with one company for two trades (plumbing and HVAC) and the business grew rapidly.

Finding people who were willing to work hard and did quality work was difficult. It was especially challenging in our service department where we maintained and repaired the equipment we installed as well as replaced old equipment. Our service technicians were in our company trucks working in many different houses and I couldn’t watch them. I had to learn to trust that through training and follow up they would do the right thing with our customers.

One of the first service technicians I hired was John (name changed). He was took care of our customers well and learned quickly. I was pleased and watched his progress in the early years. John became an outstanding technician.

Our reputation spread and the service department grew to eight technicians. It was time to hire a service manager since my time managing the service department was limited. I still had to oversee the construction departments and run the business. Who better to promote than John?

John jumped at the chance. In the beginning everything was great. The technicians liked him and the department grew to ten technicians. Within a year the problems started. He wasn’t doing the management things that needed to get done. Discipline? Forget it. He was the technicians’ friend. Numerous meeting and conferences with John did not help. He wasn’t a manager.

I realized John was a technician with a manager’s title. However, I rationalized that having someone in the service department was better than having to run it myself since I didn’t have time to do it.

One day John told me he was leaving. I was relieved. However, that relief turned to anger and shock when eight of the ten technicians left with him. I was left with the two newest technicians who had the least training. In an instant we went from a department with ten technicians to a department with two technicians.

It was summer…a time of year that was impossible to find technicians…

How do you think this true story ends?

Find out by reading Ruth King’s new book: The Ugly Truth about Small Business: 50 Things that Can Go Wrong and What You Can Do about It. To order the book or the CD go to www.theuglytruthaboutsmallbusiness.com  or call 800-511-6844.

Bankruptcy was Not An Option

We walked out of the attorney's office stunned. Neither my partner, who had invested money in the business, nor I could say a word on the drive back to the office. The bankruptcy attorney had described, in vivid detail, what it was like to go through bankruptcy. I was speechless. At that moment I knew I had to do something else. Bankruptcy was not an option. I couldn’t go through it. There had to be another way to climb out of this $700,000 hole I had dug us into since failure was not an option either.

How did we get into this mess? We wanted to grow the business. I wanted to concentrate on my strength, selling. I searched for and hired a person who supposedly had the ability to grow the company. Great references. Bad manager. I kept my titles of Chairman of the Board and President. I gave him the title of CEO and free reign to operate the business.

That was a mistake. He spent money on everything. Why not? It wasn't his money. Everyone got new equipment. He hired a recruiting firm to find people and paid high fees that we couldn't afford. He hired "yes people". He didn’t pay payroll taxes. He got us into debt that we couldn’t handle.
To make matters worse, he cooked the books. Part of his compensation was a bonus based on results and he made sure he got a bonus.

Where was I while all of this was happening? I was happily doing what I loved. I was selling and bringing work in the door. However, not enough and not fast enough to cover the money that we were spending. I didn't have a clue what was really going on.

I realized that we were in a lot of trouble when the CEO tried to sell a piece of the company to a third party and was going to sell me too. He started talking about employment contracts and included an employment contract for me. There was no way that I was going to sell out. Until he made that mistake I had no idea how bad we were. I started digging.

When he tried to sell me with the company, I immediately fired him and started running the business again. I had the books audited. Imagine my surprise when we were in hundreds of thousands of dollars in debt and owed the Internal Revenue service for payroll taxes.

How do you think this true story ends? Find out by reading the book or listening to the Audio CD: The Ugly Truth About Small Business: 50 "I never saw it coming" things that can go wrong and what You Can Do About It. To order go to www.theuglytruthaboutsmallbusiness.com

I Got Sick and Couldn’t Work
Anonymous

I started a consulting business to write business plans and access capital for small to medium sized businesses. I enjoyed it and my customer base was growing rapidly. In 2001, I was working on a large grant to acquire funding for a New Markets Venture Fund. It was pretty exciting, the deadline drawing near.
 
My voice mailbox was nearly always full. I was under a lot of stress so I started taking a lot of Advil while I was working 14 to 22 hour days. I couldn’t sleep because I was so stressed and excited at the same time. Since I didn’t do drugs, smoke, or drink, I thought my health would be the last thing to go.

My friends and family started to get concerned. They saw my health deteriorating. They dragged me to the doctor. I didn’t see any need to be concerned as there was “nothing wrong with me”. I had work to do. However, thankfully in retrospect, they persisted. It took seven family members and a dear friend to trick me into getting help.

After many tests, I was diagnosed as manic depressive and was hospitalized for a week. My entire life, including my business, came to a halt. The doctors wouldn’t give me a date when or where I could go back into business.

The hospital stay scared me. I realized that there was no one to take over things in my absence. My self-confidence was shot. I felt like the world was ending and I had no purpose.

How do you think this true story ends?

Too Much of a Good Thing


What would you do if the following scenario happened to you?

A supplier comes to you with a special product offer for your customers. This is a great offer for the season. You quickly send out mailers and expect $10,000 to $20,000 in orders. You come to the office one Saturday soon after the special was offered and found over $100,000 in orders.

This is a major problem. Why? You are already booked and behind because of your existing work. In addition, this order is for product and you are at the supplier’s credit limit. They are relentless. No credit, no shipping the order. Your line of credit is maxed out.

This put enormous stress on you. You pride yourself on great customer service and quick customer deliveries. Where do you get the money to fill the orders?

Remember:
1. A promotion that is too successful can hurt your company’s reputation.

2. If you think that you have enough of a credit line and enough cash you probably don’t.

3. You’ve got to have a plan to get through the cash crunch.

What do you do?


Find out by reading Ruth King’s new book: The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com.

It makes a great holiday gift for business owners and would-be business owners!

Seven Ways to Earn Success by Learning Failure
By: Ruth King

My grandfather always said that there were three types of business people. You want to be the third type, those who learn from the mistakes of others. The Ugly Truth about Small Business describes some sales disasters you can learn from. Here are seven lessons learned:

1. To see your goals achieved, sometimes you have to adjust your thinking and activities. If “Plan A” doesn’t work, try “Plan B”. It is very rare that the first plan for achieving the goals gets you where you want to go.

2. Send out a proposal a day. This goal allows you to have a good chance of generating work.

3. Join the associations where your potential clients are. Volunteer for the membership committee. Meet the new members. Your business will always come up in discussions.

4. Realize that your experience dealing with issues will enable you to handle whatever comes up. The more experience you have, the less emotional and more logical you will be as critical situations arise. You gain confidence through experience. Plan for the unexpected because that is what is going to happen. If you don’t get upset by that and just keep right on going, you will work through the problems. You will prevail. Just don’t think it is going to be this easy, magic thing.

5. Use educational newsletters to keep customers and potential customers up to date with new products and services. Always includes material that will help them operate their business better. In addition, highlight current customers (with their permission) to show unique and different ways of using your current products and services. This helps your company “keep in touch” and increases sales.

6. Winning your first large customer is exciting. Keeping that customer can be dangerous if that customer represents more than 20% of your revenues. The customer likes it because you’ll pay a lot of attention to him. However, he can dictate terms and cause you to lose profitability.

7. The danger with a customer representing more than 20% of your sales is that it usually takes time to replace a large customer. Sales cycles are long and finding a replacement could take months. Even if you have enough cash reserves, that reserve could be extinguished by the time you find another large customer.

Read more lessons learned in The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com .
 

The Grave Dancer
By: Ruth King

My banker caused my entrepreneurial terror. To understand why, you need to know my background. I’ve always been a grave dancer. I couldn’t afford anything when I started in business. I had to buy something that had problems, either a business or a building which needed turning around so I could afford it. I always had to modify it and do a lot to make it successful. I had some good fortune doing this and some good experiences. I had built profitable, successful businesses over the years using the bank’s money. My banker almost put that to an end in an afternoon. Here’s my story.

I was trained in electronics in the Navy. When I was discharged I couldn’t do specific electronic work. I looked for a Wisconsin job that I could make some money at. I started working as an ironworker because I never had a fear of heights and it paid a lot of money. I forgot how cold it was in Wisconsin. That wasn’t going to last.

I went to Mexico with a friend, $125, and my first business venture. It blew up. I came out of Mexico starving. When I say starving I am serious, I was in bad shape. We didn’t have any money and we came home with literally three cents in our pockets.

I found I was very good at selling. I was asked to teach sales. I did it and got bored with it. Next.

I had to go into business for myself. I loved foreign cars. It was a time period when everyone thought foreign cars might become 2 or 3% of the total cars in the U.S. I was convinced that they were going to be 20% so I opened up a gas station in Oshkosh, Wisconsin that specialized in repairing foreign cars. It expanded into a body shop which expanded to a parts store and then on into Green Bay.

Not totally satisfied with owning only a gas station, body shop and more, I was buying distressed duplexes and fixing them up. Then I began to convert duplexes to commercial properties. One of the commercial properties I owned had a tenant that was a veterinarian. He was building a computer system and I had some background in the computer industry from my time in the Navy.

The veterinarian was a good guy who got in trouble. He had an opportunity to sell the company so he did. When he sold it he got no cash; only shares of a publicly traded company that soon tanked.

I had a pretty good reputation in the community at that time as being a pretty hard core capitalist entrepreneur. He asked if there was any way I could put a group together to salvage this. My answer, of course, was yes. We negotiated a deal and I’m running this veterinarian software business today along with my real estate, car washes, and other ventures I’m involved.

All of the businesses’ accounts, loans, and real estate, including my own home, were with one bank that I had a great relationship with. A new president took over and almost killed everything.

Back in those days generally you established a relationship with a bank and it was a local bank. They look at you and they look at your financials and your accomplishments and I had accomplished a lot by then, everything was running smooth and I was current on everything with nothing bouncing or past due accounts. I owed the bank about $3 million. The line of credit for the veterinarian software company was an unsecured line of credit for $500,000.

One day I got a call from my loan officer. He said that the president of the bank wants to talk with you. You have to be here at 1 PM tomorrow afternoon. Bring (name withheld) who was one of my business partners. It was a little odd that the president wasn’t coming to see me but I didn’t think anything of it.

My partner and I went to the bank and sat waiting for the president to show up. 1:00 comes. 1:15 comes. 1:30 comes. Finally about 1:45 in walks the president of the bank, with an attorney I know. The attorney says hi to me and Dave never even speaks to me.

I’m concerned because usually the bankers come to me and I’m not asked to come to the bank. I wasn’t told what this is about and then he doesn’t show up on time. My loan officer shows up and I ask, “When are we going to get together?” He said why don’t we go over now. We walked over to the president’s office. I said, “Hi, you wanted to see me today. What do you want?”

These were his exact words. “I want you to get all your f---ing accounts out this bank today”. Terror hit. I said, “What are you talking about?” He said, “I don’t want your f--ing loans in here, I don’t want your personal stuff in here and you have some sort of stupid PETRA loan in here that is almost $250,000 that we pay the interest and that’s not legal.”

I said, “not correct”. He countered, “Yes it is and I don’t want to hear anything more about it”.

The bank president was screaming. Everyone in the office could hear him. Everyone could hear his bad language. I was in shock. He wanted my checking account and everything out that day. He said if you don’t do it today, we will start actions against every one of your items. I told him I have payroll to make this Friday (the meeting was on a Tuesday). He said he really didn’t care. He told me I was not using the line of credit to do it. The avalanche was about ready to begin.

I walked out of there reeling. My partner was in tears. I was very angry. I went back to work thinking, “Oh boy, all these years of work and this whole thing is going to roll on back down. It’s going to be a matter of selling assets and seeing if I can keep everything together.” I just stayed at work and thought about it.

I finally went home. It was the only time, in all of the years, my wife had ever seen me worried and stressed out about what I was going to do. I just didn’t see any way out. My world was crashing in because of an irrational bank president who didn’t know what he was doing when it came to loans.

Once the emotion stopped I started thinking rationally. I just took one thing at a time. By Friday I had called my loan officer and my attorney. I told my loan officer I wanted to talk to the president of the bank. He said no, I couldn’t do that. So I said, “He needs to talk to my attorney then. The bank will honor my line of credit to pay payroll because of the agreement the bank signed with me. I will be running a payroll and those checks will clear”.

I got a message from the president by phone saying the bank will honor the line of credit until the end of the month. It took me less than 30 days to solve each of the banking issues. I did it one thing at a time.

What I learned:

• I don’t have everything I do at one bank anymore. Period.

• Business actions didn’t bother me until this one. It was the only time I’ve ever let emotion take over rationality. Terror begins when emotions take over logic. Terror ends when you think logically to solve the problems.
 

If you enjoyed this true business story, you’ll enjoy others in Ruth King’s new book: The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. It makes a great gift for business owners and would-be business owners!
 

We Ran Out of Money
By: Ruth King

We bought a tax franchise. We chose this franchise because the start up cost was something we could handle and it was a business that we could operate. I wanted to do something outside of my day job that would be an investment in the future. I asked other people to join the team. They did.

My wife wholeheartedly encouraged what I was doing. One of the ways she showed her support was to use her retirement fund for my portion of the business investment.

My partners had more flexibility than I did because part of the agreement was that I would continue to work in my full time job. One is a real estate investor and business owner. Another is retired from the government. They ran the business during the day and I ran it at night.

We went through our first tax season in 2003. Right around about April or May we were trying to decide what we were going to do during our off-season. We had done well in our first season; better than we thought we would do but less than our optimistic goal. We had never done taxes before and were really nervous about this when we started. However, what the advertising the franchisor suggested worked, and we were doing well.

We had money in the bank. We could pay off the rest of our bills the rest of the year if we shut down. But we didn’t want to shut down. That first year we were operating off adrenalin and emotion rather than logic.

Our thinking? We have a three-year lease on our space and thought we needed to do something to pay the lease expense since there wouldn’t be any tax revenue coming in the door.

So thinking that another business would be just as good, we started another one that we thought complemented the tax business. Wrong. We quickly found out it wasn’t the same. Before we knew it, September came and we had only $1,000 in the bank. We still had to find a way to pay our overhead for three months until tax season started again.

The terror hit. We were running short of cash and trying to figure out how we were going to manage until the next tax season. I thought we needed to put in more money. One of my partners with previous business experience said no way. He wasn’t putting more gasoline on a losing fire. His point? Why aren’t we making money? Why would I put more in to something that is draining money with no hope of turning around?

We had to find a way to do this without adding more investments. Once he spoke, we all realized that we weren’t going to put good money into a bad situation.
We finally turned it around without sinking more money into it. We salvaged what we could from the second business and shut it down.

Making those telephone calls were agonizing. We had to negotiate with our creditors. The two biggest were our landlord and the telephone company. We absolutely needed our space. We absolutely needed our telephone.

We negotiated with our landlord to pay the back rent during the first few months of tax season. We knew that we would have money then. The telephone company was the same deal. We squeaked by.

By the beginning of the second tax we were no longer operating on emotion. We still had to count on personal money to start our advertising. However, this investment was different. Advertising was not throwing away bad money. It worked the previous year and it was good money to bring profit in. We were reputable, we had a couple of people that were confident, and we raised $4,000 in private money with very good interest terms. One of our partners put in about $3,000 and then we gave him that money back on terms. We paid all the notes back.

The second tax season was also successful. We had learned our lesson. We shut down operations with enough cash in the bank to pay our expenses until the next tax season.

What I learned:
• It takes money, time, energy and a lot of stress to be successful.
• At times I wasn’t sure whether I could make it from day to day. Having partners helped.
• It was a good test of my faith and probably made me stronger. You find out a lot about yourself.
• A strong faith in God helps.

If you enjoyed this true business story, you’ll enjoy others in Ruth King’s new book: The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, www.amazon.com, www.bn.com, by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. You’ll learn that you’re not alone and avoid mistakes others have made. Earn success by learning failure with this book!
 

Do You Have Mercedes Benz Syndrome?
By: Ruth King

A colleague was helping a business owner look for funding for his business. He introduced him to a potential investor at lunch. The next day the investor called my colleague and told him that the person was nice but he would never invest in his business. My colleague asked why. The investor said that he had the “Mercedes Benz syndrome”.

“What’s that?” asked my colleague. The investor explained that during the conversation at lunch he found out that this person was funding a $2200 monthly Porsche lease through the business. He appeared interested in having the business pay for his personal lifestyle. The investor explained to my colleague that his money was not going to pay for a car lease. His investments were supposed to help grow the business; not the owner’s personal “finer things of life”. He went on to explain that he called this the “Mercedes Benz syndrome” where the business pays for unnecessary personal assets, i.e. the owner’s “Mercedes Benz”. Investment that is supposed to go towards the business’ needs goes towards the owner’s personal needs.

It struck me that a lot of contractors do this too. I know some. You probably know some. These are the contractors who don’t understand that cash does not mean profits and that having cash does not mean that you have to spend it. These are the contractors who use the business cash to buy boats, have the company pay for expensive trucks and cars, write off vacations, build an expensive home, have a non-working relative on the payroll, etc. Instead of investing in the business, they invest in themselves.

Don’t get me wrong. There is absolutely nothing wrong with enjoying the fruits of your labor. However, you can’t do it at the expense of your business. Our industry is very cyclical and you have to save cash for the downturns. You have to save “for a rainy day”.

Sometimes you have to save for years. A mechanical contractor I know had ten years of 15% or more net profits before taxes. During this time, they did not take a lot of money out of the business. They paid modest bonuses but invested back in the business. This year work decreased dramatically and they had to lay off people. However, they survived this downturn and are seeing an upturn again…nine months later. They had the cash to survive. Ten years of savings gave them the cash they needed to fund operations when it was very slow.

Another mechanical contractor had 10 good years too. The owners of this company took everything out of it they could and spent it…on second homes, expensive vacations, and the finer things of life. The economy tanked in their geographic location too…and they are scrambling. They are on COD everywhere, vendors are calling, their line of credit for several million dollars is tapped, and they barely scrape by to pay payroll each week. The attention that they should be paying to generating additional work is being spent on credit and collections issues. They readily admit that they didn’t invest back in the business and it is now hurting.

So how do you avoid the Mercedes Benz syndrome? You make sure that you are earning enough on your jobs and service work to generate reasonable profits and you save some of the money you generate from collections. You can actually save relatively painlessly. Save 1% of every check that comes in the door. That means if your deposits for the week total $1,000 you write a check into a savings account for $10. You’ll never miss the $10. And, that $10 will start earning interest.

You can also save your service agreement revenues. A contractor I know funded his retirement through service agreement revenues. The company never used them for operating funds. They saved all new and renewal revenues. Over 10 years this added up to hundreds of thousands of dollars.

Neither of these two savings plans is difficult to do. However, they do take discipline to do. If you save service agreement revenues, then whenever a customer pays an invoice which includes service revenues and a new service agreement, you have to have the discipline to write a check to a savings account for the portion of the payment that is service agreement revenues. Many contractors have their bookkeepers perform these activities and check up to ensure that they are done.

How much should you save? This is totally up to you. It depends on whether your company has a line of credit. If you have a line of credit and it isn’t used, that can be a form of emergency cash. However, even with that safety net, many contractors like to have at least two to three months overhead expenses saved. Others have the value of at least six weeks payroll and payroll taxes in the bank at any moment. Their reasoning is that if nothing came in the door in terms of work, then they could at least pay their people for a reasonable time. You’ll need some savings that are fairly liquid, i.e. you can turn them into cash quickly. Other savings could be more long term which probably will earn more interest.

Hopefully you don’t have the “Mercedes Benz syndrome”. Good profits and savings will prevent you from a financial hardship in years to come.

If you enjoyed this true business story, you’ll enjoy others in Ruth King’s new book: The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, at www.amazon.com or www.bn.com or by calling 800-511-6844. It makes a great gift for business owners and would-be business owners!

What Do You Measure?
By: Ruth King

One of the people that I interviewed for my second book, The Ugly Truth about Managing Right, talked about understanding how you make profit. What is the fundamental thing that you must measure to know whether you are successful (or coming out of the hole)? In one of his businesses it was the numbers of stalls rented on his horse farm. In another it was the number of packages brought into the store each day.

You have to know the revenue per measurement and the cost per measurement so that you know the profit per measurement. He knew the revenues and cost per stall and the revenue and cost per package sent.

It got me thinking about the fundamental thing that we must measure to determine success in HVAC businesses. Depending on your mix of business, it might be the number of systems in new construction homes, the number of replacement systems, the number of service calls, or even the number of service agreements sold. If your company is departmentalized, then each department must have “the measuring stick”.

When you know your revenues and costs for each then you’ll know the profitability each day. There will be days that are more profitable than others.

Let’s take an example. Assume that the service department’s measurement is a service call. Establish the average revenue per call and the average expense per call. You can do this by looking at last year’s numbers. Remember to include that call’s percentage of overhead. If you base this exercise on direct cost only you are fooling yourself. Once you know the profit per call, and the overhead for the department, you can determine the number of calls to break even.

Assume that the average revenue per call is $200 and the average expense for the call is $125. You’re earning $75 profit per call. If the service department’s overhead is $200,000 per year, you have to generate 2,667 calls to break even.

Try this exercise with your company’s numbers. If you don’t like the answers, determine a way to increase revenue per call or decrease expense per call. At least you know what the measuring stick is and the reality of where you are starting!

Read more lessons learned in The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com.

Build Relationships Along the Way

This landscape story parallels what we often face in the HVAC Industry:

About ten years ago I stumbled into the landscape business. People ask me if I ever thought when I graduated high school I would be in this business. The answer was always no. I really didn’t even think about anything related to landscaping. This was just the opportunity of the moment. I had just quit another job and my friend owned a landscaping company that needed a general manager. I took the job. Four months later one of the partners wanted to sell and that’s how I began to have partners in the landscaping business. Since 1994 I’ve had various partners at one time or another in both landscaping and real estate deals.

To be clear, I didn’t run off the partners. I bought one partner out after three years, as I merged into the company that I am actually in today. I acquired a new partner through the merger. So I was partners again for four years. In 2000 I bought out my latest partner and am the sole owner of the company today. During that time I also did several real estate deals that involved partners.

In the last partnership, my former partner had been in the business for about 19 years. I could just see him losing the passion for the business. I woke up one day and realized that I either I needed to go away or he needed to go away. On top of that, the job that I really wanted was the job that he had. I knew I could run the operations since I had successfully done it for eight years. I wanted to be the guy going to social events and broadcasting the company name to the public.

So we sat down in the conference room and I put the plan up on board and I said we will either be friends at the end of the night or I’ll be gone. An hour and a half later he agreed to the plan. He decided that he was ready to retire.

I had no cash when I got into the business 10 years ago. All of my equity got built by using my share of the profits going toward paying for stock. Along the way I depended on my partners’ personal balance sheets to carry us.

So, I had a dilemma when I bought my last partner out. I had no cash. I had to borrow everything and my personal balance sheet was not as strong as our joint balance sheet.

The biggest thing that happened to me is through the process of buying my partner out I also restructured the business and sold off my construction division. I immediately ended up in a lawsuit with the guy. There was some wording in the contract that he used to his advantage and this was at the same time that I’m trying to get the SBA loan, borrow money to start up and visiting my attorney regularly trying to prevent a lawsuit. I ended up paying him to take the business.

It’s January and I now had three major debts on my mind. I had to borrow from the Small Business Association to buy out my partner. I had to pay the person who “bought” the construction business, and I had to find the money to start up the season.

The SBA loan didn’t even get approved until late in February and in the meantime I’m talking to other bankers to try and borrow money. So there was two months there that there was no cash. I was constantly wondering how I was going to make payroll.

It’s like my analogy of horseracing: you pick the horse, pick the saddle but once the race starts you don’t change the saddle. I ended up finally getting a loan from a local bank for the start up line of credit for the season. However, for three months I didn’t know whether I would have enough for payroll, whether I would own the business and be able to pay for the buy out. And, I had lost customers because of the construction deal that basically fell through.

The terror and stress were real. I didn’t have a clue whether it would all come together. I finally ended up going to some private investors to fund the business until the bank loans came through. I had to explain the situation and ask. It was incredibly tough but there was nothing else I could do if I wanted to keep the company open and have it all mine. They had confidence in my abilities and agreed to loan me the money.

What I learned:
• The SBA loan came through but not without some problems. The next time I do one I will go to a Tier One bank which deals with loans all of the time rather than just a few per year. The process would have been a lot easier.
• If you are going to buy a business it has to have a structure to operate without the owner. If it doesn’t, then it has no value.
• A partner is not a partner for life. This has to be a discussion that you have with potential partners. You have to have a buy out. The interesting thing is that former partners can come back into your life. I’m doing a real estate deal with one now and my partner that retired at 36 years old, is back looking at opportunities with me.

Read more lessons learned in The Ugly Truth about Small Business: 50 “Never Saw It Coming” Things that Can Go Wrong and What You Can Do about It. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com.

I Fired a Drunk
by Ruth King

This anonymous story comes from: The Ugly Truth about Managing Well, my next book which will be published by SourceBooks in January, 2007. Here’s what happened:

Our company needed a person to handle the early morning activities for our company. This person had to start at 5 AM and do certain tasks so that the others who came at 6 AM could be ready to work.

I hired a person, George (name changed) who had the experience, even though he was in his 20’s, to handle the work. The normal background checks were done and he started work. During the honeymoon period of the first few weeks, George’s work was great and he was able to get everything accomplished so that the people starting at 6 AM could be productive too. Initially I was happy with his work.

Within a few weeks we began noticing some issues. Several times he was late which caused havoc with our production and other employees. There was always an excuse…my baby was sick, I was out of town, and other things that seemed plausible.

During the same time the company installed an alarm system which recorded when anyone came or left the building. I began to see a pattern of lateness. He was so good at his job that even being 15 or 20 minutes late usually didn’t cause a problem for others.

The first time he was 45 minutes late I talked with him. Again, there was a plausible excuse. I told him that he had to call me the evening before if he was going to be late or unavailable so that I could get a person in to do his job. He abided by this for a few weeks. However, according to the time stamp on the alarm system, he still was late coming to work.

His 90-day probation period was up and his review was due. I told him (and wrote in the review) that until the tardiness improved he was not going to be put on permanently (as an employee at will). The unfortunate part was that when he showed up he did great work. There would be another review in 90 days to gauge performance.

Then, one day he didn’t show up for work and he didn’t call. It caused havoc with the employees who started at 6 AM. This was getting serious. I wrote him up according to our procedures. I told him this was his verbal warning. Next would be a written warning and if he still was late, he would be fired. Again, improvement for a few days.

After this second warning, one of our other employees was moving to take care of her father. We had a going away dinner for her at a nearby restaurant. George and his wife came. George had too many drinks. The owner of my company instantly realized that George was an alcoholic. He was late for work the day after the dinner; again with an excuse. All of the excuses now made sense. Unfortunately, the written warning, which he signed, was now in place.

I couldn’t sit him down and say, “George, you are ruining your life. You have a six- month old baby. Get some help.” Knowing that he was an alcoholic I knew that he would slip up again and that he would soon be gone.

George did slip up and I had to fire him. It was a sad day. Incredibly, George filed for unemployment even with all of the documentation, his signature on the documentation, and the knowledge that if his performance didn’t improve he would be fired. Thankfully he was denied unemployment.

What I learned:
• The same excuses after a while begin to not make sense. You need to get to the underlying cause of the problem.
• If your company policy allows it, then the 90-day review can be repeated. At the time we knew that George’s work was good; he just was unreliable at times. His work wasn’t good enough to become a permanent employee at will. As such, I wanted to give the situation another 90 days before I made a decision.
• Even though I finally knew what was going on, I couldn’t fire him for that reason. He had to be late. The underlying reason was immaterial.

Read more lessons learned in The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).

Above and Beyond - September 2006
by Ruth King

This story is a personal story and shows what we can do when you are passionate about something. In 1985 I bought the third Mazda RX-7 in Atlanta. I loved that car and named it Flash…you can imagine why. Flash learned most of the state of Georgia. I was consulting all over the state at that time and drove everywhere.

My plan was to keep that car forever. About 1,000 miles after I put a new engine in it, Flash sacrificed its life for my daughter, Kate, and me. We got hit at an intersection. Kate and I walked away. The car was totaled.

I got another RX-7. However, this one was not maintained as well as Flash and within 2 years it was no longer safe to drive. I knew the RX-8’s were coming out and unfortunately this RX-7 died before I could get an RX-8. So, I got a Mustang. Not bad. But I longed for my RX-7.

I got one of the most pleasant shocks of my life. It was my husband’s 65th birthday celebration. When we walked out of the restaurant there was Flash! The same white car…although this is Flash II. Charlie Shazin, owner of Mazcare in Marietta, Georgia and Mazda business owner extraordinare, my daughter, and my husband plotted for the past 7 months. Charlie rebuilt a Mazda RX-7 for me. (Charlie had taken care of Flash and knows Mazda’s inside and out).

The story is incredible. Kate started the conversation at the request of my husband. Last December she innocently (ha!) got me in a conversation about Flash and would I like another RX-7. Of course. However, that was a 20 year old car and in my mind, the likelihood that I’d ever see another one was slim and none.

Once Kate confirmed that I would like another RX-7, Charlie found a body that was in good shape. They moved mountains finding parts and an engine for a 20-year old car. All of Charlie’s mechanics were into this project and helped. Kate was the last one to drive the car before they pulled it apart and it went to paint. She said it was in bad shape….not any more!

They searched high and low for a radio (I have weird requirements these days – tape and CD player). They found a guy to hand paint the pin stripe the same way it was on the original Flash. They even stenciled “Flash II” on the driver side door!

This was customer service above and beyond by people who were passionate about what they were doing. And, it showed.

Flash II looks like Flash with the exception of the radio (there were no CD’s in the 80’s) and the interior. Gray instead of maroon. Those maroon interiors disintegrated. I know because I had replaced the interior of Flash once.

And yes, Flash II moves as fast or faster than Flash. I’ve got the car I love back!

The reason that I am telling you this story is that this is an example of passionate work by passionate people and it shows. We need to show our customers that we are passionate about their HVAC systems and go above and beyond their expectations.

Why not start with something that one of my clients’ installation crews do…sign their work? Every system is signed by the people who work on it. They are proud of their installation and are willing to sign their name to it.

What can you do to go above and beyond?

Read business lessons learned in The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).

Why Have a Business Plan? - October 2006
by Ruth King

The Cheshire cat is sitting on a limb in a tree at the top of a hill. Below in the valley are many roads leading off into the horizon. Alice is standing under the tree trying to decide which road to take:

Alice: Hello. Can you tell me which road to take?
Cheshire Cat: That depends on where you want to get to.
Alice: I really don’t know…
Cheshire Cat: Then it really doesn’t matter which way you go.


When a customer calls wanting you to service or replace his heating and air conditioning system, you usually follow a specific process…whether or not it is “written down.”

If you are selling, it might go something like this:

Salesperson looks at the job, determines the best system for the customer based on the customers’ needs, desires, and the configuration of the home, and gets their approval on the proposal. Then another person gathers the materials necessary for the job and explains the job to the installation crew. The crew installs the system and someone collects for the job. Finally, someone follows up with the customer to ensure their complete satisfaction and is on their way to creating a client-for-life.

Written or not, this procedure can also be called a plan. The better “your plan” the more efficient you are and the more profit you make. You don’t install a system without a plan…even if the plan is just in your head. If you do, then you run the risk of putting the wrong equipment in, not doing what you promised the customer, having to run to the supply house to pick up forgotten parts, or a poor installation which takes longer than the budgeted hours. Just “winging it” is a formula for losing money on a job.

If you plan your jobs you can easily plan your business. Most contractors think that a business plan is many, many pages. It doesn’t have to be. The simple one is a list of goals, a marketing flow chart and budget, and a financial projection.

That’s it. Three pieces of paper. A three-page business plan that you can actually use in your business. Think of it as a roadmap to less stress and financial security.

You can find plenty of information on the web by googling “business plans” or, if you want to save time and get something specific to HVAC, you can order copies of the Three-Page Business Plan for Contractors including Procedures, Template, and Forms for only $69. Call 800-511-6844 or email ruthking@hvacchannel.tv to order.

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).

Are You Charging Correctly? - November 2006
by Ruth King

Many, many times when a contractor calls me because he is having problems in his business I find that it is because of improper pricing. Growth masks pricing problems.

Several years ago I worked with a contractor who had grown to $2,000,000 in revenues. He always had the cash to pay his bills and he never paid attention to his financial statements. Then, the company stopped growing and he began having cash flow problems. He called me. When I looked at his operation I calculated that he had been losing a nickel for every dollar that he took in the door!

How can that happen? The payment for one job was enough to fund the next job. As long as the company kept growing and the jobs were paid, there was always enough cash to start the next job. This gives a false sense of security. However, when the increase in jobs stops, the ability to pay stops.

We solved the problem by raising his rates. Since he was providing quality work, no one had a problem with the increased cost. In fact several people commented that they wondered how he could do a good job so cheap…of course they weren’t going to tell him that before!

When determining your pricing structure make sure you include direct cost, overhead cost, unapplied time, and add a little bit more for profit. Then, make sure that you provide quality services so you can charge what you need to earn that profit!

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).
 

What Do You Do When You "Hit the Wall"?  - December 2006
by Ruth King

Many of you know that I am a runner. Most of you don't know that I took the summer off to let my knee heal (I stepped in a hole and twisted it). Recently I ran my first half marathon in my long climb back into shape. I figured "it's only 13 miles." I've been back in training but had not run this distance yet. I figured, "No Brainer." For the first 8 miles I was doing great. Then I hit the wall. I ran out of energy. This surprised me since normally I wouldn't hit the wall that early in a marathon. I realized that I wasn't in as good a shape as I thought. However, I slogged through it and finished the half marathon.

It reminded me of what happens in business when we "Hit the wall." Everything we try to do for a certain period of time isn't working. One disaster after another happens. We get tired of the fight. We have to maintain a great disposition and attitude for our employees...even when we feel distracted, frustrated, and stressed out.

What gets you through? Mental energy. Mental energy gets you through when you hit the wall running. Mental energy gets you through when you hit the wall in business.

How do you develop this? Here are some things I use:
1. Write in a journal. I use one of the marble composition books that we used as kids. I write three good things that happened every day. I admit, when I've "hit the wall" sometimes it's tough to come up with three good things. When you read what you’ve written months or years later, it doesn’t seem as bad as when you were going through it. Time heals all wounds. And, if you’ve gone through the tough times once it gives you the mental toughness to get through them again.

2. Remember why you are in the HVAC business. There had to be something that got you into it. What was it? Why do you enjoy it? And, if you really don't want to do this, then get out. Life is too short not to do something that you enjoy.

Like never firing someone when you are angry, the decision to stop running your business is not a decision to make when you've hit the wall.

Remember the excitement that you had when you started. If you're honest, you also had some fear...could you actually do it? Could you support yourself, your family, and your employees' families? The fear and excitement kept you going.
It can keep you going when you "Hit the wall."

3. Talk to others. And, you want to talk with people who won't have a "pity party" with you. I've seen it happen. In an association meeting, all the contractors are grumbling and complaining. Find someone who will not complain with you but
force you to look at what one thing you can do every day to help you go around the wall.

4. Know that "The Wall" is temporary. You can get through it. You can go around it. You can accomplish the goals that you set out to accomplish.

Think about it. It's all about your frame of mind.

Ruth King is a nationally know HVAC Industry consultant and the author of the 2006 Best Book Award for Entrepreneurship: The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, (published in Spring, 2007) please send me an email (ruthking@hvacchannel.tv).

Is Your pricing Correct?  - March 2007
by Ruth King

The best pricing is done based on overhead cost per hour calculations. Here’s why:

Assume that your company’s overhead cost is $50 per hour and your competitor’s is $25 per hour. For every 8-hour job your overhead cost is $400 and your competitor’s cost is $200. He can do a job for $200 less than you and make the same profit!

If your selling prices are similar, then your competitor is earning $200 more on the job than you are. Either way, your costs are much higher than your competition. You want to be as productive as possible and you can’t do that with gross margin pricing calculations.

In the traditional pricing calculations (including ones that I taught in the late 1980’s) residential contractors were taught to determine their service rates and replacement selling prices based on gross margins. I found that this can be a disservice to the contractor for many reasons. First, gross margin doesn’t tell the whole story. It covers only the direct costs for the job. And, it is a percentage…not actual dollars. If your margins are high enough you are probably safe. However, I’ve known contractors to achieve a 35% gross margin on a job and still lose money on that job. I’ve known contractors who achieve a 10% gross margin for a job and the job was profitable. Without understanding the “behind the scenes” calculations, many contractors think that if they achieve a specific gross margin that’s all they have to do to earn a profit. They are ecstatic if they achieve a 50% gross margin. Yet, that 50% margin may not be enough to ensure profitability. You must look at the dollars behind the percentages.

Understanding your overhead cost per hour and gross profit per hour are critical. Not understanding this is how you can achieve a gross margin of even 50% and still lose money on a job. Here’s how:

Assume that your service technician does a job at Mrs. Jones’ home. He charges her $300 for 3 hours of work. Your gross margin is 50%. Your overhead cost per hour is $60. The gross profit of the job is $300 X 50% or $150. Your gross profit per hour is $150 divided by 3 hours. This means your gross profit per hour is $50. Your overhead cost per hour is $60 so you actually lost $10 per hour or $30 on that service call.

So that you don’t say, “That can’t happen in our company,” make sure you calculate your overhead cost per hour.


By-line: Ruth King is a nationally know HVAC Industry consultant and the author of Keeping Score: Pricing for Residential HVAC Companies. You can order this manual for $125 (electronic) or $149.95 plus shipping (paper) by calling 800-511-6844 or sending an email to ruthking@hvacchannel.tv.

Loyalty or Partnership?  - April 2007
by Ruth King
 

Manufacturers and distributors are always asking contractors to be loyal. They tell us: buy our equipment. Be loyal to us. Don’t buy from a competitor. As a rule, we expect something in return…loyalty from the manufacturer or distributor.

So, what’s the problem? Loyalty is ONE WAY. I have to confess. I didn’t think about it this way. A contractor I know and respect told me he was wrestling with this issue and finally looked it up in the dictionary. I did too. Hold onto your seats. Loyalty IS one way. Definition: Loyalty to the king. Loyalty to a vow. Being faithful to an oath or obligation.

There is NOTHING that says loyalty is, has to be, or should be reciprocated. I was shocked.

So, what should we be talking about? PARTNERSHIP. Our manufacturers and suppliers should be our partners. They should have an interest in seeing that we succeed in business and give us the help we need…assuming that we are willing to listen with an open ear and take action. If we succeed, they succeed. The better our sales skills, business skills, and communications skills are, the better we can purchase more equipment, install it and maintain it properly, and pay our bills.

A supplier I know requires a business plan, maintenance agreement sales, and other reasonable items before he will sell a contractor any equipment. He expects the contractors to pay their bills on time. What does he give in return? No competing contractors in a reasonable trade area, training, which most contractors take advantage of, equipment delivery on time, and great technical and warranty help. Both the supplier and the contractor have an interest in helping each other succeed. It’s not loyalty. It’s not one-way. It’s two-way. It’s a partnership. And, both the distributor and the contractors he sells to have grown profitably and dramatically…even in slower times.

Partnerships work. The successful suppliers, manufacturers, and distributors whom I have worked with in the past really try to be partners. I encourage all manufacturers, distributors, and suppliers to think about it this way…become partners…not necessarily in the legal form… with the contractors you sell to. Expect things from the contractors. And, the contractors should expect things from you. For everyone to succeed it has to be win-win.

By-line: Ruth King is a nationally know HVAC Industry consultant and the author of Keeping Score: Pricing for Residential HVAC Companies. You can order this manual for $125 (electronic) or $149.95 plus shipping (paper) by calling 800-511-6844 or sending an email to ruthking@hvacchannel.tv.

Customers or Clients?  - May 2007
by Ruth King

Food for thought. I had a conversation with a colleague. His comment was that he wanted clients; not customers. I asked him what the difference was. His comment was that clients come back and use you again. Customers may or may not. I had to look up the definitions myself. I was surprised.

The definitions were not as he described. However, I found something different:
I like the definition of client – a person under patronage. I also liked the definition of patron – a protector; one who supports a person or a work.

We are protectors. We help make sure that the HVAC system in person’s home or office operates efficiently and keeps them comfortable. We’re available when problems arise. Our job is to build trust so that we can be depended upon.

So, perhaps we should think of our customers as clients. Most professionals have clients. We are professionals. I always tell technicians that they are the doctors. The client is calling them to fix or maintain his system. And, the technician is responsible for giving his expert opinion about the “health of that person’s HVAC system”. Not telling the client something because he is afraid that the repairs would be too expensive, take too much time, etc. is a breach of his duty as a technician. (How would he like it if he went to the doctor with a broken bone; the doctor took his blood pressure and didn’t tell him it was high because he was only concerned about the broken bone?)

The client is his patron. It is the technician’s responsibility to educate the client so that the client can make an informed decision about what is best. It is the client’s right to decide to do everything that the technician recommends or nothing the technician recommends. And yes, sometimes clients make the wrong decision in our minds. However, they still are the client.

Let’s continue to protect the HVAC systems of our clients…they are our patrons.

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).
 

Hiring Service Technicians - How To Find One  - June 2007
by Ruth King

You know that you need additional service technicians when one of the following scenarios occurs:

1. In slower times the technicians are consistently billing
customers over 40 hours per week (and its not unapplied time).
2. You sold an additional 300 residential service agreements or
an additional 600 hours of commercial maintenance during the year.
3. You are entering a new market such as going from a
concentration in residential to a concentration in commercial
work. This requires finding experienced, competent commercial service technicians.

The best place to find service technicians is to grow them. This means that you invest time, sending the technicians to schools, and have a lot of patience. Look for young men over 18
or women over 30 who have technician ability, a great work ethic, and communications skills. You can teach the rest.

You also take the risk that the person might leave after you have trained him for many years. But, your internal company training teaches the person to do it your way. Hiring an outsider is hiring some bad habits learned at other companies.

If you don't have time to grow them you have to find trained technicians. Placing an advertisement in the newspaper is not always the best way to go. So where do you find them?

You can steal them. But, if you steal a service technician you know that he can be stolen. This means that he is also likely to leave your company for a $0.50 per hour raise.

You might place notices in parts houses. This works if the parts house allows you to put up notices. However, with the trend to keep technicians out of parts houses, you may find that this method is not productive.

Craig's List (www.craigslist.com) has a section in most cities where you can place free advertisements. I've found many of my current employees through Craig's list. And, I've seen
advertisements for technicians here too.

There are also several industry search options. MEP at work is one. These organizations can help you find technicians in your area.

Tell everyone you know that you are looking for a service technician. This means your friends, your church, your suppliers, your employees, and your distributors. Sometimes they know of people who are looking for jobs.

Trade schools are also a good source. If you develop a relationship with a trade school professor he can point promising students in your direction. In addition, encourage your lead
technicians or managers to teach at the trade schools. You'll find out who the good potential technicians are.

High school trade fairs and guidance counselors can also suggest potential employees. These individuals might start working for your company as a runner to see if he or she likes the industry. Then the individual can advance when and as quickly as he can learn.

Retired military personnel can make good employees. They definitely do understand discipline and a chain of command. The unfortunate part is that this type of individual is usually a specialist in something...you'll have to teach him to be a well rounded service technician.

Talk about your hiring needs at industry association meetings. Someone may know a technician who is looking for a good position. Or, that person may warn you against hiring a person who has not worked out for another company.

One might walk through the door. I know several companies whose names are known by reputation and working service technicians want to work for these companies. As such, they often fill out applications in these companies even if there is no job opening at the time of application. They are hoping that a position may become available. This also puts subtle pressure on your existing technicians. They know that if they don't follow policy there are
other technicians who want to take their places.

Ask your present employees. They may know of someone looking for a job. Some contractors offer a bonus to an employee who recommends a potential employee that is hired and stays for 60 or 90 days.

Therefore, keep all applications even if you do not intend to hire everyone. Then, when a position becomes available, you can contact that person to see if he or she is still interested in working for your company.

Next month, The Best One!

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).
 

Hiring Service Technicians - Part 2  - July 2007
by Ruth King

Last month I wrote about places to potentially find service technicians. The key is to become the “employer of choice” in your area so that the technicians want to work for your company.
This takes time, effort, building and abiding by fair company policies as well as almost always having enough work for the technicians so that they get their hours in even when it is slow.
Word will eventually spread and you'll find technicians knocking at your door wanting to fill out an application even though there are no job openings at the present time.
When you are looking for a technician you need to be able to discuss the
following:

• What is the career path at your company?
   

• Is there a difference comparing your company to others?
   

• Do you go from helper, to service trainee, to service technician,
  to master technician?
   

• Can you become a supervisor or manager?
   

• What are your requirements for each position?
   

• What type of experience and training do they need?
   

• Do they need to be able to communicate and sell?
   

• What benefits and salary will you pay?

These do not necessarily need to be in the advertisement but must be known once the interviewing process begins.

Then write an advertisement including what you are looking for. This advertisement can be distributed internally, in supply houses, newspaper, industry associations, and your distributors. It is important to create the advertisement even if you are not going to place it in the newspaper. On Craig's list the ad can be as many words as you need.

Depending on the cost of placing an advertisement in your city's newspaper, some can be very large or must be only a few words.

If you have the space, then put the reason that someone would want to work for your company...explain what is unique and different about the working experience at your company.

Hiring service technicians is a continual process. You always have to be looking for qualified technicians. You might find a good one at the most inopportune time...you have to make a decision as to whether you can find a place for him in your organization or lose him to your competition.

Next month I'll cover more hiring situations. In the meantime, start looking!
 

Seven Critical Management Survival Strategies - August 2007
by Ruth King

A University of Florida study showed that people don’t leave their companies, they leave their bosses. From the book, The Ugly Truth about Managing People, here are seven critical actions that decrease the chance that an employee will leave:

1. Confront the bad issues immediately.

Bad situations never go away. They only get worse. It is imperative that you talk, at the earliest, with the person who offended someone or did something wrong. The worst thing you can do is to say nothing. Employees may not realize that they did something wrong, or if they are testing your tolerance and you do not say something, then they think they got away with it and the bad behavior is likely to be reinforced.

2. You do not have to be Nice. You have to be fair.

You cannot have different rules for employees whom you like more or who are more productive than others or whom you perceive to be so valuable that you cannot lose them. The first time you let someone get away with breaking the rules and not being disciplined, you have lost that policy. Others will think they can break those rules, and they can. Favoritism has gotten a lot of companies into legal trouble and cost them thousands of dollars.

3. Be clear about evaluation criteria.

As a manager, make sure that you understand what criteria you use to evaluate performance. As an employee, understand the actions you are being evaluated on. The evaluation criteria should be in writing and signed off by both the boss and the employee before the employee even begins working. If there are changes or additional projects that you are asked to take on, find out whether they affect the performance appraisal. Get it all in writing.

4. Hire people who are smarter than you are.

Smart people will help you succeed. They can make you look good. The key is to establish the objectives and let them do their jobs without micromanaging them. Do not be jealous. Do not hold them back; listen to their ideas. They might know a little bit more than you do.

5. Encourage disagreements, discussions, and debates.

The phrase “two heads are better than one” is very true. It is wiser to have many people working on a problem than trying to solve it by yourself. The most successful meetings are ones in which open debate is encouraged. However, mean words are not allowed. The goal is to solve an issue. Many times the first idea is not the best and the right solution comes as a result of debate.
Having confidence in your abilities helps encourage debates—just because an employee has the best idea, it does not invalidate your own skills.

6. Know the outcome you want.

What is the best possible solution? The answer to this question may be difficult and definitely shouldn’t be answered when you are angry, frustrated or in any emotional state. You must be rational to think clearly. Sometimes you’ll need to talk with others before deciding. The answer may be different depending on who’s point of view you are using. Then once you have the desired outcome in mind, determine what it is going to take to get there.

7. Communicate

Everyone who reports to you needs to understand what his role is and what your expectations are. Here’s why: If one person is standing on each of the four corners in an intersection, each person will see an automobile accident in the middle of the intersection differently. They each have a different position and view of the accident. As a result, each person’s discussion about the accident will be different. They will all agree that the accident occurred. However, how it occurred and what the results look like will be slightly different depending on the corner that each person is standing on.

The same is true for management. If you want a certain result, you have to communicate clearly the result you expect. Then you have to ask for feedback to ensure that everyone understands what is expected of him. Otherwise different team members will have a different viewpoint of what you said and the results will be different because they are based on their viewpoints rather than yours.

Do not expect your employees to read your mind. They need clear direction from you as to what they should be doing and feedback as the projects or tasks progress. Without communication, each of your team members may be going in a different direction and as a result, nothing gets done the way you want it to.


Well known industry consultant Ruth King is the author of The Ugly Truth about Managing People (Sourcebooks, 2007). To order an autographed copy of the book or audio CD go to www.theuglytruthaboutmanagingpeople.com  or call 800-511-6844.

Hiring Service Technicians - Part 3  - September 2007
by Ruth King

You never truly know about a person's abilities until he gets in a truck and goes to a customer's home or office to perform work. Testing helps, talking helps, but the proof is in the execution.

Having said that, there are some things that you can do when hiring to see if the person seems to know what he is doing. Over the years I have seen many who "talk a good game" but cannot perform out in the field. I've also seen some who cannot communicate well but if you put them in front of a screwed up system, he can fix it. I've also seen an excellent technician who could not read (we gave him a tape recorder) and some who just couldn't write but could fix anything.

I believe in testing. This is a good way to find out what a person knows on paper. You have to be careful though. I've seen many pass tests on paper but still not perform out in the field. I have seen only a few not pass a test and perform. Some companies give practical tests along with written tests because some people don't do well on written tests.

When interviewing I like to find out how a technician thinks. What is his reaction to specific situations? How would he handle specific things that come up in the field?
Remember seeing the technician during an interview is the best that you will see him at. Does he drive up in another company's truck? How would you feel if a technician took your truck on an interview for another job? If he is in a car, walk him out. See how neat the car is. You'll get an idea of how neat he might be in your truck.

Look at the application. It probably will be the neatest writing you will ever see. If you can't read the technician's writing on the application, what makes you think that you will be able to read his writing on his service tickets?

In addition to the technical type questions during an interview, here are some others you should consider asking:

1. Describe what you normally do when going to a customer's home or office? (I.e. where do you park, how do you greet the customer, etc.?)

2. Have you ever had a situation where.... (I.e. you couldn't fix the problem; the customer was rude to you, etc.) and how did you handle it?

3. Do you work on your own car?

4. Would you fix or replace a 20 year old system? If you would replace it, how would you talk to the customer about replacing it?

5. How do you feel about maintenance agreements? If he says that he believes in them, ask him to sell you one. Ask him how many he sold at his previous company.

These questions should provoke conversations and give you a good idea of how the service technician thinks. Get a feeling as to whether he is just telling you what he thinks you want to hear.

If the technician passes the technical part of the test and the conversational part of the test, it's then time to check references, give a drug test, and a driver's license check. Assuming he passes these, it's time to see how he does in the field.

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).

Ranking Service Technicians  - December 2007
by Ruth King

Technicians should be ranked according to many things including their technical ability. You must know your technicians' strengths and weaknesses so that you can match the right
technician with the right job.

Service technicians must be neat, clean, be able to communicate with the customer in language she understands, be a productive member of your service department, and sell in specific cases where it is in the best interest of the customer to put in a new unit, buy a service agreement, etc.

The ability to diagnose and fix heating and air conditioning equipment is the obvious basic need. However, remember that your best technical service technician may cost you customers if he is rude, sloppy, or makes a poor impression. You must help him change his behavior or find another job.

Track a service technician's performance by gross margin, number of callbacks, number of positive customer comments, attendance, willingness to go the extra mile, sales of equipment and maintenance agreements, etc. Consider all of this and your best technical technician may not be your best overall technician.

Many companies have a career track for their service technicians. For example, the path might be helper, maintenance technician, junior technician, technician, senior technician, and supervisor.

Each of these positions has a specific level of knowledge which must be acquired prior to moving to the next level.

Each position also has specific tool requirements which must be owned by the technician prior to advancing.

Each level also has a specific pay rate. Technicians know how much they can earn at each level. If they want an increase in pay they know what they have to do to earn the right to advance to the next level.

Advancement based on longevity is not automatic. For service technicians to advance they must increase their skills and be a productive (i.e. profitable revenue generating) member of the department. You may have technicians who earn more than other technicians who have been with your company longer. The most productive technicians should earn the highest wages.

Although most companies do performance appraisals for raises, they don't have to be done in conjunction with raises. They should be done each year (or more often). You must evaluate:

• Where a technician has been (i.e. schools, types of jobs worked on, etc.

• Where his strengths and weaknesses lie

• Is he working on weaknesses?

• What goals has he set for himself for the upcoming year?

• What goals did he reach during the year?

• What training was he given during the year? What is still needed?

Performance appraisals should be done like clockwork...every year on an anniversary date or January 1st, or some other date that is set in concrete.

The service technicians must know what they are being evaluated on.

Whenever you catch the service technician doing something right put a note in his personnel file to that effect. We all have a tendency to remember the negative things rather than the positive things. Put both things in his file since at review time you may not remember all of the "good things".

Catch the service technician doing something right. Always say thank you. Too many times the service technicians only hear from you when things are going wrong...they need to hear when things are going right also.

Whenever you have your service meeting, thank them as a group for their hard work.

If a service technician is not performing well you may choose to have another review in 30 to 60 days to see if the performance has improved. If it hasn't, and depending on the severity of the problem, you may choose to fire the person.

Ruth King is a nationally know HVAC Industry consultant and the author of The Ugly Truth about Small Business. You can get this “reassuring and swift kick in the pants” book at any bookstore, or by calling 800-511-6844 or at www.theuglytruthaboutsmallbusiness.com. If you would like to pre-order The Ugly Truth about Managing Well, please send me an email (ruthking@hvacchannel.tv).
 

Dispatch – Key to Service Department Profitability  - January 2008
by Ruth King

Dispatchers can make or break the profitability of your company. In my opinion, dispatching is the most stressful job in your company…even more stressful than an owner’s job. Why? The stress is constant. Even owners get a break. They can play golf or do other things during the day to break the stress. Dispatchers are chained to their desks.

So, what is a dispatcher’s real job? Depending on the size of your company, and whether you do residential, commercial or both, some of these activities may not apply. However, the basic job description and job activities will apply to all positions.

The role of the dispatcher is to PROFITABLY take care of customers, technicians, and his or her boss. If s/he is a great dispatcher, the technicians will be happy, productive and take great care of your customers. This generates profits…as long as your pricing is correct.

If the dispatcher is rude to customers, doesn’t know how to take care of the technicians, routes poorly, and doesn’t do paperwork well, then you will have a poorly run service department, unhappy technicians and a decreasing customer base.

Your dispatcher has a key role in determining how efficient the technicians are. She needs to know where they are at all times, what their technical capabilities are, and how their personalities interface with different customers.

All technician movements must go through your dispatcher. If a customer calls any manager and requests a service call or installation (if your dispatcher handles installation scheduling), that manager must refer the customer to the dispatcher. No manager should pull a technician from a job or send a technician to a job. Sometimes this is very difficult for managers to do. However, it must be done since pulling technicians and double-scheduling technicians decreases productivity and increases costs.

Another area of friction occurs when the service department does start ups for the construction department. This is often necessary when construction can’t justify a start up crew. Unfortunately, the dispatcher is often the last to know when a start up is necessary. Communication is the key. When sales are won and the jobs are progressing, the job managers must tell the dispatcher when the start up is scheduled for. This can be an approximate date. However, it can be scheduled when the manager tells the dispatcher how long he will need that technician and whether a helper is also needed. Then the dispatcher will assign the technician to that job and will not pull that technician(s) until the job is completed.

Finally a third area of friction is when a technician does not get one call at a time. This gives technicians control in an area where they should not have it. They can choose only calls they want, worry about a call at the end of the day, and speed up or slow down depending on how many calls he knows he has during the day.

Ease the stress on your dispatcher. Help her do her job more easily by giving her control over the technicians’ schedules.


Ruth King is a nationally know HVAC Industry consultant. Her new Dispatcher’s Survival and Service Manager Survival audio CD’s are available by calling 800-511-6844 or sending an email to ( ruthking@hvacchannel.tv ).

Maintenance Agreements – Now is the Time to Build Your Customer Base - February 2008
by Ruth King

Last week seemed to be the week for service agreement/service contract discussions. One client was rejoicing that they were extremely busy. When I asked how many maintenance agreements they had sold, the answer was, "Um, we're too busy to sell them." Another contractor hadn't begun selling them yet. (I'm helping him get his program together). A third conversation revealed that the service agreement program at that company was stagnant. They sold only enough to cover the ones they lost.

This is the time of year to sell maintenance. It is critical to, as one wise person said, "Strike when the iron is hot." Many times technicians won't discuss them with your customers because they fear it will add to their already busy work day. From my perspective, maintenance performed at service agreement prices is done at the slower times of the year. If a customer requires cleaning at this busy time she pays regular rates (at the service agreement discounted rate).

To eliminate the technicians saying, "I forgot to mention them," the dispatcher starts the process by asking the customer, "Do you get a discount on this call or do you have to pay full price?" This is the old CSG question created by John Young and Jim Abrams. It works. The customer never wants to pay full price. She asks how to get a discount. The dispatcher simply says, "We have a maintenance program that lets you write smaller checks to your utility company and save money on this call. The technician will explain it to you when he arrives at your home." I promise you, if the technician doesn't mention the agreement, the customer will ask.

If you haven't started your program yet, gather the information you'll need to start the program. This includes model and serial numbers, number of filters and sizes, and ancillary equipment such as humidifiers, pleated filters, electronic air cleaners, set back thermostats, etc. You'll need it when you send out the initial letters and agreements to customers.

Some other things to remember:
1. If your sales are lackluster, maybe it is because your technicians don't believe in the program.
To properly educate the customer, they must believe that what they are telling customers is accurate and necessary. The best way I know to do that is to ensure that your technicians all perform maintenance on their home HVAC systems and the office systems. A service call should be scheduled for each technician's home. The maintenance should be performed by a technician who isn't the homeowner (ie.. John should do the maintenance on Steve's home, etc.)

Dispatchers should ride with the technicians to see how a maintenance inspection is performed. Each dispatcher should have a maintenance plan for her own home.

Then, when dispatchers and service technicians talk with your customers they can honestly say they have maintenance performed according to manufacturer specifications on their own homes.

2. The technicians must design the service agreement.
This way they can't say they don't believe in it. They've designed it so they have to believe in it! The deal you make is that the technicians design it and you, as an owner or manager price it. Many times the price will be higher than you've had in the past. However, the maintenance will be done properly with the specifications created by the technicians. They'll usually talk about and promote what they believe in.

3. Selling service agreements is a cultural activity.
For your program to be successful, everyone must constantly talk about maintenance agreements, get excited when the numbers increase, and understand that everyone wins when the maintenance agreement numbers increase. Maintenance plans are not a short term project but a life long process.

A great maintenance agreement program is essential for long term profitability in our industry. Begin today to start or expand yours.


Ruth King is a nationally know HVAC Industry consultant. Her new Dispatcher’s Survival and Service Manager Survival audio CD’s are available by calling 800-511-6844 or sending an email to ( ruthking@hvacchannel.tv ).

The Role of a Dispatcher - Part 3: Preventing Stupid Callbacks
March 2008
by Ruth King

Your dispatcher is the link to decreasing stupid callbacks. And yes, there are two major types of stupid callbacks:

1. For customer signatures (or manager's signatures for commercial jobs so you can bill)
2. To get a model and serial number so that you can order a part or verify the unit that was repaired/maintained on a commercial building.

There is no logical reason that any time or gasoline should be expended on these two issues. Make your dispatcher responsible for ensuring that these types of wasted calls don't happen.

When the technicians are given one call at a time, these types of callbacks are eliminated. Why? At the end of each call, the dispatcher asks the following questions before she gives the technician his next call: