HVACR Business December 2018 by HVACR Business

Keep Learning, Keep Succeeding By Pete Grasso 5

Safety First By Joel Frederick 14

The Basics of Inventory Control By James Leichter 17

Stop Cheating on Your Marriage with Your Business By Angie Snow 20

Develop Key Employees for Successful Exit By Bob O’Hara 21

DECEMBER 2018 / VOL.13 / NO.12

WHEN NOT TO DELEGATE

ALSO INSIDE » Featured Entrepreneur: Larry Thornton, Owner of Pitzer’s One Hour Air Conditioning.... 6 Ruth King: Essential Functions of Replacement Profitability.... 8 20 Questions with Mike Kempel President of Dakota Refrigeration, Inc........................... 23

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CONTENTS

DECEMBER 2018 / VOL.13 / NO.12

F E AT U R E S

When NOT to Delegate Some responsibilities, business owners need to keep for themselves. By Michael Moore

Safety First

The Basics of Inventory Control

20 21

Editor’s Notebook

Featured Entrepreneur

Your safety culture requires a strong commitment from the top and it must be your number one priority. By Joel Frederick Inventory control is not technically difficult but it requires written procedures, consistency and discipline. By James Leichter

C O LU M N S

D E PA R T M E N T S

Three Essential Functions, Part 3 — Replacement Profitability Replacement profitability can be divided into two parts: estimating the job properly and installing the job in the estimated time. By Ruth King

Stop Cheating on Your Marriage with Your Business Owning a business with your partner can be a blessing if you’re smart with your time. By Angie Snow

Develop Key Employees for Successful Exit Key employees play an enormous role in a business owner achieving his/her definition of independence. By Bob O’Hara

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Your continued interest in business management content is what drives us to always be your top resource. By Pete Grasso

Larry Thornton, owner of Pitzer’s One Hour Air Conditioning

20 Questions with Mike Kempel President of Dakota Refrigeration, Inc.

M A R K E T WAT C H Stock Index: The HVACR Business Stock Index inched down 3.01 points, or 0.21 percent, closing at 1423.73; the largest four companies in the index ended in negative terrain. To read this month’s analysis, visit hvacrbusiness.com/stock-index.

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EDITOR’S NOTEBOOK

BY PETE GRASSO THE HVACR MANAGEMENT MAGAZINE

TERRY Tanker Publisher ttanker@hvacrbusiness.com PETE Grasso Editor pgrasso@hvacrbusiness.com MEGAN LaSalla Art Director mlasalla@hvacrbusiness.com BRUCE Sprague Circulation Manager bs200264@sbcglobal.net BARBARA Kerr Executive Assistant bkerr@hvacrbusiness.com

ADVERTISING STAFF EAST COAST/SOUTHEAST JIM Clifford Regional Sales Manager Tel 201-362-5561 Fax 201-334-9186 jclifford@hvacrbusiness.com MIDWEST ERIC Hagerman Regional Sales Manager Tel 216-409-3246 Fax 440-731-8750 ehagerman@hvacrbusiness.com WEST COAST TERRY Tanker Publisher Tel 440-731-8600 Fax 440-731-8750 ttanker@hvacrbusiness.com

Keep Learning, Keep Succeeding

eedback is an important, but sometimes overlooked, aspect of your job. As a business owner, you’re constantly looking for feedback from your management team, your employees and even your customers. This information helps you shape how you move forward as a company and identifies the focus of your goals.

6 Strategies for Reducing Debt

Without this valuable feedback, it’s difficult to know if what you’re doing is worthwhile. Are you providing the best possible service you can to your customers? Are your employees happy with the training you provide them? Are your operations running as smoothly as possible?

R-22 Phase Out: What Contractors Really Need to Know

Every leader needs to know the outcome of his or her decisions to truly lead effectively. HVACR Business, founded January 1981, is a monthly national trade magazine serving contractors, mechanical engineers, manufacturers, manufacturer representatives, wholesalers, distributors, trade associations, and others in the heating, ventilating, air conditioning and refrigeration (HVACR) industry primarily in the U.S. The editorial focus and mission of HVACR Business is to provide business owners and managers with the very best business management concepts available. Critical topics covered include leadership, management, strategy, finance, sales, marketing, training, education, staffing, operations, human resources, legal issues, customer service and more. We are dedicated to helping contractors master these key management skills and provide them with the resources necessary to build strong, profitable companies. Every effort is made to provide accurate information, however, the publisher assumes no responsibility for accuracy of submitted advertising and editorial information. Copyright©2018 by JFT Properties LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, or by recording, or by any information storage or retrieval system, without written permission from the publisher. Subscription Rates: Free and controlled circulation to qualified subscribers. Non-qualified persons may subscribe at the following rates: U.S. and possessions: 1 year $48; 2 years $75; 3 years $96; Canadian and foreign, 1-year $108 U.S. funds only. Single copies $8. Subscriptions are prepaid, and check or money orders only. Subscriber Services: To order a subscription or change your address, write to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039 or call (440) 731-8600; or visit our Web site at www.hvacrbusiness.com. For questions regarding your subscription, please contact bkerr@hvacrbusiness.com. HVACR Business (ISSN 2153-2877) Published monthly by JFT Properties LLC., 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039. POSTMASTER: Send address changes to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039. Periodicals postage paid at Cleveland, OH and additional mailing offices. (USPS 025-431)

The same things rings true for us. As the leading business management publication in the industry, it’s important for us to know that we’re making a difference for our readers.

www.hvacrbusiness.com www.hvacrbusiness.com www.HVACRBUSINESS.com

This article is a couple of years old, but still contains a lot of great information on the R-22 Phase Out. We gathered a panel of experts from all areas of the industry for a discussion with one objective: What does the HVACR contractor really need to know about R-22?

Your continued interest in business management content is what drives us to always be your top resource.

I’ve worked for a couple of different publications over the years but this one, in this industry, has by far been the most enjoyable. And that’s because of you and the feedback I get on a regular basis.

Whether its through email or discussions I have when I attend various trade shows, contractors are always giving me feedback on the job we’re doing to help them run profitable businesses. I get a great sense of what is important to you as business owners through these discussions, as well as when I look at our monthly web analytics. This information helps us decide what type of content we need to publish. As the year winds down, I thought it would be beneficial to revisit some of the top content we’ve published. These are articles you’ve identified as important, and they help us shape what we’ll cover in the next year. All the articles mentioned below are available on our website, and I encourage you to head over to hvacrbusiness.com and check them out.

Do You Have a Collection Problem? 31674 Center Ridge Road, Suite 104 North Ridgeville, OH 44039 Tel: (440) 731-8600 Fax: (440) 731-8750 Web site: www.hvacrbusiness.com (ISSN: 2153-2877)

Another great article from Ruth King, this one outlines two types of debt: current liabilities and long-term liabilities. It also includes six excellent debt reduction strategies you can implement immediately.

This article by Ruth King is one of the most popular articles each and every month. It outlines the accounts receivable to accounts payable ratio. On the surface, this ratio seems straightforward: simply divide accounts receivable by accounts payable. However, if more than 50 percent of your business is COD, then the ratio must be calculated as accounts receivable plus cash divided by accounts payable.

Understand the Tax Implications of Business Mergers

Whether you’re selling a business, buying a business or merging two or more businesses, there are myriad tax and legal issues that need to be navigated, such as financing structure, purchase price allocation and fair trade laws.

5 Tips for Handling an Employee with Attitude Employers often feel trapped when dealing with attitudes of entitlement among their staff members. They endure offensive demeanors to avoid the hassles of retraining new staff, wrongful termination lawsuits and defensive hostile reactions from would-be terminated employees.

A Business Model is a Business Blueprint The technology-driven transformation in today’s business environment puts a premium on the model we adopt. Not only are entirely new business models possible, they’re also necessary for survival. And they must be so designed that they can morph into something new on the fly when the environment changes. A lesson being learned by far too many organizations, and a little too late, today.

5 Drivers of Successful Mergers, Acquisitions Several factors are influencing merger and acquisition (M&A) activity. Achieving economies of scale, broadening geographic market coverage, and more effectively competing have helped to create a flurry of acquisitions in the marketplace. In addition, the search for cost reductions through M&A, particularly in the mature market conditions we have in the HVACR industry, are being used to offset companies’ inability to grow profit through price increases. u HVACR BUSINESS DECEMBER 2018

Featured

ENTREPRENEUR

Cruising Along BY PETE GRASSO

s a semi-retired, absentee owner of Pitzer’s One Hour Air Conditioning and Benjamin Franklin Plumbing, Larry Thornton is — as he says — living the dream. But it took a lot of hard work and an entrepreneurial spirit to get to where he is today. Thornton got his start in an unusual place, working in the Salmon canneries of Alaska. There he befriended a refrigeration machinist who made him his assistant.

LARRY THORNTON Title: President Company: N&L Investment Corp. Website: pitzerairconditioning.com Year Founded: 1983 Locations: Kingman, Ariz. Work Performed: Residential Service No. of Employees: 90 Annual Revenue: $13 million Vendor-Partners: Barnett Affiliations: One Hour Air Conditioning, Benjamin Franklin Plumbing

“Later, I was offered a position on a Tender to run the refrigeration unit and be a deckhand,” Thornton says. “I bluffed my way through the rest of the season and then enrolled in the HVACR program at the University of Alaska where I learned the basics.” In 1991, he moved to Illinois where he was doing PTUs before moving into residential sales. “After three successful years in residential sales, Jim Abrams hired me to work at Future University and was promoted to become Sales Manager of his company in St. Louis,” Thornton says. “I learned a lot from Abrams and his various organizations, and attended a class called ‘Leadership Training for Managers’ by the Dale Carnegie organization.” Thornton made the most of his experience and everything he learned throughout the years. Fast forward today, where Thornton’s company N&L Investment Corp. owns 21 Benjamin Franklin Plumbing and One Hour Air Conditioning franchise territories. “We currently operate out of five locations in Arizona and Las Vegas,” he says. “We are in the midst of a building project and will be moving all our NW Arizona locations into a new building being built in Kingman, Ariz., where I live.” Last year, his company’s top line sales were $11 million and this year they’ll end around $13 million. Thornton credits a lot of his success to the unique selling proposition (USP) given to him by the franchise and that he offers an “On-Time, Can’t Lose” service to homeowners. “We take great pride in hiring only people you would want to invite into your home,” Thornton says. “Our people are constantly getting rave reviews.” Their participation in the Uwin program (877655uwin.com) guarantees a homeowner can never lose, and their promise of “Always On Time … or You Don’t Pay a Dime” ensures customers won’t have to wait around.

HVACR BUSINESS DECEMBER 2018

“Seeing how the members of our team are becoming better people, setting and achieving their personal goals and how they all interact with each other is most rewarding,” he says. Still, like many companies, Thornton says the most challenging aspect is finding really good people. Something he believes can be solved by management being able to clearly share the company’s vision. “Many of our employees have come to us as referrals from existing team members,” he says. “How do we get the outsiders in? That is the $60,000 question.” In rural Arizona it’s a lot more difficult than it is in the big cities. “We’re starting to get a lot of younger kids in and we’re putting them through the apprentice program,” Thornton says. “But this is something Success Academy, through its relationship with Pearson Learning Solutions, has helped us with.” Thornton’s growth has been meteoric since he bought his partners out five years ago. They went from four stores up to seven, but are now condensing to four. With such a large service area, the focus has been on trying to figure out how to run an operation that covers such a vast area, ensure their systems and procedures are in place and finding good people to be on the team. “A year ago, I stepped out of the day to day operations and am really doing my best to be an absentee owner,” Thornton says. “There is an inner drive that makes me want to succeed.” Thornton really only communicates with the two general managers because he doesn’t want to interrupt that chain of command. They have management meetings every Tuesday and he gets a report from them about what happened in the meeting. “Years ago, when I was just an employee for Jim Abrams, I met a guy who was an absentee owner, managing all his business from a sailboat,” Thornton says. “I always thought that was the dream to achieve.” Since Thornton took a step back, he likes to also spend his days on a boat … but a much bigger boat than that owner he met years ago. “I go on a lot of cruises,” he says. “I think I just counted 78 days booked on cruises in the next year.” u

Pete Grasso is the editor of HVACR Business magazine. Email him at pgrasso@hvacrbusiness.com.

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FINANCE

BY RUTH KING

Three Essential Functions, Part 3 — Replacement Profitability

n the past two months I’ve written about maintenance and service profitability. This last segment covers replacement profitability.

Replacement profitability can be divided into two parts: estimating the job properly and installing the job in the estimated time. Be careful you don’t have sales person’s time versus actual installation time. I’ve seen salespeople underestimate the time it will take to install a job so they can win the job. The crew gets on the job and knows that it will take hours longer to do the work. If you pay your salesperson on revenue or even gross margin in this situation,

Using the net profit per hour method you can also reward your crews. If the job comes in at the estimated number of hours, they receive a bonus. the sales person wins and the company loses. It’s best to pay the salesperson on a minimum net profit per hour. Residential and commercial jobs can have different net profits per hour. Commercial jobs can also have different net profits per hour depending on whether they are a high labor or a high materials job (high labor jobs usually

have a lower desired net profit per hour). For example, assume the minimum net profit per hour you want per job is $100. If the job comes in at $100 net profit per hour, then the salesperson receives, for example, $25 per hour. If the job comes in over $100 net profit per hour, then the overage is split between the sales person and the company.

If the job comes in at under $100 per hour, then there is no commission unless there was something extraneous that happened (i.e. wrong piece of equipment delivered to the job, a crew member gets sick, an accident, etc.) Using the net profit per hour method you can also reward your crews. If the job comes in at the estimated number of hours, they receive a bonus. Here are seven procedures to help increase job profitability: 1. The sales person takes pictures. This shows the installation crew where the job should be installed and the details of the installation.

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2. Someone creates a material list. Usually this is the sales person. However, there are companies who have a project manager visit the job prior to installation to create the material list. For multiday jobs, the lead mechanic calls the warehouse for the materials he needs the next day. 3. Materials are pulled and waiting for the crew. 4. Crews come in at staggered hours to pick up their trucks and get instructions for the job. They receive a copy of the material list and sign off that they have received the materials. For multiday jobs, if there are not parts needed, the crew goes directly to the job. If there are parts needed, then the lead installer comes to the shop or the parts are delivered to the job.

Then they are added to cost of goods sold to determine the final net profit per hour. A maintenance plan should be included with each residential job. It should be

discussed during the job process for commercial jobs. Then, the three function cycle starts again: maintenance, service and replacement. u

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Ruth King has more than 25 years of experience helping contractors, distributors and manufacturers grow their companies. Contact her at ruthking@hvacchannel.tv.

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5. No crew should wander through the warehouse picking up whatever he thinks is needed for the job. Materials are ready for them. The crew should be on their way to the job in 10 minutes from arrival at the shop. 6. The sales person meets the crew on the job. He introduces the crew to the customer and goes over the job with the customer and the crew. For multiday jobs, the sales person or the project manager visits the job at least once per day. 7. The crew installs the job and takes the required pictures showing that lines are straight, pad is level, and other pictures needed for proof of a good installation. For residential jobs, the crew collects payment or the salesperson visits the job at the end of the job and collects payment. Review and job cost all jobs to determine their net profit per hour: Selling price â&#x20AC;&#x201C; direct cost (labor/materials/freight/ permits, etc.) = gross profit Multiply the number of actual hours on the job times the overhead cost per hour to determine the job overhead. Subtract the overhead from the gross profit to determine net profit. Divide net profit by the actual hours. Then pay commission based on the actual net profit. Note: Overhead cost per hour is calculated by taking your yearly overhead divided by the number of billable hours. And, commissions are a cost of sales. They are determined based on the net profit per hour of the job. www.hvacrbusiness.com

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HVACR BUSINESS DECEMBER 2018

WHEN NOT TO DELEGATE

Some responsibilities, business owners need to keep for themselves. BY MICHAEL MOORE

here’s probably no commercial enterprise in the U.S. that showcases the American Dream more than the trades. A large majority of HVACR business owners got their start in the industry as technicians or installers. They worked hard and whether they took over for retiring parents or started new companies, these dedicated souls are now running their own businesses. If this is you, it’s probable that one of the first things you had to learn about managing others, was how and when to delegate. When you’re used to doing much of the work yourself, delegating tasks and responsibilities can be a challenge. By now, you’ve probably had a decent amount of practice and can delegate with the best of them. What about the flipside? Do you ever wonder which responsibilities it’s important for business owners to reserve for themselves? These are vital business projects that the owner needs to handle and can’t accurately be performed by someone else.

When you’re used to doing much of the work yourself, delegating tasks and responsibilities can be a challenge. DEFINE THE VISION

OUTLINE CORE VALUES

It’s up to you to decide the overarching goals for your business. Anyone can look at your business and say, “We should make money.”

As a professional, you have standards for the work you perform. As the business owner, you have to set the standards for everyone in your organization. What kind of performance do you expect from your service department and from your sales team? What are the standards for your office personnel and for your managers?

But only the business owner knows what overarching goal or mission, they want to achieve and the values that matter to them, beyond revenue generation. Perhaps your vision is related to making homeowners’ environments as comfortable and healthy as possible or offering the best customer service in your market. Whatever your vision is for the future of your business, you must define it and then communicate it to everyone in your company.

HVACR BUSINESS DECEMBER 2018

Everyone in the company needs to know what they’re being measured against, so they can work toward performing appropriately. Maybe every employee is expected to demonstrate and uphold the core values of the company. From the rawest recruit to you, everyone is held accountable for straightforward, honest, respectful, quality behavior and work. As the head

of your company, it’s up to you to set the expectations for how your organization will behave. You also need to make those requirements clear to your team.

DETERMINE GUIDELINES After your employees, nothing is more critical to your business’s success than your customers. The way you engage with them is key to differentiating you in the market, building your reputation and generating leads and referrals for future business. This isn’t just about providing excellent customer service, though that’s definitely vital. But it’s up to you to define the unique ways your company will interact with customers and what you will offer them that is different from your competitors. Think about your last interaction with a service provider, when you were the customer. Did they do anything to make your experience with them stand out and make you want to recommend them above their competitors? That’s what you want to deliver to your customers. An experience that makes them www.hvacrbusiness.com

say, “Wow. I’d definitely use them again and recommend them to my neighbors.”

PERFORM FINANCIAL REVIEWS Plenty of folks find it difficult to work through the financials; paying attention to gross profit margin, net profit and net profit margin. Many HVACR business owners work in the business as well, so taking time to review the financial performance, benchmark the way things are currently going against Key Performance Indicators (KPIs) and build a plan for the next year, can be daunting. You don’t have to do it alone, by any means. Financial planning should, to some extent, be a team effort. But as the owner, you should be on top of your company’s financial health. For instance, is your business earning 10 perent or more net profit? For an HVACR business, that’s generally the amount you’ll need to sustain growth. Too many business owners work super hard all year, only to find that they’re barely scraping by. Don’t let that be you.

DEVELOP YOUR MANAGERS If your business has grown to the point where you have one or more managers below you, it’s important to help them develop professionally. Their subordinates can’t do it; working relationships simply don’t work that way or at least they don’t work well. Whether you hire managers into your company or promote them from within, it’s up to you to train them in their new responsibilities. Make sure they understand the vision and core values and can help you to demonstrate and communicate the company culture. Don’t assume they already have all that down. The most capable managers still need to touch base with their bosses once in a while, realign on priorities and make sure the team is running smoothly as a whole. When that doesn’t happen, you can wind up with a fractured company, with factions all vying for top spot or more recognition and so on. Avoid that headache and help your immediate employees to grow professionally.

SETTING KPIS There are KPIs for pretty much everything in a business and you can definitely find and benchmark against www.hvacrbusiness.com

Everyone in the company needs to know what they’re being measured against, so they can work toward performing appropriately. them. When it comes to deciding how you measure and score your employees’ individual or team performance, that’s something the business owner should do. You’ll probably want managers or team leads to track their subordinates’ progress and post results. For instance, you don’t have to keep track of the average ticket prices for your sales team or the number of maintenance agreements your service department brings in, as long as you delegate that to a capable manager or team lead.

you’re building and who have the skills and talents to make your business a success. Learning to delegate much of the dayto-day operations is part of the process, too. Doing that allows you to focus on your job as the owner: improving the

business and making the decisions that will cause it to thrive and prosper. u Mike Moore isn’t just an HVACR expert; he also knows a thing or two about employee training for the HVACR industry. As one of the Lennox Learning Solutions founders and Director of Training, he is focused on helping HVACR leaders, salespeople and technicians grow their businesses and develop their skills. Visit lennoxpros.com/HVACR-training for additional information.

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SAVE MORE

But as the business owner, you’ll need to determine what rules and processes will govern how your company measures individual, team and overall success.

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OVERALL STRATEGY When you hire service, sales and marketing managers, of course it’s best to let them get on with their areas of expertise. If you have a capable marketer who knows more about brand positioning than you do, fantastic!

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What we’re talking about here are the major decisions, such as deciding which equipment manufacturers or distributors to partner with, whether and when to departmentalize the company and hire more managers, maintaining the relationships most vital to your business and the like. You’ll always want to have a hand in hiring and firing, even if it’s as the last person that a promising candidate meets before being welcomed aboard. On that note, you should always keep your eyes open for new recruits, too. Of course, it’s wise to gather input and feedback from your team. Just remember that the final responsibility for companysteering decisions lies with the owner.

WORK ON THE BUSINESS Running a business can be an exhilarating, exhausting, triumphant and disappointing journey, sometimes all on the same day. As your business grows, it’s important to gather people who can share your vision, are a good fit for the culture

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HVACR BUSINESS DECEMBER 2018

SAFETY FIRST

Your safety culture requires a strong commitment from the top and it must be your number one priority.

BY JOEL FREDERICK

ach morning, as AC technician teams across the country prepare to tackle the day’s assigned work, they must first think through what they’ll need to complete each task. Which tools will be used? What equipment will be needed? As managers and supervisors arm your staff with the tools and information to get the job done, it’s even more important to make sure your team has the training and infrastructure to keep them safe on each and every site visit. This profession can be dangerous at times. Your employees face potential electrical dangers, inhalation threats and bodily injury. Abiding employment safety laws and training your team with Occupational Safety and Health Administration (OSHA) are important but it has to go further. It should be your

The management’s commitment to safety sets the motivating force for controlling risk and avoiding danger on the job. top priority to develop a culture that values and reinforces safety. The management’s commitment to safety sets the motivating force for controlling risk and avoiding danger on the job. Your safety culture requires strong commitment from the top and safety must truly be the number one priority. It must become an integral part of your business and safety must become everyone’s responsibility. Management owes it to their employees to plan and prepare them for a safe work environment. No job is worth getting hurt

for. Here are some practical methods you can use to build your company’s safety culture.

SET THE BAR If safety goals are not set at zero, an employer sends a message to employees that severe and disabling incidents are acceptable. Zero incidents can be achieved but accidents are only avoided through planning and preparation. The majority of incidents happen because of unsafe acts of people or unsafe conditions. Achieving zero incidents is

possible when the unsafe acts and unsafe conditions are not tolerated.

CULTURAL ALIGNMENT Safe work cultures start from simple common beliefs that are supported by all employees in an organization. An incident free environment shouldn’t just be the management’s vision but something engrained in the culture. Everyone must be striving for the same goal.

PRACTICES IN PLACE There has to be consistency between what you say about safety and what you do about safety. Practices and behaviors must be in line with the vision of continuous safety performance. Managers are responsible for developing safety policy, procedure and training to protect workers

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HVACR BUSINESS DECEMBER 2018

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from work-related injury.

ENABLING EMPLOYEES Employees should be encouraged to participate in creating a safe work environment but it’s also an employee’s responsibility to follow your company’s safety policies. It’s a part of their duty to abide by the guidelines in place, actively participate in training available and reach out to identify potential hazards or needs.

ALLOCATE RESOURCES Dollars and manpower have to be set aside to use for training and reinforcement. Budgeting for the costs of training programs and proper safety gear is important. Employees also need to have ample opportunity to participate in training programs and onboarding. Managers should be open to answer questions and provide designated safety leaders to serve as guides to assist in spotting potential dangers and reinforcing the message.

AUDITING PERFORMANCE It’s important to evaluate compliance and understand the cause of incidents and injuries. Management should have a keen eye on how well the processes in place are working. Are your employees enabled to handle safety risks without incident?

We should be openly acknowledging any needs for improvement and promptly correcting issues.

SCHEDULING SAFETY Discussing safe practices needs to be incorporated into daily rituals your team partakes in each day. When a crew is making plans for the day’s work, safety needs to be addressed each step of the way. Make time for safety updates in all status meetings your teams participate in. All daily, weekly and monthly touch points allow for discussions and further training. Quarterly and annual check-ins can be a good time to review and analyze set backs and progress at a higher level, but there has to be continuous vigilance at a more routine level.

ACKNOWLEDGING GENERAL DANGERS There are many hazards that can impact a work environment that aren’t at all specific to your field of work. For example, your men and women in the field are often operating company vehicles driving all over town. When a manager addresses common dangerous driving practices it can often serve as a much-needed reminder to employees to self monitor their driving. Management can even enforce the importance of following all traffic laws by penalizing those who violate laws and rewarding good behavior.

TRAIN & RETRAIN It’s critical that everyone in the workplace is properly trained: managers, supervisors, all full and part time and temporary workers. Pay close attention to employees learning new operations to make sure they have the proper job skills and awareness of the hazards. Set expectations during the trainings and reinforce these after training is complete. Provide supervisors with guidelines for reporting and correcting hazards.

MANAGE YOUR MANAGERS All levels of employees are responsible for daily monitoring of workplace safety practices. But managers are also accountable for mentoring, advising and counseling staff members who are not performing up to written policies and expectations. They should set the example. Know and communicate the expectations and enforce the standards. They should also conduct safety inspections to spot check and ensure safety practices are being followed.

EMPOWER YOUR SITE SUPERVISORS At large commercial sites, each respective site supervisor is, at any given time, responsible for a portion of your team while they are on a work site. They are responsible for running the show in

nearly every aspect, including making sure that their team is abiding by safety regulations and using ample precaution. As upper management, it’s imperative to clearly define the roles and responsibilities for your site supervisors in regards to safety, as well as empower them to be vocal on the importance of safety on the job. Encourage each site supervisor to lead by example when it comes to safely approaching every task. By providing continued safety education and granting site supervisors authority in the realm of safety management, you decrease the likelihood of unforeseen safety incidences occurring in the first place.

SPOT IT To make the workplace safer, determine where and what and how a worker is likely to become injured before it occurs. Identify any unsafe condition or practice that could cause injury, illness, or property damage and is preventable. Break down a job into its component steps and then evaluate each step, looking for hazards. Each hazard can then be corrected. If unavoidable, the employee must be provided a method of worker protection and it must be made a standard of operation for encountering this hazard. continued on page 17

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continued from page 15

GEAR UP Employee’s equipment needs to be properly maintained to ensure the equipment doesn’t become a potential hazard. But they also need access to personal protective equipment. It is the employer’s responsibility to provide any gear needed to stay safe on the job. Often times this means safety eyewear, face shields, hard hats, gloves, safety shoes, earplugs and vests.

ACCIDENTS HAPPEN Sometimes in spite of your best efforts things go wrong and an incident occurs. There are many things that may contribute to an accident. Not all of which are always apparent. That’s why it’s important to investigate. Conducting a thorough investigation with a root-cause analysis can identify what went wrong in order to correct it. Identifying the root-cause of the accident

The majority of incidents happen because of unsafe acts of people or unsafe conditions. Achieving zero incidents is possible when the unsafe acts and unsafe conditions are not tolerated. allows you to correct the underlying cause and prevent this accident from occurring in the future.

THE BOTTOM LINE

Having incident claims on your company’s record will spike what it pays in workers’ comp premiums. Much like any other form of insurance, the more incident claims on record, the more likely it becomes that your carrier may drop your company. Lower numbers of work injury claims can mean the difference between your business paying $90,000 in workers comp and paying $190,000.

We always want to ensure the safety of individuals, but also note that continued and consistent safety training will save your company money in the long run. Your company’s bottom line takes a hit every time an employee gets hurt.

Looking beyond the monetary costs associated with work incidents, injury and other factors that play a role in employee health, you find that measuring the economic repercussions of safety will help your company’s management team make

It’s also important to treat near misses in the same fashion. You don’t want a lucky break to turn into an unlucky accident in the future.

By examining and acting upon all of these issues, your company becomes better equipped to prevent entirely avoidable company costs — and more importantly, ensures each member of your team returns home safe and healthy every day. u

As president of Quarter Moon Plumbing & AC, Joel Frederick leads a great team that has been committed to serving the San Antonio community and surrounding Texas areas for over thirty years. Joel actively supports his community and dedicates much of his free time to volunteerism and service work. For additional information, visit quartermoonplumbing.com.

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HVACR BUSINESS DECEMBER 2018

THE BASICS OF

INVENTORY

CONTROL Inventory control is not technically difficult but it requires written procedures, consistency and discipline. BY JAMES LEICHTER

deally, you’ll want the inventory on your balance sheet to match the reality of your business. To do that, you need to take inventory control seriously. Accurate inventory control can be labor intensive and therefore expensive. Inventory control is not technically difficult but it requires written procedures, consistency and discipline. Inventory control is a worthy pursuit though.

$150,000. The difference doesn’t usually show up all at once; it happens over time.

LIMIT ACCESS The first step to inventory tracking is to limit who has access to your inventory. You may need to build a locked parts room. If you have the space, this is ideal. Employees would have to receive the items across a counter like they would from one of your suppliers.

If you sell parts, materials and equipment and you don’t have accurate inventory control, you don’t have accurate job costing. If you sell parts, materials and equipment and you don’t have accurate inventory control, you don’t have accurate job costing.

When people can take whatever they want, when they want it, inventory counts will quickly be wrong.

You also don’t have accurate financial statements. Here’s why: If your balance sheet indicates that the value of your inventory is $250,000, but an actual count indicates that it is only worth $150,000, then your job costing and financial reports are incorrect by the $100,000 difference.

You will need to decide what inventory items will be tracked. Generally speaking, if it has a serial number and/or is worth more than $10, you should classify it as an inventory item and track it.

You have understated your income by

HVACR BUSINESS DECEMBER 2018

TRACKING

Anything that is important for the completion of a job, even if not very valuable, www.hvacrbusiness.com

should probably be tracked as well. Create truck stock lists for each vehicle. When doing so, consider the size of the vehicle, the skill set of the technician and the type of work they do. Your goal is to stock a truck adequately enough that your technicians will not have to make special trips to restock. You should mark items as winter, summer and year-round. Change out items when the seasons change.

returned, cleaned out and refitted for the next job. One last important inventory process needed is to install and maintain a very strong purchase order system. Nothing should be ordered without a purchase order.

TIME TESTED. CONTRACTOR APPROVED.

ACCRUAL VS. CASH Finally, contractors often wonder if they need to track inventory and maintain an inventory balance on their balance sheet. The answer depends on if you

Each truck should be assigned an individualized truck stock list. Empty each truck and replenish it with just the items on that list. STOCKING Each truck should be assigned an individualized truck stock list. Empty each truck and replenish it with just the items on that list. Run an item sales report by vehicle each day or two and pull those items for restock. When your technician comes to the office for regularly scheduled reasons, such as a service meeting, they will leave with their restock items. One important key to this is keeping your technicians out of supply houses. That improves productivity. Service technicians and installers should be required to write down everything that they used for each job. Mobile software with bar code scanning makes this process easier. If you are not there yet, try using removable item number stickers. For installers, consider creating item kits. You might have a furnace kit, heat pump kit, air handler kit, RTU kit and others. You will place commonly used items in containers. Those containers will be given to the installer(s) and returned once the work is complete. The person who restocks the kits will be able to easily determine what items were used.

JOB TRAILERS Another highly effective inventory management technique is the use of trailers for new construction and other installations. Trailers can be stocked on a job-by-job basis with equipment, materials, duct and parts. When installers arrive, they will be told what trailer to hitch up. When the job is complete, the trailer is www.hvacrbusiness.com

file your federal (and state) taxes on the “Accrual” or “Cash” basis. So, the question is really which method are you required to use? Speak to your tax advisor. The answer is not always clear-cut and can have a significant impact on your tax burden. Here is the most important point, even if you file your taxes under the Cash method, you can and should maintain your books and manage your business under the Accrual method. Do not print your financial reports, under the Cash method, for management purposes. Do not use Cash method information to analyze and plan your business. Your tax expert can easily file under the Cash basis using accrual reports. Under Accrual, you recognize revenue and expenses when you incur them. Under Cash, you only recognize revenue when you actually receive the money, not when you do the work. Under Cash, you only recognize expenses when the money clears your bank account, not when you actually incurred the expense. For these reasons, Cash basis accounting is a horrible and dangerous way to manage your business. u James Leichter is president and CEO of software company Aptora Corp., owner of Mr. HVAC LLC and majority partner at RA Tax and Accounting Inc. James is also a faculty member of EGIA Contractor University. For a deeper dive into inventory control and service management operations, download a free package of resources, visit EGIA.org/ HVACR-Operations.

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HVACR BUSINESS DECEMBER 2018

MANAGEMENT

BY ANGIE SNOW

Stop Cheating on Your Marriage with Your Business

leven years ago, my husband and I took the plunge and bought our first HVACR company. It was thrilling, yet very stressful. We were living the American dream — three kids, our own business and the promise of a bright future together.

Owning a business with your partner can be a blessing if you’re smart with your time.

When we purchased the business, we made a promise to each other that this business would only bring us closer and would never drive us apart.

Everywhere I went, the business was always there. I was jealous because it was consuming all of our time, our thoughts and our conversations. I wanted my husband back, and I did not want to talk about the business. When you own a business with your spouse or a family member, the temptation to talk about business 24/7 is always present. You are together all the time so why not talk about business? It seems logical, but it’s not healthy for your relationship or the business. Does this sound familiar? Well, here are four strategies we implemented that helped us find a healthy balance. When executed, these strategies will strengthen your personal relationship as well as your business.

BE INTENTIONAL WITH TIME As business owners and managers, seek to be productive at work. Set a daily plan with your top three tasks, and do those first. Consider the possibility of eliminating, automating or delegating tasks to help you accomplish more while at work so you have more time for your personal life and family. Owning a business with your

During this meeting we have a rule we follow to keep our discussions about business and business only. We do not talk about family, personal issues or other life related activities during this meeting.

TIME FOR EACH OTHER

Yet, the business butted in. It butted into our personal life, into my home, into the kitchen and into the bedroom. It butted into my family schedule, taking up precious time that I had set aside for fun activities such as movies, camping and picnics.

This agenda helps us stay focused and use our time efficiently.

partner can be a blessing if you’re smart with your time.

our daily work conversations. This is the only area we will talk about work.

In our relationship, my husband goes to work early to help our field staff get on the road, while I stay at home and help the children get ready for school. My husband then comes home earlier to take children to their various extra-curricular activities after school, while I stay at the office to work on administrative duties.

Our children also need to know we have set boundaries not only with our space but also with our time. Because our family always comes first we have created these boundaries to safeguard our family.

SET BOUNDARIES

We also limit our time to business talk to only 10 to 15 minutes. Once everything has been said, we are able to move forward with the rest of our day.

One of the most common complaints I hear from business partners who are also married is that they feel like all of the time they spend at home and at work is spent talking about the business. It’s really difficult for them to go home and not talk about business. This is when you need to set boundaries.

Of course there will always be special circumstances that need our attention later in the evening after we’ve devoted quality, focused time with each other and our children. We try, however, to limit those as much as possible.

Determine when and where it’s okay to talk about the business. We set up boundaries so that once we both get home, we’re careful not to talk about business. We both must believe and trust that our marriage comes first above all else.

One important thing my husband and I have implemented in our daily and weekly routines is to designate time with each other to discuss business matters. The key to making this work is to prepare. Determine an amount of time you need each week to discuss the dynamics of your business.

For us to continually believe this, it’s imperative that we each follow the boundaries we’ve agreed upon — even when things in the business are urgent, stressful or busy. If we must have a conversation about the business, we go to a designated space, (aka the kitchen counter) to finish

HVACR BUSINESS DECEMBER 2018

HAVE REGULAR MEETINGS

We’ve found that two hours per week to have an owners meeting is the right amount of time for us to cover most issues. During this meeting, we each come fully prepared with an agenda of topics that need to be discussed as business owners.

Likewise, set aside time during the week to disconnect from your business and only focus on each other. We like to have a weekly date night. This is a great time for us to bond away from the business. No business talk allowed! When our business is gone, and our children have moved on, we still want to have a close and strong personal relationship, not just a business relationship. Also, along with scheduled time for each other, it’s important to allow your spouse or partner personal time to rest, recover, recharge and develop his or her individual talents and hobbies. Show an interest and support them in this time for themselves. Bonus Tip: Use your time wisely. Time is the most valuable resource one can invest in any relationship. We cannot purchase more time, nor can we save it. When we spend our time wisely on the ones we love and our business, that’s when we will find the most success in our relationships and in our business. u

Angie Snow is the co-owner and vice president of Western Heating & Air Conditioning in Orem, Utah. She and her husband, Ryan, purchased Western in 2007. At that time the company had 4 technicians and was ran out of their home. Today Western has 26 employees and they are looking forward to continued growth. Visit timeforcomfort.com for additional information.

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PLANNING

BY BOB O’HARA

Develop Key Employees for Successful Exit

f you’re planning to sell or retire from your business, having dedicated, knowledgeable employees is a prime factor in making a smooth transition. Designating key employees is a fundamental cornerstone of exiting your business with a healthy plan for its future. Key employees — ones who understand your business and its operations — are critical to its future, with or without you. As a business owner, you should ensure you have one to three key employees in place when, if not before, you begin the discussion with yourself, your spouse or anyone else about an exit plan from your business. Key employees play an enormous role in a business owner achieving his/her definition of independence. Creating a plan for them is as important as preparing for your exit, and long-term success will be impacted by your ability to recruit and retain the next generation of business managers or owners. The majority of business owners today are Baby Boomers (ages 55-75), representing 79 million people. Following them are 50 million GenX-ers (35-55 years old). With such a significantly lower number of GenXers to fill all the available jobs in closely held businesses, businesses must offer impressive and attractive packages to fulfill all levels within the company, but specifically management. The employees you identify as “key” should be privy to the plans of the business, and they should be part of a discussion about how the future and the growth of the company includes them. A well-developed plan will outline the employees’ future responsibilities and opportunities with the business, and should include an incentive plan that aligns with the company’s business plan. Naturally the key employees you identify as future managers should also be committed to the success and future of the business. www.hvacrbusiness.com

Key employees play an enormous role in a business owner achieving his/her definition of independence. There are 10 important factors to retain good employees, and these stand true when it comes to making a plan for your key employees: 10. Open Communication. Make sure you talk with your key employees. Share your ideas and encourage them to do the same. Today’s technology makes communication easier, but don’t overlook the importance of face-to-face conversations.

2. Empower. Give your key employees the confidence to take the initiative and improve business performance. 1. Provide The Vision. Let key employees know they’re part of that vision. Once you’ve retained the right people, they’ll feel secure and fulfilled. Then doors will open for your employees’ future. Knowing which employees will pour

their hearts into it as much as you did and which ones have the ability to manage the business without your daily input takes insight and foresight, and a little risk. Let them see how they will benefit from the company’s success, and how they play a critical role in the company’s future. u Bob O’Hara is president/CEO of O’Hara & Company, founded in 1995 to address the growing need for entrepreneurs to create a comprehensive exit strategy for their businesses. For additional information, visit exitplanning-edu.com.

9. Share Company Goals. Sharing goals with your key employees will engage them in your effort and help them feel valued. 8. Mentor And Coach. Don’t allow their jobs to become stale. Consistently guide key employees on the right course by inspiring them to learn and grow. 7. Train. Provide the correct resources and tools for success and your employees will perform at higher levels and realize you value their talent. 6. Recognize Them. Make it a point to praise, support and compensate for a job well done. 5. Be Flexible. Understanding work-life balance will benefit your employees and bring out their talent while accommodating their needs. 4. Show How They Matter. Show your employees how their efforts affect business performance. Listen to their ideas and suggestions on how to improve the business. 3. Share Financial Success. Company success happens because of your key employees! Whether it’s a financial reward or a compensation benefit, share success with your team players. Let them know their value and they will continue to be motivated to build business value. HVACR BUSINESS DECEMBER 2018

20QUESTIONS

>> with MIKE KEMPEL

We sat down with Mike Kempel, owner of Dakota Refrigeration in Fargo, N.D. Kempel, who is the second generation to lead his family business, discussed managing and motivating people, recruitment and the challenges of running a business. 1. Could you tell us a little about your background? I grew up in Fargo, N.D. and attended the University of North Dakota for four years, and then graduated from North Dakota State College of Science. I started in this business full time in 1988. It was one of the hottest summers since the 1930s … baptism by fire. Luckily, I’d been working in all aspects of the business for about 10 years by then, so I wasn’t exactly green. 2. How did you get started in this industry? This is a family business. I started tagging along with my dad, cleaned the shop and delivered parts after school and during summers when old enough to drive. I continued working summers and days off from college. 3. How long before the business really started to grow? We’ve had a long-sustained growth. We grew with the city. The business was started in 1974 and moved to a new shop/office in 1976. My father started it with one other employee. The next year, he added another, followed by another, etc. Today we have more than 40 employees in the company and three locations in the state. 4. What is your management style? Persuasive. I like to give people — technicians, managers, and sales people — the room to make their own decisions. I will offer what I think is the best path or solution to a problem and help them see what the end result needs to be. Then everyone has a stake, not only in the decision, but also in the company. 5. How do you motivate your people? I try and find a person’s strong suit; their likes and dislikes, and cater to that. If the employee is happy, everyone is happy. Most importantly the customer is happy. 6. What’s recruitment like in your area? It’s difficult. We have two technical schools that feed the Fargo area and we were in peril of losing both of them a few years ago, due to declining student enrollment. We implemented a scholarship program, visited area schools and invited the media into the tech school to explain the need for HVACR technicians. I’m pleased to say both programs now have waiting lists to get into the fall classes. Still, the 40 or so graduates are coming into a field that is consistently growing, coupled with the Baby Boomers retiring.

HVACR BUSINESS DECEMBER 2018

7. What is the learning curve to owning a business? Repairing a refrigeration system is the easy part. Now you have the real work. Prompt service, correctly priced parts and labor. Collecting bills. Paying bills. Paying payroll. Paying taxes. Paying insurance. Training. Hiring. Make an error in any of these steps and you’ll be paying a penalty.

14. What do you find most rewarding about your job? That for more than 40 years, we have been providing professional refrigeration, heating, cooling and electrical services to thousands of customers and, most importantly, we have team members that go home every night proud of where they work.

8. What challenges have you faced? Manpower is the challenge that never goes away. It isn’t important enough to simply have the right people on the bus, you have to be sure they’re all in the right seats.

15. Who’s been your biggest role model? My dad. I worked with him for nearly 30 years, both in the field and in the office. He taught me it may cost money to do the right thing, but you will be rewarded in the long run.

9. What is your business mix? Since being in business for more than 44 years, we have covered many industries and businesses … industrial, commercial, HVACR and electrical. Including equipment sales and installation of equipment for Industrial processes, grocery stores, C-Stores, bars, restaurants, hospitals, schools.

16. What’s the best advice you’ve ever received? Be patient. Be persistent. Be fair. Put yourself in your customers or employees’ position. Then ask yourself, “How would you feel?”

10. What do you view as the most important aspect of your job? Using the bus analogy again, it’s keeping the bus full of gas, running and on the road! 11. What’s the biggest misconception about the current workforce? That they are un-motivated and aren’t career driven. I don’t believe that. 12. What challenges do you see in the next few years? Getting ready for the next refrigerant change. What has been given to us to work with, other than the natural refrigerants, is just an interim mix. The 400 blend refrigerants on today’s markets are not the answer. 13. Where do you see the most significant growth in this industry? Air and water sanitation. Also, using filters and UV lights to minimize deadly bacteria and viruses.

17. How do you ensure you’re not too big? You should have a purpose to grow. Over the years, we’ve grown organically as well as purchasing three companies. in every instance, you have to ask yourself: Is there a reason to add another (fill in the blank) technician, salesman, office person, etc.? If you’re not ready to grow, then don’t grow. 18. How important is a company culture? Culture is what defines us. We are a family company that cares about our customers and our employees. 19. How do you ensure you’re getting the quality you expect from your team? Through training. I make sure all our employees are trained on the equipment we service and sell. This sometimes means sending them thousands of miles away for days of training. The cost of ignorance is far higher than the cost of training. 20. What innovations impress you the most? Blue tooth gauges and meters. We all love our smart phones. And so do the newest generation of technicians. It all goes back to the technician. They need to be the best in their field. Motivated and happy.

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