Ever hear a statistic that made you groan because it generated a frightening thought? Here's one that immediately cools the air in the HVACR business. According to one HARDI report, it is estimated that only “one out of every 100 contractors has accurate financial statements, and the percentage of contractors who effectively use their balance sheets and statements is even less.”
Such a statistic should send shivers down the spine of every contractor while leaving wholesalers with a sense of dread. After all, wholesalers inextricably link their success to that of their contractor customers. And every professional wholesaler salesperson should understand the financial statements of both the wholesaling and contracting businesses. But it is the latter that many wholesalers' sales staff might find particularly foreign.
Most successful businesspeople in the HVACR industry have long understood the contractor — wholesaler success link, but it gained new meaning when the Internet threatened to interrupt the relationship because of disintermedation. It caused savvy wholesalers to really understand that helping their customers become more successful contributed to their own bottom line.
Indeed, it fundamentally changed the way wholesalers did business with their contractor customers, who expanded their offerings beyond simple product. Suddenly, technical training, industry expertise and professional salesmanship became the watchwords. Wholesalers had become more sophisticated. They were no longer only order-takers.
Attention and commitment to the technical side of the HVACR wholesale business has increased significantly the capabilities of progressive wholesalers. However, there exists a potentially powerful yet little-used tool for generating sales that most wholesalers seemingly overlook, according to Tom Hansch, vice president, Sales and Marketing, and chairman of HARDI's Education Committee.
For Hansch, there remains a vast, understudied and little-used area that offers tremendous opportunity and is as important as the technical side of sales: understanding the financial side of a contractor's business.
Hansch, of Portage, IN-based G. W. Berkheimer Co. Inc., says he has learned over the years that many wholesalers' sales reps know little about the basics of understanding financial information, which he regards as a powerful pathway to increased sales.
“How does a salesperson do his job in the context of making a profit for his company if he doesn't understand a financial statement?” Hansch asks. “How does a salesperson show product and place it in the context of the contractor's making a profit if he doesn't understand the financial picture?”
Part of the problem is the lack of easy-to-use tools that would make the average salesperson comfortable with presenting any product that linked in some fashion directly with the contractor's financial picture.
“As a company, we have spent a great deal of money on consultants to educate our sales personnel, and our sales reps are very good at product knowledge,” Hansch says. “But we found that adding the financial component to the sales process presented challenges.”
Many wholesalers' salespeople feel comfortable discussing technical aspects of the business, but because many have not had the opportunity to take business courses, they are less surefooted when it comes to discussing profit ratios or business plans, Hansch said.
Understanding a contractor's financial picture gives the wholesaler a huge competitive advantage, says Blaine Fox, a 25-year veteran of the HVACR industry and general manager of ServiceMark, a full-service HVACR company which operates in Pennsylvania and Delaware. “A wholesaler might be familiar with the financial statements from a distributor standpoint, but few really understand the financial demands on a contractor,” says Fox.
For example, the cost of labor as a percent of material is so much higher than what a wholesaler would experience, says Fox, who should know.
While he now runs a huge, 190-employee contracting business, he spent more than 14 years with Philadelphia, PA-based Weinstein Supply (now Hajoca).
A basic introduction to how contractors conduct the financial side of their business could reap big rewards for wholesalers and get them closer to the financial realities of their contractors, says Fox, who is now comfortable with financial statements on both the wholesale and contracting sides.
Hansch reached the same conclusion, and his firm developed a formula that seems to work. He recognized that it's vital to keep the financial information reasonably simple and memorable. The “trick” was to develop a small but barebones software program that plugs into an Excel spreadsheet. Because his salespeople all have notebook computers, they could have the handy program available when talking to a client.
Hansch is adamant about explaining that his people don't pretend to be accountants. “We strongly suggest to our contractors that they find a good accountant if they don't have one,” he says. “But what the program can do is show clearly and quickly the impact that a product investment can make on their bottom line.”
In one of those happenstance moments, he was talking to Bud Healy, HARDI's director of Education, bemoaning the fact that what salespeople need was a pithy product that could help wholesalers better understand a contractor's financial statement.
Hansch noted that HARDI was always very good at technical education, but the business side, where salespeople might try to integrate themselves into their customer's business, presented a greater challenge.
He was taken aback when Healy said HARDI already had the information in a compact, eight-page report.
It offers key financial formulas and ratios that every contractor (or any business owner for that matter) needs. The report will allow contractors to:
- Regularly evaluate their business's performance.
- Assess and manage their cash flow.
- Improve their tax credits and/or the terms of credit.
According to Hansch, everyone should get a copy of the report. It's clear and concise, and gives a thumbnail sketch of the important financial statements.
Hansch stresses one important but overlooked point. No contractor is going to let someone examine or have access to his financial records unless there is a strong element of trust. In business, it's second nature. That's why the personal relationship must be solid enough that the issue of privacy doesn't become a stumbling block when using an understanding of a contractor's financial statement as a tool.
HARDI members can obtain a copy of The 11 Essential Formulas Every $uccessful Contactor Should Use by logging on to the member's section on the HARDI website.
Tom Peric' is the editor of HVACR Distribution Business. Contact him at [email protected] or 856/874-0049.