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    Be a Business Prepper

    July 18, 2022
    The HVAC industry is not bullet-proof, so get ready for a recession.

    Preppers are people who think about and prepare for a disaster, be it natural in origin or caused by man. While some consider them paranoid nut jobs, preppers consider their efforts to simply be a form of insurance.  

    If we are not already in a recession, we will be in one soon. The signs are everywhere. Stocks are in a bear market. Inflation is out of control and the Federal Reserve is indicating steep rate hikes are coming. The Fed will try to massage it for the proverbial “soft landing.”  It's better to prepare for hard shock and be overprepared if it does not come.

    Given the way the service and replacement side of the industry sailed through COVID in 2020 and 2021, plus the record profits many contractors are enjoying in
    2022, it may seem like the industry is bulletproof. It’s not. A recession, especially a steep one, is hard on everyone and devastating to those who make the wrong decisions. 

    1. Adopt an Aggressive Mindset

    An economic downturn does not need to affect your business. Let it affect your competitors. Decide now that when there is a recession you are going to refuse to participate. It sounds simple, but is not, of course. It takes a mindset of steel and a determination to fight through the challenges. You will be helped by the fact that
    most of your competitors will panic, pull back, and seem to disappear from the market. Some, in fact, will disappear.

    2. Identify Your Business Sensitivity

    Think of the worst single thing that could happen to your business. It could be the loss of a major account, a rainmaking salesperson or technician, or a simple crash in demand. While you would work hard to overcome the loss, estimate the cost in gross profit if you took no action to replace the lost business. If you are still profitable, you can sleep easier. If you are not profitable, decide in advance what actions you can take to at least break even should the worst happen. Then, work to build up other sources of revenue to give your business more revenue diversity.

    3. Hoard Cash Today 

    Today, while the weather and sales are hot and the margins are high, keep a little more back than normal. Make the important investments, but cut back on the
    frivolous, personally and in business. Review your vendor list and look for lower priced substitutes.

    When the recession is in full swing, having a little extra cash on hand will comfort you.

    When the recession is in full swing, having a little extra cash on hand will comfort you. Remember, cash is not cold and hard. It is warm and soft and you can cuddle it.

    4. Exercise Your Line of Credit

    If you do not already have one, take out a line of credit with a local bank, one where you can establish a human relationship and build trust. Periodically exercise the line of credit and pay it back in a month or two, even if it costs you a few points of interest. Like your muscles, your line of credit will atrophy if you fail to exercise it. 

    A sharp downturn is a contraction of 3% to 8%. Market enough to make up 3% to 8%.

    5. Keep Calm and Carry On

    When things eventually go bad, your team will know. If you show a little fear, they will feel terror. You need the entire team to pull together and to focus on business challenges. If terrorized, they will be worrying about their jobs, depressed, and unmotivated. No matter what you feel inside, you should appear unruffled, positive, and cheerful on the outside without being Pollyannish. Admit there are challenges, but show confidence that you’ll beat them if everyone pulls together. 

    6. When Sales Slow, Market More

    When it gets harder to find a customer,  you should pick up your efforts, though most contractors do the opposite. This is good for you. Put forth more effort, more
    marketing, and more advertising to pick up their customers.  A sharp downturn is a contraction of 3% to 8%. Market enough to make up 3% to 8%. It’s doable, so do it. This is why you hoarded cash.

    7. Look For Bargains

    In a recession there are bargains to be had. Some contractors will close up shop. Be prepared to purchase companies with good customer lists. If you lack the cash or financing for an outright purchase, get the seller to finance or pay a commission on sales to the seller’s customer base over the next few years. 

    Matt Michel is President of Service Nation and a member of the Contracting Business Hall of Fame.  You can reach him at [email protected] or 214.995.8889.