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Seven Steps for Success in 2023

Jan. 9, 2023
In 2023, contractors are no longer plagued by the pandemic. Instead, it’s the economy, interest rates, and government overreach.

In 2023, contractors are no longer plagued by the pandemic. Instead, it’s the economy, interest rates, and government overreach. Here are seven steps to make the most of 2023.

1. Beware the Government

Remember that SEER2 thing? It’s on. And like Santa, everyone is making a list. Your list better include the model numbers, serial numbers, and AHRI information on every installation. That is, every installation. And keep it available for four years.  Distributors have to keep theirs for five years and manufacturers for six.  If you’re south of the Mason Dixon line of efficiency and stuck with equipment you aren’t supposed to install in your region, sell it to a contractor who operates above the line.  Just do not try to install it.

Also, remember all of those IRS agents the government is supposed to hire? This is the year they start getting hired. Where do you think the government thinks the money is?  Why it’s with all of those wealthy S-corp and LLC corporations that pass through earnings to, well, people like you. People who pay themselves are the likely target of the extra agents. This means you need to make sure your books are pristine and clean now. If you are not using a CPA to help keep you clean and prepare your filings, find one fast.

 2. Hoard a Little Cash

Signs are suggesting the economy has already dipped into recession. If so, drive through it. A recession offers less variability than the seasonality you fight annually. You can push through it without taking any losses as long as you are aware of the need for extra effort and careful about cash. 

Speaking of cash, keeping a little extra on hand is a wise proposition in markets like this.  You can use it to weather any shortfalls. You can use it to buy a smaller competitor with a decent customer list who nevertheless struggles and cannot attract private equity. If nothing else, you can use it for reassurance.  Nothing is as confidence building as a bank of cash.

3. Price Up 

By now, you should be experiencing the joys of government mandates as the SEER2 offerings are bumping equipment costs somewhere between 15% and 25%.  As a bonus, we are still experiencing the shipment cliff where historic drops in installations 15 years ago are reverberating forward. If that’s not enough fun, higher interest rates are hamstringing residential new construction, which means the market is about to get flooded with guys who do not know how to price but are sure they can overcome any losses through volume.  

Hold your margins. Price up to maintain them. 

Your instincts might be to lower margins. Don’t do it!  Hold your margins. Price up to maintain them. Yes, you might do fewer installations, but you will get more for them. If prices increase 20% and you pass them along, you can afford to do less work. 

4. Finance Every Job 

All of those price increases mean we are priced out of the market for most homeowners. If you fail to offer financing, you are making your customers find it on their own, which also makes them less dependent on you. Sign up one or more of the financing companies offering 10- or 15-year terms. Then, finance every job.  Sell on payments, not price.  Market payments, not price or discounts. 

5. Partner With Suppliers

Partnering with your suppliers this year is key. Whether your territory manager is aware of them or not, your suppliers have sources of macro information about what is happening in the market. Get your TM to keep you informed on trends, on supply lines, on pricing, on everything. You need a TM, distributor, and manufacturer who will work with you to succeed so that you will buy more from them over time.

Your suppliers have sources of macro information about what is happening in the market. 

6. Join a Buying Group

With private equity appearing to be everywhere in the market, joining a buying group is no longer something nice to have.  It is essential.  All of the major business alliances offer one. Join one and gain better purchasing power to level the playing field.  This is the long hanging fruit for private equity.  Unless you can buy more like they can, you are operating at a disadvantage.

7. Consider Exiting 

Speaking of private equity, rising interest rates make money more expensive.  Sooner or later, this will affect the private equity acquisition stampede.  If you are thinking about exiting in the next few years, consider moving it up to this year.  You might think the market will still be good in a few years, but you know it is still good this year.

 If you are looking for a buying group, the largest is Roundtable Rewards. You can start accessing benefits as soon as you join the Service Roundtable, which is HVAC’s largest business alliance.  Learn more at www.ServiceRoundtable.com.

Matt Michel is a member of the Contracting Business Hall of Fame.  A serial entrepreneur, he is a speaker, writer, and rancher.

About the Author

Matt Michel | Chief Executive Officer

Matt Michel was a co-founder and CEO of the Service Roundtable (ServiceRoundtable.com). The Service Roundtable is an organization founded to help contractors improve their sales, marketing, operations, and profitability. The Service Nation Alliance is a part of this overall organization. Matt was inducted into the Contracting Business HVAC Hall of Fame in 2015. He is now an author and rancher.