A business owner checks their bank account every week, and sighs with disappointment. They've had one of the busiest summers on record, and yet the amount of money in the bank doesn't reflect that. And the fact that they're heading into a slow season causes more stress. They're thinking, "How are we going to survive?"

Many business owners can relate to this scenario. And here's why: Most HVAC companies don't have a cash plan. They have hope.

What "Running on Hope" Actually Looks Like

"Running on Hope" doesn't mean a business owner is stressed 100% of the time. To the contrary, they often feel relief when revenue comes in. Because once the bills are paid, what's left is profit. Or so they think.

But as the green leaves of summer turn into the brown leaves of autumn that fall off the trees, so the business owner's hope falls with them.

The Real Cost of Hope

Hope does have a necessary place in the world, but when it comes to running a business, especially in the finance department, business owners need to run on more than just hope.

Without a cash plan in place, a business owner will:

  • Miss growth opportunities because the cash isn't ready
  • Unintentionally allow stress to bleed into team culture and customer experience
  • Be unable to take on larger jobs or hire proactively
  • Live paycheck-to-paycheck at the business level, even in a "successful" company
  • Not necessarily discover the hidden danger: a business can look profitable on paper and still run out of cash
  • Take on credit card debt to pay bills and unexpected expenses
  • Live with the mindset of "I hope we make enough to cover overhead this month"

Running a business on hope only carries business owners so far. Eventually, business owners will burn out, fall into depression, and overall feel defeated. This can carry into the company's culture and affect other employees.

What Is a Cash Plan? How to Move Beyond the "Hopeful" Plan

This doesn't just happen overnight. To move beyond cash flow that's built on hope, a business will need to strategically decide on goals. These goals could be job size, monetary, or company size, but they need to be established because they become the tool to develop the rest of the business. In general the best place to start is developing a 13-week plan. The plan should include job size, number of jobs, and overhead costs. This is commonly referred to as a cash plan or a 13-week cash-flow. This plan shows business owners how much money should be earned (what's coming in), how much money will be spent (what's going out), and when that all occurs. It's a great way for business owners to make informed, proactive decisions instead of uninformed, reactive ones.

To build this plan, a business needs to evaluate two costs: overhead and labor. For the former, a business owner needs to determine the costs of the following costs:

  • Office wages
  • Subscriptions
  • Insurance
  • Fuel
  • Rent

Labor costs include the hourly wage for each non-office employee. However, be sure to include all 40 hours each technician works each week, not just the hours they spend on job sites.

These two numbers help business owners:

  • Know how much work their company needs to generate to have a positive cashflow in a given week.
  • Have an idea of what they need to charge per job to be cash flow positive.
  • Omit material costs as they are billed per job.

The Plan After "Hope" Shift

The difference between HVAC owners who scale confidently and those who stay stuck isn't always talent or market. It's whether they make decisions from clarity or from fear. A cash plan makes business owners proactive in several ways.

First, they hire before they're desperate. Desperate business owners will often hire the first or second person that comes their way. If business owners are proactive, however, they can take time to analyze the skill set they need for the job and interview candidates. They're choosers instead of beggars.

Second, they invest before the slow season, not during it. The slow season is…well, slow. There aren't a lot of calls coming in, so there aren't a ton of jobs to do. Thus, revenue goes down, so there won't be a lot of money to invest in various things. However, if business owners make investing a priority during the busy seasons, there will often be enough money to do that and pay all the bills and overhead.

Last but not least, they price their work to actually sustain the business. It's important to give jobs a price that reflects the cost of materials, overhead, profit, and the hidden cost of labor. This will also inform how business owners determine their break-even point, which is the minimum number of jobs they need in order to pay all fixed costs (office staff, rent, etc.).

Conclusion

Running a business on hope will likely lead to hopelessness as the amount of cash in the bank goes down. However, running a business with a cash plan in place will result in more hope and confidence for business owners to make informed decisions about things like investing and hiring more employees.

Are you ready to run your business on a cash plan instead of hope? Follow this link to book a free consultation with Joseph.

Disclaimer: The information in this post is intended for general guidance purposes. For advice specific to your business finances or taxes, consult a licensed accountant or financial advisor.