How to make my HVAC/R business more profitable for the owner and his employees.
By Eng. Rolando Torrado*
The company must start in January knowing how much it will earn in that year and if there are more profits than projected in the plan, then those excesses must be distributed among the company's employees at the end of the period. Sounds nice, right?
I confess that reality is more promising than theory, because companies are places of well-being and joy for employees as well as for owners. Of course, if employees will have a share in the company's excess profits, what do you think they will try to do all year? Exactly, what you think, that's right! If I'm going to be made a sharer in the profits, then I'm going to be even more committed to the company making money so I can make that extra profit.
Think about the waiters, they usually have their salary, but tips are a great source of income for all of them, in Colombia and in Latin America tips are voluntary (although nowadays psychologically they are almost mandatory... lol) and what do the waiters do? That's why they make an effort, so that the restaurant is full, that the customers leave satisfied and happy with the service so that they come back and so that they approve the tip. They love to see that the restaurant is selling because so many customers are coming in; I don't know if my vision is wrong, but analyze it and you can confirm me through any social network that you find me as Rolando Torrado.
Now, if the waiters only had the salary, if they received the same amount of money whether or not customers go, they served 100 customers or a thousand, then do you think they would have the same concern to serve properly, because the restaurant would do well with its customers? It's simply doing an analysis so that you can transport it to the company you own or where you work.
I believe that we should all work to live and not live to work. Strangely, as the years go by, we all have less time for ourselves, our families, and our hobbies. This is because in a confusing way the prosperity equation has been configured upside down, that is, we are working more and earning less!
It's true, I know that competition is unfair, that customers always want the cheapest, that people give away their work, that the work of legal companies is less and less appreciated, etc. Well, I confess something: it doesn't seem like reality to me, I think maybe you're in the wrong market, I'm sure you're thinking about how to be more cost efficient to give cheaper, how you can get cheaper supplies and lower your sales prices even more. error—error—error.
The idea of a company is to think every day how it can sell with more profit by helping its customer in an unparalleled way, differentiating itself in the market and delivering to the customer what no one else delivers, with this it can sell at its prices and get happy customers. Think of something very simple, do you see Apple worried because Nokia, Huawei, Samsung or any other brand has better phones? Better, they are cheaper and give better performance.
Think carefully about your answer, because I see that every day they bring out more expensive cell phones that only move the camera in position or put one more or make a different mark, etc. In other words, today's iPhone is almost the same as the 2008 iPhone, isn't it? Yes, it has changed, I know, but they sell every day with more profits for their company and help those who buy from them in an unparalleled way, because they give them more status. So I ask you: what do you want to be Apple or Nokia?
The employees think they are making money for the owner and the owner thinks that his employees are not working as hard as they should or that they are not having the commitment that he professes. This is natural, I don't see it in any way out of context. Employees only see the invoices that come out of the company and compare it with their salary (which is very disproportionate), no one tells them how the company is doing financially because that is a "state secret" and so their mind sends them subliminal messages: "your employer is filling up with money based on your work, You're the one who's going to make him rich," and the owner doesn't allow anyone to make decisions without his authorization, he advises everyone in the company and lives involved in the sale, operation and problem solving of the company, so no one feels safe to take an action that the boss doesn't approve. etc.
The bad thing is that the owner's subconscious tells him: "Those employees of yours depend on you, no one does things like you, they only come to fulfill schedules."
Look, that's like the case with us happily married people, or do you think I'm happy with my marriage? I've only been a slave for 22 years, sorry, married, it's just that I get confused by the synonymous words (my God, I hope my wife doesn't see this article), lies, yes I'm happy in my home; she works with me and we spend a lot of time together, thank God.
What I tell you is that sometimes my wife tells me, "you don't realize that I fixed my hair, you don't realize that they painted my eyebrows, etc.", and that's really the case, but many other things she doesn't tell me and I think I'm doing things right. The same goes for me, I think she should be better at some things, but I don't tell her, only when we sit down and talk about a topic do we agree on what the goals are on that topic for both of us and we improve because we both get to work to achieve them. Similarly, in companies, employees and owners must agree that the core of the company is to generate well-being and wealth for the owner along with his employees.
The essence of a company is to work all year round for the profit set before starting it, the owners are waiting for that profit and the employees must work less and improve their salary income each year with 5% or 10% above the CPI (Consumer Price Index, according to Colombia) to compensate for the percentage increase in the cost of living.
I love that the companies I advise take away work on Saturdays without increasing the hours during the week, that is, they work from 7:30 AM to 12 and from 2:00 to 6:00 PM or run until 4:00 PM or 5:00 PM.
They will also have celebrations in the year that are projected in the financial plan, they can get dividends from the company's profits if the expected profits are exceeded, they can manage improvements in the location of their jobs included in the company's expenses within the financial plan, etc.
In short, we can understand that the financial plan that is made must contemplate all this and much more, in order to achieve the objectives of the company, and the fulfillment of it must be supervised every week in a 90-minute meeting where the problems that do not allow the objectives to be achieved are discussed and the necessary actions are proposed to be able to overcome those problems and comply (all this I explain in my podcast "Business monetization on youtube in the season of finance, the link to the channel is given to you at the end of the article).
All based on that wonderful financial plan that companies must make before the end of the year in order to meet the expectations of employees and owners.
It is important that we are clear that the technical part is not what sells, it is not a point of value that the company has, it is not a differential in the market, because the technical or engineering part is simply what a company like ours should have, because no customer pays you because things turned out well, That should be a constant, what a customer pays you is the solution to their problems, what you are going to give them as a benefit, what you are going to get by providing the installation, maintenance or repair service.
I'll give you an example, why do you think a customer quickly approves a repair when their air is damaged? yes, that's the way it goes. How are you thinking: because you're so good? Because your company has been in the market for many years? Why is your company a market leader? Why are my technicians super good? They approve you quickly because their pain or problem is that they need to turn on the air immediately, so you offer the solution to that problem with the repair and voila, they approved you, you charged well and everyone happy.
That's it! You are already understanding, this is how all sales should be, solve your customers' problems, commit to results and meet them, that makes the customer see your difference, pay you more than the competition and thank you because no one would do that for them. That's sales.
Now comes another unknown, with what margin (Gross profit) should my commercial be sold, well, simple, it is not 10%, nor 20% nor 50%, it is what your financial plan marks, that is, in the financial plan are contemplated first of all the profit that is expected in the year, also all the expenses that the company is going to have to calculate the value in money that the company must collect In the course of this period, you will be able to cover all the expenses that are G&A (General and Administration), sales, guarantees, financial, buerden (indirect costs of the operation) and the most important thing of the company: profit.
This is used to calculate the % of the sale (the sale seen as the execution of the company) projected in the year that we must have to cover all those costs. So it is usually the GP of most companies in the order of 30 to 50% of the sale value.
In the image above we can see that the company's Gross Profit is contemplated in 45% of the sale, the other 55% will be the direct cost of it. But from the Gross Profit we are going to have to take out the expenses of the company which are 35% and the profit for the owner which will be 10%. This is how a financial plan is made, then over the course of the year, every week, every month, every quartile (quarter) you have to follow up on how the plan is going, because surely you have to take action to redirect it and in December arrive with the proposed profits or with a higher profit, and thus be able to involve the employees in it.
If you are interested in improving your finances and having a financial plan with the techniques of my method, I invite you to go to my youtube channel, find the podcast "Business Monetization", and watch the videos I have so you can learn.
I hope this can be useful to you, remember that you have a lot to review, I am just a tool for you to evaluate what works for you and apply it, if it does not work for you do not worry, do not apply it. I'm just telling you that I work with business owners along with their employees who want to change their bottom line, because my commitment is that "you'll work less and earn more. A hug!
* Rolando Torrado, Mechanical Engineer, Master in HVAC who works with MEP companies that do not want to depend on the owner 100% because they are not self-sustainable in growth and profitability.