3 common cash flow problems for HVAC businesses and how to solve them

As a business owner, especially as a small business owner, you’ll experience plenty of problems throughout your company’s lifetime: customer problems, hiring and retention problems, supply chain problems, you name it. But one of the trickiest problems you can deal with is your HVAC business’s cash flow.

Things get stressful once you start seeing more money flowing out of your business than is coming in. You’re not alone, either — 61% of small businesses have cash flow problems, and 32% struggle to make payments because of these problems.

It can be hard to step back and see the underlying cause when you’re in the thick of it. You’re in survival mode, not re-evaluating your processes. But that re-evaluation could be just what you need to help more cash flow in than out. Let’s start by looking at just three common cash flow problems, their potential causes, and steps you can take to solve them.

PROBLEM #1: INCONSISTENT CASH FLOW YEAR-ROUND

It’s no secret that HVAC is a seasonal business. Less money comes in during the slow season, but you likely want to avoid layoffs during the off season because you’ll need help in the summer. How do you keep money coming in year-round, especially if you don’t have enough saved from peak season?

Solution: Offer service contracts

Only 30% of Americans schedule preventative maintenance for their HVAC system, so it’s safe to say it isn’t the first thing on your customers’ minds. But consider how much additional business you could scoop up by offering service contracts.

Service contracts are often paid in monthly installments, keeping cash flowing in year-round, even when you don’t have maintenance scheduled. Plus, they keep your staff busy and interacting with customers, so they’re building better long-term relationships.

Maintenance is also a great time to train new techs because you have the time and resources. And customers can rest assured that their HVAC system is in good hands and is working well. Though it may still go out in the middle of summer, it is a lot less likely, saving your techs time during the busy season and your customers the inconvenience.

PROBLEM #2: LOSING MONEY ON EACH JOB

There’s nothing worse than feeling like you’re losing money on each job you’re taking. What’s the point if you’re just going to be worse off than before, right?

There are two common reasons you may feel like you’re losing money on each job: you’re underestimating prices or you have inventory issues — or maybe it’s a little bit of both. Given ongoing HVAC price increases, you likely need to update your pricing model more frequently. When was the last time you updated your prices to reflect the increased prices you’re paying for parts, labor, rent, utilities…?

Speaking of parts, it’s easy to get in a pickle with your inventory. Ordering too much means you’re spending money you don’t need to. Ordering too little means you may not have something when you need it. And if your HVAC business has cash flow problems on top of it, you may not have the cash on hand to order inventory. How do you fix such a tricky situation?

Solution: Build in more overhead and charge deposits

You may not want to increase your prices, fearing that your customers will object to the price increases and try to negotiate with you. But the truth is, you’re going to keep losing money if you don’t adjust your pricing and stick to it.

To build in more overhead, step back and look at all of your expenses. Review your invoices and see how much equipment prices have increased and add a little cushion for future increases. Then take a look at your rent, utilities, dealer fees, all that jazz. Every single business expense. How are those being paid? If they’re not accounted for in your current prices, make a note of it.

Total your expenses and see how much of a difference there is between your new total and your previous total. Then, raise your prices by that percentage. For example, if your expenses are 5% higher now, raise all of your prices by 5%. If you still feel like you’re charging too much, call some other local companies and get a quote to compare your prices. You’re probably closer to the average cost than you think.

While you’re at it, consider other changes to your business, too, like charging a deposit. Deposits can help improve your cash flow because you’re getting paid up front, not just after the job’s done.

Say you have five jobs in progress and you charged each a $100 deposit. You have parts in inventory for four of the jobs but need to order a part for the fifth. Well, since you took a deposit from all five customers, you now have $500 in reserves that you normally wouldn’t have until after the projects wrapped.

PROBLEM #3: LATE PAYMENTS OR NON-PAYMENTS

If you’re like most small business owners, you have a stacked plate. And unless you have a dedicated position that handles invoicing and payments, it’s easy to get behind. Ever send out invoices late because you got too busy? What about struggling to stay on top of late payment notices. It’s no surprise; many companies have entire departments dedicated to these tasks. You’re not a magician.

Solution: Offer multiple payment options

We won’t offer you a silly solution like hiring a bookkeeper. If it was that easy, you likely would’ve done it by now. But we do have a simpler solution for managing late-paying and non-paying customers: offer multiple payment options.

If you only take cash or check, there’s a pool of customers who can’t afford your services and will go somewhere else, will pay late, or won’t pay. Accepting credit cards helps, but not everyone can or wants to have a large purchase eat into their credit limit. Customers can also dispute the charges, disrupting your HVAC business’s cash flow even more.

The most secure way to collect payment without having a dedicated position is offering financing to your customers through a third party, like FTL Finance. While we can’t speak for all financing companies, offering financing with FTL is easy. You can create and send project estimates and financing applications right from your phone. Once your homeowner is approved, you can start the project. And once they confirm you’ve completed the project, you’ll be paid. You won’t have to chase people around or worry about unpaid invoices; we’ve got that covered. 

Managing a seasonal business with unstable cash flow can be stressful. But you can mitigate some of that stress and create a more stable cash flow by implementing these strategies.