How to Manage Your HVAC Business's Budget with Proactive Seasonal Budgeting

Running an HVAC business can be challenging, especially when managing your budget. Not only are you planning your budget for the whole year based on a few months of seasonal income, but that income is also highly dependent on weather and the market for replacements versus repairs.

We get it. Because FTL Finance works in the HVAC industry, too, we’re also at the mercy of seasonal demand. To get some insight on proactively managing a seasonal business budget, we sat down with the folks who manage our budget: FTL Finance President Todd Grzybinski and Vice President of Operations Erin Fuchs.

Let’s dive in.

Creating a Seasonal Business Budget

Creating a budget for a seasonal business starts with understanding your fixed expenses: rent, insurance, company vehicle payments, and so on. When building out these expenses, add some cushion for possible changes.

Next, use historical data to estimate your payroll, revenue, and variable expenses. While historical weather data can provide some insight, Erin and Todd both point out that weather isn’t the most reliable predictor, as seasonal anomalies will always happen. (How many times have you found yourself grumbling about an unseasonably cool week in the summer?)

Instead, look to previous years’ expenses and revenue to give you an idea of how to plan. If you’re starting out and don’t have historical data, ask peers in your network. Or, if you worked under another contractor before starting your own business, Todd suggests leveraging your knowledge of how seasonality impacted your former employer’s revenue to guide your predictions.

Relying on previous experience can be particularly helpful when planning for payroll. Consider these questions:

• How many hours a week did you work?
• How many hours did you work overtime?
• How many employees did your former employer have, and did they all work overtime as well?
• How did this vary throughout the year?

Erin also notes that as a seasonal business, most of your revenue comes within a few months of the year, but so will most of your expenses. You’ll have to buy more equipment, pay out more overtime, and account for other expenses that will be higher during the busy season, like gas. You should also budget for incentives to keep your team healthy and morale high during the busy season, such as extra snacks, water bottles, and sports drinks.

When predicting variable expenses and revenue, Todd recommends being realistic and conservative, not overly optimistic. For example, utility prices fluctuate, so budget for the upper end of these expenses.

Here’s another pro tip: Rather than planning for the current month or season, consider the following year, too. “Ten percent of the profit you make one summer, let’s say, should be allocated to fund a contingency reserve for the next summer,” Erin advises.

Of course, the specific percentage you set aside will be unique to your business, but setting money aside for next year will help offset any future increases in expenses. You could also consider getting a business line of credit to pay for additional inventory ahead of the busy season.

Managing Your HVAC Business’s Budget

After you’ve prepared for the next busy season, it’s important to stay frugal with your profits. You know the old saying, “Don’t spend it all in one place.” In this case, don’t spend all of your profits during one season. Your business’s revenue should increase during the summer, but you need funds to hold you through the slow season.

This leads us to our next point: You need to proactively manage your HVAC business’s yearly budget. While, of course, this means monitoring your spending, being proactive with your budget doesn’t just involve numbers — it involves people.

Erin recommends clearly communicating your budget goals with your team so they can help meet them. She also recommends avoiding telling your team, “That’s not in the budget.” It may be an easy answer, but it’s not helpful or effective.

Instead, she suggests saying, “We can put that into the budget, but we’ll need to accomplish this,” or “We'll need to see this level of performance in order for us to invest in that expense.” Instead of saying “no,” these responses show you’re receptive to suggestions and can empower your employees to meet or exceed budget goals.

Managing your HVAC business’s budget also involves finding efficient ways to use your downtime, which can help you maximize profits. For instance, facilitating technical and sales training sessions for your staff during the shoulder season gives them something productive to do when things are slow while improving their skills for next summer.

“Another thing that could really help from an investment standpoint is standardizing a sales process,” Erin says. “Every single home visit is optimized, and you're not leaving opportunity in that transaction.”

While everyone’s standard sales process will look different, we always recommend offering service contracts and financing as part of every sales call. Service contracts can help your business stay busy year-round, and offering financing can help you close more jobs.

The Bottom Line

Building and managing a budget for a seasonal business can seem daunting. But with proactive planning and realistic goals, you can set your business up for success.