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Bestselling book discusses why 90% of HVAC businesses fail within 10 years

Scott Ritchey, author, outlines how stakeholders can develop the necessary business acumen, to not only survive but thrive, amidst challenging market conditions

| | Oct 16, 2018 | 4:20 pm
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Kentucky, USA, 16 October 2018: As many as 3035% of HVAC ownerships fail by year three, 47% by year four and a staggering 90% fail within 10 years. This was the alarming statistic that Scott Ritchey, Vice President, Plumbers Supply Company, and author, Make More Money: 12 Profit Pillars for HVAC Contractor Success, shared with Climate Control Middle East. The book, authored by Ritchey, along with contributing author Gary Kerns, recently became the #1 on Amazon Kindle’s Bestseller list, under the Heating & Air Conditioning Engineering and Contracting Engineering categories.

Scott Ritchey

Holding a bachelor’s degree in accounting and an MBA in Managerial Economics, Ritchey said the idea for the book emerged because he wanted to leverage the extensive knowledge he had gained from consulting for over 400 contractors in the field of financial management, as well as his experience running his own company, to help others achieve the same success he encountered early on. “As I got to working, I found a common thread,” he said. “Technicians are good at what they do, they understand the science of heating and air conditioning, but trade school never taught them business. They don’t understand the business math [needed] to create sound pricing policies that cover their overhead and lead with a profit.” Citing research from a US contractors’ association, Ritchey said that contractors’ reluctance to admit their weaknesses in terms of the business acumen required for the organisation to succeed, is an issue that contributes to the failure of many businesses.

From the onset of the book, Ritchey said he encourages transparency, driving the message to stakeholders that “no one is trying to steal your business and it’s ok to share”. Emphasising the importance of having the right approach, Ritchey said that the best way to get stakeholders to open up is to make a case for recommended techniques, instead of asking for financial data outright. The book, Ritchey added, also goes on to provide examples on how to price a job properly, something that nine out of 10 get wrong, he added. He said it also provides greater understanding on the basics of P&L, what comprises as overhead, gross margin that needs to be covered and other vital issues.

Make More Money

Ritchey said that he also conducts a break-even analysis, before moving on to benchmarking models for successful businesses, allowing companies to get a clearer idea of how they are performing at the industry level. “It shows them where the benchmarks are and what they need to look at if they are a successful, from a financial perspective,” he said. Following this, Ritchey said that he looks at different types of projects and businesses, be it commercial, residential, new build or retrofitting equipment for existing developments, all of which have different margin caps, to show how pricing metrics must be aligned in each segment. The book then goes into strategies on how to enter these markets, he said, discussing what is needed in terms of people, marketing strategies for business growth, as well as the value of service tax.

Ritchey added that in the US another big challenge is labour, stressing that by 2021 there will be a shortage for 223,000 technicians, as the baby boomer generation retires and there is a lack of young people coming in to fill the service gap. Ritchey said that there are still opportunities on the horizon, despite this bottleneck, pointing out chapter nine of the book, which discusses how business owners can get more productivity from fewer people. “If someone has three technicians and has USD 600,000 a year in revenues, with our strategy and approach they could have USD 1-1.2 million a year in revenue.” This, he said, helps stakeholders grow their business, despite shortage of people.

Ritchey said the success of his recent book has pushed him into a new professional territory, and while busy speaking with contractors, he remains committed to his full-time job as VP for Plumbers Supply Company. “The book is a legacy book,” Ritchey said, “we dreamed about this for years. I consult and teach so many of these techniques to get people to understand the business math, one day when I’m gone and I retire, I would like to open a consulting business and just really live the way I want.”

 

Hannah Jo Uy is Assistant Editor at Climate Control Middle East magazine. She may be contacted at hannah@cpi-industry.com


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