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Business Planning, Part 1

Originally published: 11.01.06 by Ruth King

This is the time of year that we start thinking about what happened in the year 2006 and what we want to do in 2007. We are all creating business plans in our heads. Unless we write down our thoughts, we are likely to forget what we thought about at the end of 2006 and begin 2007 without plans, goals, and benchmarks.

The most successful companies in our industry — and no doubt in most industries — plan, execute, and measure. That means they create, execute and track a business plan. This doesn’t have to be a Herculean effort that takes several months. Business planing can be very easy to do, especially after you’ve done it for a few years.

Everyone in our industry has a business plan, but it often isn’t written down. When a customer calls asking you to replace a heating and air conditioning system, you usually follow a specific process — a plan. When you send a technician on a maintenance call, you expect him to follow certain procedures–the plan — to ensure that the system is properly checked out, and minor problems are found and corrected before they become major crises.

If you’re like most contractors, you spend most of your time planning the technician segments of your business because it’s the most familiar to you. However, you must plan for your total business as well. And, you need to write down your plan. Otherwise you will get somewhere, but there is a good chance it won’t be where you wanted to go.

Involve everyone in your company in the planning process. I’ve always found that many heads are better than one. Also, it makes the staff feel good that they are a part of the company’s direction and growth; that their opinions are heard. You might not implement all of their suggestions, but you might find an idea or two that you wouldn’t have thought of yourself.

Unless you need bank funding, your business plan simply can be made of three basic documents: one each for goals, a marketing/advertising flow chart, and a budget. Creating the documents is easy, but will take some time because deciding what you want to do and getting consensus takes time. Once the plan is written, though, implementing it is even easier.

1. Set goals

First, determine what is really happening with your business. Get out of your office and talk to customers. Also talk to employees at the job sites, at the receptionist’s desk and in customer service. Where do your employees see the company going? Once you’ve done this research, you can set goals for 2007.

Include sales goals, a mix of business goals, and a few customer goals. Set how many residential service agreements and commercial service contracts you’d like to sell. Decide the financial goals you’d like to attain, including gross margin, net profit, and personal income goals.

2. Create the marketing/advertising flow chart

First conduct a review: How many customers do you have? What marketing and advertising have you done in the past to retain current customers, win new customers, and reactivate customers who haven’t used your company’s services in the past 18 months? What worked and what didn’t work in years past? Did you track past efforts to determine how well each effort really worked? If you haven’t tracked your results, then set that as your first goal for 2007. Without tracking, everything is guess work.

What public relations activities have you done? Were articles about your business were published in the local newspapers? Did you speak anywhere? Did the business win any awards? What charities or social organizations do you support? Decide which of these public relations activities you will pursue in 2007. Over time, public relations activities often drive business more effectively than advertising.

Also consider what your competition is doing. Are they getting stronger? Are they disappearing? You need to keep an eye on your competition. Your employees may know more about them than you do. Your sales people know whom they compete with on bids. Your technicians see other technicians at supply houses and other locations. Ask them what they’ve heard.

Once you’ve decided which marketing and advertising activities you want to do in 2007, you can create a simple spreadsheet: Place the weeks of the year on the X-axis, and the activities you plan to do on the Y-axis. Put an “X” in the box under the week that you will perform a particular activity. For example, phone directory advertising gets an “X” in every box, while trade shows get only one or two “X’s,” depending on how many you attend. Direct mail, e-mail, radio, television, newspaper, billboard, magnets, and referral programs should be listed on the Y-axis.

3. Establish the budget

The budget is easiest to create when you have accurate monthly financial statements. Based on the goals you’ve set and previous statements, estimate sales, cost of sales, and overhead. For the sales estimate, remember to include demand service, service agreements/contracts, replacement, new construction, and other types of revenue that you generate. The cost-of-sales goal should be based on your existing cost structure plus any goals you’ve set, such as increasing gross margins by 2% in each department. Also estimate overhead based on your existing cost structure and goals to decrease it by X% or $X.

Next month, I’ll write about implementing and tracking your three-page business plan.

Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at or 770.729.0258.

About Ruth King

Ruth King

Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at or 770.729.0258.

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