Running a successful HVAC or plumbing business isn't just about fixing air conditioners and unclogging pipes—it's about smart financial management. Knowing how your money moves in and out of your business can make the difference between just scraping by and truly thriving. Managing your finances starts with understanding what the numbers on your Profit & Loss (P&L) statement really mean.
Why Percentages Are Your Best Friend
It can be easy to look at your P&L and just see a bunch of numbers. But evaluating your costs as percentages of your revenue can help you see how each part of your business impacts your overall financial health. This approach is especially handy for HVAC and plumbing contractors who need to keep a close eye on material costs, labor, and overhead to stay competitive.
Let’s dive into the specific parts of your financials that you should monitor closely:
- Revenue (Top Line): This is your total income from services provided. It's the starting point for any financial discussion.
- Cost of Goods Sold (COGS): For those in the HVAC and plumbing fields, COGS includes:
- Direct Materials: Ideally, this should be 10-20% of your revenue.
- Direct Labor: This should fall between 18-22% of your revenue.
- Total COGS: Keeping this between 30-50% of your revenue is a sign of good business health.
- Gross Profit: This is what you have left after deducting COGS from your revenue—a key indicator of how efficiently you're running your operations.
- Operating Expenses: These are the costs to keep your business running day-to-day:
- Marketing Expenses: Keeping these at 8-10% of revenue can help attract new customers without eating into profits.
- Administrative Expenses: These should be about 5-10% of your revenue.
- Total Operating Expenses: Aiming for 28-32% here ensures you're not overspending to keep the lights on.
- Net Income (Bottom Line): This is your profitability—the ultimate measure of success. It's what's left after all expenses are paid.
Practical Financial Management Tips
Here’s how you can keep your HVAC or plumbing business financially healthy:
- Check your financial statements every month. This helps you spot trends, manage cash flow, and adjust your strategies as needed.
- Get in the month! Understand that your fixed costs might come due twice in a month. Plan accordingly to avoid cash flow surprises.
- Get pricing right. Your pricing should cover your costs and fund your growth. This is vital for sustaining your business over the long term.
- Use the right tools. Field service management software designed for HVAC and plumbing businesses can automate routine tasks and ensure you get paid for every minute of time.
Mastering the financial side of your HVAC or plumbing business doesn’t have to be overwhelming. By understanding key percentages and keeping a close eye on your financials, you can make more informed decisions that boost your profitability and stability. Remember, knowledge isn’t just power—it’s profit.
See key percentages to monitor at a glance. Download our infographic.