Surviving the shoulder season: cash flow for HVAC contractors

Every HVAC owner knows summer pays for winter. Very few can tell you by how much, which is why the shoulder seasons still come as a shock every year.

The problem is not that the slow months are slow. It is that nobody worked out what they cost while the money was still coming in.

Your books probably hide the pattern

A standard set of books reports the year. Averaged across twelve months an HVAC business can look steady while actually running two months of frantic surplus, three months of deficit, and the rest somewhere in between.

Two changes make the rhythm visible:

Report monthly, not annually. Twelve columns side by side. The shape of the year appears immediately, and it is usually more extreme than owners expect.

Separate install, service and maintenance agreements. These behave completely differently across the year. Install revenue swings hardest. Service is steadier. Agreement revenue is the only genuinely flat line you have. Reported as one number, the flat part is hidden inside the volatile part.

Working out what a slow month costs

Take your monthly overhead — rent, insurance, vehicle payments, office wages, your own pay, software, everything that runs whether or not the phone rings. That figure barely moves between July and February.

Now compare it to the gross margin you actually generate in your slowest month. The difference is what that month costs you, and it is the number to plan against.

Do it for each of your slow months and add them up. That total is your shoulder season gap — the cash you need to have set aside before you get there.

Most owners discover the number is larger than what they typically hold, which explains the annual pattern of drawing on a line of credit in the spring and paying it back in July.

Maintenance agreements are the lever

Agreement revenue is the one part of an HVAC business that does not care what the weather is doing. It is also the part most owners have never costed properly.

Two questions worth answering:

What does an agreement cost to service? Two visits a year, a tech's fully loaded hourly cost, drive time, and whatever consumables are bundled in. Drive time is the one people forget, and it is why an agreement forty minutes out is a different product from one ten minutes away.

What is an agreement customer worth in total? Not just the fee — the service work they call you for first, and the replacement they eventually buy from you. Measured on the fee alone, agreements often look marginal. Measured properly they are usually the best thing in the business.

More on this in maintenance agreement profitability.

Practical things that flatten the curve

Price agreements against current costs. Most agreement pricing was set years ago and never revisited while labour and fuel moved.

Bill agreements monthly rather than annually. Annual billing concentrates cash in whatever month people signed up. Monthly billing turns it into a flat line, which is exactly what you want it to be.

Set the money aside during the surplus. Move a fixed share of surplus-month margin into a separate account and treat it as spoken for. It is far easier to do this deliberately in July than to find it in February.

Watch install versus service. Install work often carries thinner margin than owners assume, and chasing it through the busy season to keep crews loaded can leave you working harder for less. Job-level separation answers this.

What good looks like

You should be able to open one page and see: revenue by month for the year so far against the same months last year, split by install, service and agreements; overhead by month; and a running cash position with the next sixty days projected.

That is enough to know in September what February is going to look like — which is the entire point of keeping the books in the first place.

Related

• Are your HVAC maintenance agreements actually profitable?
• Job costing for contractors
• HVAC bookkeeping services