6 Ways to Improve Cash Flow for Your HVAC Business

Domenica Kon
6 Ways to Improve Cash Flow for Your HVAC Business
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The lack of cash flow is one of the most common reasons contractors go out of business. As important as sales are, you also need to manage your cash flow properly to collect the cash owed to you and pay the bills. 

You need to ensure there is enough money flowing into your business to pay your technicians for their hours worked, purchase the supplies you require, invest in marketing and obtaining new clients, provide good customer service and follow-up, and grow your business.

Here are the six best ways that you can improve the cash flow for your HVAC business:

1. Collect a deposit

Collecting a deposit before starting a job is a great way to improve your cash flow. It can be especially helpful for HVAC Contractors who need to purchase supplies and equipment or if you are about to begin on a large project. 

For example, if you need to replace a furnace for your client, it would be in your best interest to collect a deposit beforehand so you aren't fronting the entire cost of the furnace yourself. However, if you are providing regular maintenance service on an existing furnace, then a deposit might not be necessary.

2. Offer a wide range of payment options

You want to make it as easy as possible for your clients to pay you. If you are charging them a deposit before the job is done, make sure your electronic invoice includes the various methods of payments that you accept or offer a direct link to each payment method. 

It is a good rule of thumb to try and stick to electronic payment methods, such as credit cards or pre-authorized debits. This way, you can easily save your customer's payment information and charge them again once the full service has been delivered.

Alternatively, you can also use the Square point of sale reader for smaller payments and have your technicians bring the Square payment processing device with them to a job. This way, they can collect payments directly from clients on the spot after the service is done. This eliminates the need for follow-up.

3. Follow up regularly on collections

Selling doesn't pay the bills, but collecting does. 

You want to keep your receivables listing up to date to know which payments are still outstanding. You can use your accounting software to send automated payment reminder emails a few days before each invoice is due and a few days afterward. 

Even so, you should still have someone following up on outstanding invoices. If your clients don't respond to the email reminders, you want to ensure that someone calls them to follow up and make sure that you will receive your payment.

4. Lease, don’t buy

To run an HVAC business, you need to have work vans to hold your expensive equipment such as thermal image cameras, leak detectors, temperature gauges, and all the basic tools that you require to get the job done. 

Work vans can be expensive to purchase up from and take up a chunk of your cash. To improve your cash flow, lease or finance the purchase of your work vans and expensive equipment, so you don't have to spend all your cash upfront.

5. Keep stock of your inventory

With numerous styles and brands of HVAC systems available for residential and commercial installations, HVAC companies must maintain the correct number of new systems and the parts required to repair older systems. If you don't have the stock on hand to meet your customer's needs, they may seek out a faster solution elsewhere.

On the other hand, you don't want to have too much cash tied up in your inventory. You don't want to carry too much inventory that doesn't turn over quickly enough.

You should have a system to help you track your inventory. Use an inventory management software that tracks all of your inventory (including spare parts) and prompts you to reorder when they hit a certain level. Managing your stock in this way will ensure you are never running low on parts and are also not wasting cash on inventory you don't need. This helps to guarantee that you won't have to delay appointments due to inventory shortages.

Over time, your inventory management software should also be able to produce reports that you can utilize to spot usage trends and build forecasts to inform you when you will need to order more of a particular part. For example, you will require more air conditioners in the summer months and more heating parts during the fall and winter months. These reports will also allow you to make use of bulk purchase discounts.

6. Create a cash flow forecast

Cash flow forecasts are a tool that helps estimate the flow of cash going in and out of your business over a specific period of time. These forecasts take into account your estimated income and expenses so you know how much cash you will have leftover at the end of each month. Contractors should forecast monthly cash flow requirements and take steps to set aside extra cash and restrain spending during tight periods.

Following these simple tips can go a long way towards improving your cash flow. Having sufficient cash flow in your business at all times will allow you to pay all of your expenses and have enough money left over to help expand your business.

If you are looking for more ways to improve your cash flow or would like assistance with your business's bookkeeping, Enkel can help. Our team of bookkeeping professionals has experience helping HVAC contractors manage their bookkeeping process. Contact us today for more information. 

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