Starting an HVAC Business – Interview with Carl Rice Jr.

“Give [workers] proper benefits. Include them in the business decision making process and have a one-on-one relationship with each employee. If you treat your people properly, they will remain with you.”

Carl Rice Jr., DeTemple Company President & CEO (Portland, OR)

It’s another sweltering summer day that seems to have no end in sight. You notice your legs are sticking to the leather of your car seat as you get out to walk across the sizzling black asphalt to your local supermarket. The automatic doors open as you approach. When you step inside, you’re welcomed by that immediate sense of relief of the frigid air blowing your hair back, like walking into another climate.

The air conditioner has become so prevalent in every aspect of our lives—from supermarkets to our homes to the inside of our cars—that many of us take for granted. Interestingly enough, the invention was something of an accident. Willis Carrier was an engineer at a publishing company in humid Brooklyn, New York in 1902, tasked with solving a moisture problem inside the buildings that was causing magazine pages to wrinkle. He ended up designing a system that controlled humidity using cooling coils that was so ingenious, he split off from the company to start his own engineering firm and market his new invention: the “Apparatus for Treating Air.” This resulted in the modern air conditioner we know and love today.

Today’s modern heating, ventilation and air conditioning (HVAC) systems are complex networks of air handlers, compressors, cooling towers that work together to control the temperature and quality of the air inside of buildings.

The Growth of U.S. HVAC Industry

Significant growth in the HVAC services market is expected on an international scale, but especially so in the U.S., according to market analytics firm Mordor Intelligence.

The U.S. population is constantly growing—generally increasing between 0.7 and 0.9 percent each year—feeding a constant demand for new housing. Between 2019 and 2029, the country is expected to see a 7 percent population increase, according to data from the U.S. Census Bureau. The steady increase in population alone is enough to boost demand for HVAC services, but according to finance experts, we are now on the precipice of “the biggest housing boom in history.” This is thanks to the Millennial generation (those born between 1981 and 1996) “finally growing up and buying houses,” Forbes contributor and editor of the RiskHedge report Stephen McBride stated.

The U.S. government is contributing to the projected growth in demand for HVAC services in a couple of ways. In 2017, it increased its budget allocations toward residential construction by 2 percent to $46.7 billion in to promote home ownership. Additionally, the U.S. Department of Energy has introduced new efficiency standards to mandate sustainable heating and cooling solutions, with the goal of reducing carbon emissions by about 60 million metric tons by 2030. This change in policy turns out to be a boon for the HVAC industry, as these specialized energy-efficient units will need to be manufactured and installed by HVAC contractors and companies.

Every construction project, from a two-bedroom house to a skyscraper apartment complex, will require the services that HVAC businesses offer. So, If you are considering joining the HVAC industry’s workforce or starting your own business, now may be the perfect time to do it. Perhaps you are a seasoned technician with a strong understanding of the nuts and bolts of the service side, dreaming of becoming your own boss. Or maybe you are a naturally business-minded entrepreneur looking for the right industry to invest your capital and management knowledge.

The appeal of starting a business has many benefits—making your own schedule, creating jobs within your community, building a legacy, and perhaps most intriguing, gaining financial independence. It’s difficult to pin down an average profit that a typical HVAC business-owner makes in the U.S., as it depends on the size of the business, the number of employees, and the number of clients it has. According to data from a survey performed by connecteam, the average HVAC business-owner takes home about $75,000 to $80,000 per year.

While starting an HVAC business can be a rewarding and lucrative venture, there are some realities to consider before making the commitment. Twenty percent of small businesses fail in their first year-and-a-half fail after five years in operation, according to the U.S. Bureau of Labor Statistics. The HVAC industry is not immune. There are many reasons for the failure of businesses, but the majority of them can be prevented with proper planning.

HVAC can be a lucrative business if done right. We talked to an expert that knows the keys to success and the pitfalls. Read on to learn more.

Meet the Expert: Carl Rice Jr., DeTemple Company’s President and CEO

The DeTemple Company is a well-established landmark in Portland, OR. In fact, it’s the oldest HVAC company in the state, founded back in 1895 by the DeTemple family—before the invention of the modern air conditioner. The Rice family joined the mix in the 1930s, working with the DeTemples. After the death of Walter DeTemple, one of the company’s founders, ownership switched to the Rice family, which has now owned the company for more than 45 years. Today, the company manages projects in major building complexes, as well as small, specialized residential projects.

The sheer age of the company speaks to the longevity of which fundamental businesses like HVAC are capable. DeTemple has survived two economic depressions and multiple fires and floods over the years, causing them to relocate multiple times, inflicting financial hardship that would challenge any business’s stability. Still, DeTemple has stayed in continuous operation for more than 120 years. So, what are DeTemple’s secrets to success and longevity?

Carl Rice Jr., DeTemple’s current president and CEO, gave us an insider’s perspective on the inner workings of running a successful HVAC business. He followed in the footsteps of his father, Carl Rice Sr., who originally joined DeTemple as an accountant in 1935. Now, he is an industry veteran with more than 50 years in the industry under his belt.

Tip 1: Make a Business Plan

The first step in starting any kind of business is developing a traditional business model. There are hundreds of basic templates available online that will help you identify the initial steps you’ll need to take before opening the doors to your business, help you calculate an estimate of how much capital you need in order to get started, and define realistic financial goals (e.g., your break-even point, your cost-to-income ratio). This will come in handy when you visit a financial institution to inquire about getting a loan.

During the last recession, Rice said he witnessed a number of HVAC businesses that went under due to poor planning: “You have to have proper planning and management. Little mom-and-pop HVAC businesses are the ones that are usually successful in starting up, but in rough times, they have problems,” he said. “It’s mainly because they were newly started and undercapitalized.”

Barring another major recession, if you have a strong handle on the costs that you will incur in day-to-day operations and financial goals in place to help measure your success, you’re much more likely to survive the first tumultuous years of launching your own HVAC business.

Tip 2: Open a Line of Credit

As with any business, there will be times when your working capital is tight, even if you’re expecting payments from clients on jobs you have already completed to come through in the near future. Having working capital on hand to pay employees, maintain inventory, and cover inconsistent costs will provide a cushion to keep things running smoothly while you wait to receive your revenue.

“For large commercial jobs, you might have a 45-, 60- or 90-day pay schedule with customers,” Rice said. “So you’ll want to have to have a line of credit to pay your bills within a 30-day period.”

Having a line of credit with a bank will give you the flexibility to borrow money to pay monthly expenses immediately rather than waiting for customer revenues to trickle in. However, Rice notes that opening a line of credit may be pose a challenge, as banks are careful about making such agreements. So, if you’re seriously considering opening an HVAC business, speaking with your financial institution should be at the top of your priorities.

Tip 3: Invest in Digital Tools

For smaller scale or residential jobs, however, Rice recommends a different approach to requesting payment: “It can happen that people will take advantage of you or won’t pay you on time, and then you have to go to a collections agency,” Rice said.

This is usually a last resort scenario for business-owners because it means waiting longer to receive their payment and paying an extra fee to an agency in order to collect it.

In order to avoid that, Rice advises investing in digital technology for technicians to have on hand during client interface.

“Invest in a system that you can take to the job with a pricing process that will price out the materials,” Rice said. DeTemple supplies technicians with tablets for this purpose. Technicians can perform the transaction in person rather than billing customers once the job is done and waiting for them to pay later. In the end, it shortens the billing cycle from multiple weeks to just a few hours.

Tip 4: Hire Qualified Pros and Respect Employees

Rice says that another key factor in running a successful HVAC business is investing in quality employees, which in DeTemple’s case, means performing background checks and spending the time to train employees on DeTemple’s standards.

“You want to service your clientele in the way that a professional organization should, the way they’d want to be treated,” Rice said. That means emphasizing the importance of personal appearance and manner of employees, who set foot in the homes of clients on a daily basis.

“Businesses can set up a program to continually train technicians so they have a backlog of people available,” Rice adds. In this way, DeTemple is able to hire new technicians more quickly when employees quit or retire, so they are never understaffed for long.

“We are a union contractor, so we have a union school that trains technicians for a five-year period, then they work under my supervision and are trained by my policies,” Rice said, and noted that there are also non-union training centers for businesses to source from.

By following these steps, DeTemple has a low turnover-rate and has had many employees stay with the company for their entire careers, from apprenticeship to retirement.

“Give them proper benefits. Include them in the business decision making process and have a one-on-one relationship with each employee,” Rice said. “If you treat your people properly, they will remain with you.”

Tip 5: Diversify Your Services

Last but not least, Rice advises HVAC prospective business-owners to diversify their service portfolio. HVAC services are in high demand twice a year: during the height of summer and the cold of winter, when temperatures are most extreme. Between these seasonal peaks, HVAC businesses experience lulls that can threaten financial stability.

“Usually you don’t see an HVAC business only. In the middle, you need something to fall back on, in addition to maintenance contracts where you service a client two or three times a year,” Rice said. For instance, Rice says that most HVAC businesses also provide another product or service, such as refrigeration, plumbing, or boiler installation and maintenance to compensate during the off season.

As a final piece of advice, Rice says if you’re serious about starting an HVAC business, take your time researching and planning before launching.

“Get all the facts from people you know in the business, go to your banker and talk with them, and get all the advice and background you can before jumping into it,” he said. “It’s a clean job and people are personable. You meet a lot of nice people and get a lot of comments from clients when you serve the customer well, so there’s a lot of satisfaction in the job.”

Nina Chamlou

Nina Chamlou is an avid writer and multimedia content creator from Portland, OR. She writes about aviation, travel, business, technology, healthcare, and education. You can find her floating around the Pacific Northwest in diners and coffee shops, studying the locale from behind her MacBook.