Contractors Moving Into The Commercial Sector: What You Need To Know

Posted on:

November 1, 2013

Diversification can play a role in any industry, and the same holds true for HVAC. Many businesses seek to expand their operations beyond serving the residential sector, so that they can also work on commercial properties. There is much that must be factored into this decision, as it is not as simple as just switching from one specialty to another.

Everything from having properly t rained employees to effectively hand ling customer service and marketing must be factored into the equation. We spoke with three professionals from different parts of the country to give us an idea of what you can expect when adding commercial services to your company.

Prepare For Differences In The Work

Pat Halaiko is the president of Custom Air Conditioning and Heating located in Columbus, OH. His business services both homeowners, as well as commercial clients. Halaiko notes that commercial work can have everything from very large ductwork and rooftop units to lift s that go 30 feet into the air. The residential side of the business simply doesn’t have these factors to take into consideration.

He points out that there are also different building codes to keep in mind when it comes to commercial contracting. This factor can immediately present an obstacle for t hose looking to make the jump. If the commercial codes are not understood, they may inevitably have trouble with inspections.

Another major factor to consider is the fact that there is what Halaiko refers to as “a different rhythm.” He explains, “Our residential guys go out to a job site in the morning and they usually have to finish the job that d ay before they go home. Commercial jobs can take from a day to a year to complete. There is a whole different level of urgency.” Many find it difficult to maintain the necessary motivation and at tent ion to schedule that a commercial job requires. Failure to stay on target could result in finding oneself in crisis mode by the end of a project.

Pat Beyer, vice president of Beyer Mechanical or “Beyer Boys” locate d in San Antonio, TX, point s out that oftentimes contractors will be at a worksite dealing directly with a facility guide who is already somewhat knowledgeable about the situation. Facility guides do a lot of fi x up work on repairs and, as a result, the y may have many more questions than a homeowner. This is yet another variable that any contractors looking to make the switch may not expect.

Financial Factors To Consider

Beyer explains that when one is working in the residential market, he or she is dealing directly with the person that will ultimately write the check. However, on the commercial side, contractors are dealing with a tenant or perhaps a property management company. This factor might seem simple on paper, but it brings up a variety of unexpected issues.

On the residential side, contractors receive payment when they leave the job site. On the commercial end, it can take 60 days or more to get paid. Clearly, this is a major difference with possible financial ramifications when it comes to cashflow.

Contractors must be prepared for the fact that when they install an expensive component, like a $100,000 chiller, they will not be paid immediately and will be required to carry the debt for 45 to 60 days. In short, this is money that must be successfully floated until the payment is received.

Beyer adds, “The more commercial work you do, the more cashflow you will need.”

You can also expect that there will be a chain of authority to approve an invoice or repair. Contractors should be prepared for the fact that the entire process can be slowed down by this issue. These financial realities are important for contractors looking to expand into the commercial side of the business to be aware of and to prepare for in advance.

Beyer points out, “Signatures are more important and there is lots of paperwork, especially with national accounts, as they will have electronic systems and that means you’ll need to submit proposals and invoices. You will need people who are able to execute at that level. In residential, you don’t need sales managers, but you do on the commercial side of things.”

An Opportunity For Relationship Building

Brian Hooper, vice president of Operations at MSI Mechanical Systems in Salem, NH, a company that specializes in commercial, industrial, and retail heating and cooling, sees one of the biggest differences between residential and commercial deals with building relationships.

Facility managers and building owners need to keep facilities running no matter what. In turn, this means that there is an obligation to honor contracts regardless of the weather or circumstances. So, with commercial contracts, you must get there when the call comes and do so consistently.

On the commercial side, there is also the potential to grow with a company as it expands. As Hooper points out, residential contractors would constantly need to acquire new customers to achieve that goal. For example, one of their large clients has 4,000 units that must be serviced. This translates to a steady workflow for four team members. To get this kind of workflow on the residential end, it might be necessary to get business from 400 different households.

The end result is that residential work will likely have more of a sales job component and that contractors may oft en feel like sales people. There are always quotas that must be reached.

By contrast, on the commercial end, the focus is on relationship building and being a partner with an owner or facility manager. The equation is simple. If everything goes well, an owner or facility manager keeps you around; however, if problems become commonplace, the client will go elsewhere.

The Seasonality Of The Business

Weather also plays a significant role, especially with the oft en extreme winter conditions in states like Ohio. Having a backlog of indoor work for commercial team members is vital. In this way, there is a degree of flexibility when extreme weather conditions do arise.

Beyer feels it is important for contractors to realize that while there is something of a learning curve in venturing into commercial, there are definitely potential benefits as well. For example, commercial contracting tends to be more stable. Residential contracting takes a huge drop in the fall and tends to stay down until the weather warms. On the commercial end, you have businesses who need work done essentially year round, and this keeps the work flowing.

Industrial work translates into a steady flow of work due to maintenance contracts. Commercial contracts last longer than residential calls as commercial contracts have ongoing, steady work. Year round work is also part of the commercial equation.

Halaiko further explains the seasonable element as varying depending on each commercial market. School jobs, for example, must be completed by September in time for the school year to begin. Retail projects must be completed before the retail holiday season in late September. A third major category of projects, office projects, need to be finished up on the calendar year as companies want to move before their lease is up at the end of the year.

All of these factors combined mean that management and sales teams must be actively pursuing work that is to be completed out in the future. Thinking ahead and organizing is essential to keeping the commercial workflow going.

It is clear that there are many aspects to the commercial contracting side of HVAC that a newcomer could find surprising. Thanks to the insight given by these three experienced industry professionals, those venturing forth into commercial contracting should have a clearer idea of what to expect and how to proceed.

QUICK TIPS FOR GETTING INTO COMMERCIAL CONTRACTING

Commercial contracting requires some additional preparation and s kills to be successful. Here are four quick tips from our industry experts to get you headed down the right path.

Get a sales force. There is way more paperwork on the commercial side of the business and it is critical to have people on your team who can manage the entire process from bidding to getting paid.
Be aggressive with marketing. Steps such as radio, television, and word of mouth simply won’t yield the needed result s in the commercial segment. It is necessary to think outside the traditional box.
Prepare for cashflow changes. Of course, smaller contractors need to realize that venturing into commercial contracting will come with cashflow issues that could present a real problem if they aren’t prepared.
Prepare for a different type of seasonality. The seasons for commercial contractors are different than residential contractors, because they are not dictated by the weather, but by deadlines. For example, school work must be completed before the school year begins and retail work must be completed before the busy holiday shopping sea son.