Funny thing with humans; we get used to seeing things going a certain way and we quickly start to assume that it will always be that way.
And right now, we have seen more than a decade of economic growth, which has caused most to run their businesses as though it will always be this way. It won’t. That’s what we learn from history.
I don’t know what things are like in your area, but in our county, we are told that more than 28,000 building permits have been issued, and the new construction business is booming. Yes, they are getting ready to pave over paradise! I’ve seen it before; and thereafter I’ve seen huge subdivisions rotting with partially-built houses that will never see completion.
So, what has this building boom done for the supply-house business? Well, you probably have a lot of new contractor customers, and many of your existing customers have been taking advantage of all the new construction, and as a result growing their businesses like it will never end. But it will. No negativity here, just history.
It helps to understand the problems that a good economy creates for all businesses that are involved in new construction. Yes, it really creates a problem. The demand for goods and services is so great that companies have to expand to keep up. And because so much money can be quickly gained, new businesses are being started by novices who won’t make it through the inevitable slump. And when that happens, they will owe your company a lot of money. I have seen this happen time and again in my 40-plus years in the HVACR supply business, and it’s always tragic.
Just ask any economist; the most dangerous time for the life of all businesses is when they are seeing rapid growth, because the growth exceeds the platform on which they are built. Contractors are hiring new employees, which requires new trucks and tools for which they become a bit (or maybe a lot) overextended. Then when the building boom suddenly drops to nothing, they will owe more than they can pay, which results in bankruptcies, which inevitably hurts supply-house providers.
So, what can your company do to insulate itself from the pitfalls of the dip that is coming? Just know that it is coming and run your company like you know that it won’t last forever.
The nice thing about being in the HVACR business is that we are first and foremost in the service industry. New construction be damned; when times get tough and new construction screeches to a halt, people will still pay to get things fixed. Yes, this is a solid and stable type of business that can survive economy turndowns, as long as your resources aren’t too extended and most of your customers can also survive on service alone when the new-construction boom suddenly (yes, very suddenly) goes away. All HVACR contracting companies that are basing most of their business on new construction will be in danger of going belly-up, and maybe sooner than you think.
Jim Wheeler the naysayer and prophet of doom? No! I have written this type of article several times over the past 30 years during each of the building booms, and I can tell you that it’s best to pay attention.
As it was once said, “Those who don’t learn from history are destined to make the same mistakes.”