How To Start An HVAC Business
If you’re mechanically inclined, have a talent for troubleshooting, and are looking for a business that you can grow over time, then starting an HVAC business might be the right option for you. You might currently be working as an HVAC technician and want an opportunity that gives you more independence and control over your work, but if you don’t have HVAC experience, you can still enter this industry with the right training. When you start an HVAC business, you’ll be entering a field where there’s plenty of demand. And, with the need for system maintenance and repair, as you build your customer base, you can be assured of plenty of future work.
HVAC businesses travel to homes, apartments, and commercial buildings to install, replace, maintain, or service heating, ventilation, and air conditioning (HVAC) systems. HVAC technicians have the specialized knowledge and skills needed to work on these systems. Some businesses may focus largely on installing new systems, while others may offer a combination of installation plus maintenance and repair. Because maintenance needs to be done regularly, businesses can build up a roster of returning customers for a more stable, ongoing base.
If you’re already working as an HVAC technician and want to start your own HVAC business, it’s important to realize that running a business requires different skills than working on HVAC systems daily does. HVAC business owners told The News that many HVAC technicians want to start their own business but underestimate the necessary business skills needed. Integrity, the ability to pay your employees well, and the skills and willingness to shift and change focus with changing market demands are all essential skills of any HVAC business owner.
As your business grows, you may need to find ways to draw the line between your responsibilities and those of your employees. If you’re a technician, you may find yourself being pulled into jobs when your time would better be spent on marketing and other management tasks. While being a technician offers valuable firsthand experience in the industry, making the transition from a HVAC service technician into a business owner can be a challenge in itself for many.
With the recent growth in the construction industry, the HVAC industry has grown, as well. IBIS World reports that from 2014 to 2019, the industry experienced a 2.4 percent annual growth, and the number of businesses increased to 112,154. Industry employment also grew to 518,714, and in 2019 the industry brought in $97 billion in total revenue.
That growth is largely spurred on by increased residential construction. During that same five-year period, residential construction increased at a 3.5 annualized rate, and low-interest rates also led to increased home buying. With more homes being built, the need for HVAC installation increased. Disposable income also increased during that time, meaning more families were able to buy homes and had the money to invest in HVAC installation or renovation.
Many trends are shaping the HVAC industry. According to AeroSeal, single-family homes make up 28 percent of the United States HVAC industry. Apartment buildings account for 6.1 percent, while healthcare industries make up 13 percent of the industry revenues. Other leading components include manufacturing and industrial applications and office building applications, which account for just over 10 percent of the industry’s revenue.
Technology is also driving changes in this industry. An increased focus on energy efficiency has led to refined equipment. With big data and analytics offering in-depth information on buildings and their energy usage, HVAC systems should continue to become more efficient with more precise installations in the future. Building managers are using technology, like smartphone apps, to control lighting and ventilation in their buildings. HVAC businesses can also embrace this technology by using online marketing, widgets, and other tools to connect with potential customers who are researching these systems online.
HVAC businesses focus on different target markets. Some businesses provide mostly residential services, so they’ll market to homeowners or builders who create new houses. Others offer more commercial services, and they will market to healthcare facilities and other commercial business owners. HVAC businesses offer a specialized service with skills and equipment that your average homeowner or business owner doesn’t possess, so these businesses can truly market to nearly anyone with an HVAC system.
Checklist for Starting an HVAC Business
If you’re thinking about starting your own HVAC business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your business should be to write an HVAC business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 3: Choose a Business Structure
A business structure (also referred to as a business entity) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of structure has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business structure is best for a HVAC business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest structure to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
It’s possible to start a small HVAC business out of your home, using your garage or another area to store extra inventory. As your business grows, you may need to rent a larger space or garage to store vehicles and equipment. Exact rental costs will depend on the building’s size and location.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Some states require HVAC businesses to obtain a state contractor’s license or commercial refrigeration license, while others don’t. The requirements for acquiring a contractor’s license are generally four years or more of Journeyman-Level HVAC experience, in addition to a state test.
Even in those states with no requirements, local areas may require a contractor or HVAC license to work, so it’s important to check first before opening your business or starting a job.
In addition to HVAC-related licensing, there may also be additional business registrations depending on where the business is located, such as a business license, sales tax permit, Employer Identification Number, and Occupancy Permit.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start an HVAC business is another. Funding to start an HVAC business can be difficult. To get a loan, the borrower(s) will need to have good credit and personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
Marketing is an essential and ongoing activity for HVAC businesses. Businesses that offer repair and maintenance can develop repeat customers, but businesses that install systems need a steady supply of new customers. Common marketing options include print advertising, direct mail, radio advertising, and online marketing using social media on Facebook and Instagram, or sites like Google My Business, Yelp, Angie’s List, etc.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting an HVAC business. A few of these include:
– General liability insurance protects the business if customers are ever injured due to the business’ work. This insurance helps to protect the business in the event of a lawsuit.
– Commercial auto insurance covers legal fees and medical bills resulting from a company-owned vehicle in an accident.
– Worker’s compensation insurance covers medical bills, lost wages, and other expenses that could occur if an employee were injured while on the job.
The cost to insure an HVAC business depends on many factors, including the business’ location and the number of employees on staff. To get an accurate idea of what insurance will cost, request quotes from multiple insurance companies. When comparing the quotes, consider factors like the premiums, deductibles, policy exclusions, and coverage.
Step 10: Hire Employees
A smaller HVAC business may have just one truck and one technician, who is the business owner. As a business grows, it may be necessary to hire additional HVAC technicians. According to PayScale, an HVAC technician earns a median of $21.08 per hour, while some earn as little as $14.39 per hour, and others earn as much as $31.65 per hour. The salary range is often linked to a technician’s experience, and those with over 20 years of experience tend to be the technicians who earn over $27 per hour.
While HVAC certification isn’t required in all states, it does make an HVAC company more competitive by having certified employees.
In addition to budgeting for salary expenses, the payroll budget also needs to include workers comp insurance, paid time off, and health insurance contributions for employees.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your HVAC business is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a HVAC business?
The cost of starting an HVAC business will depend on the size of the business and your existing resources. You can start an HVAC business on a budget between $2,000 and $10,000 if you already have your own vehicle. If you’re purchasing a vehicle and outfitting a business with extensive equipment, plan to pay closer to $50,000 or $100,000 in startup costs.
Some common startup costs include:
– Supplies and tools
– HVAC software for scheduling and billing
– Inventory (repair parts)
– Company vehicles, like a van or truck
How much can a HVAC business owner make?
HVAC business owners typically make between $35,000 and $70,000 each year, according to Success Group International. Factors like the service area covered, the number of employees a business has, types of work that the business specializes in will all affect the business’ income.
While system installs bring big dollars, those sales are often sporadic. The key to a profitable HVAC business is securing preventative maintenance contracts. PMAs also provide stability and even out some of the seasonal fluctuations in sales.
Are there grants to start an HVAC business?
It’s extremely rare to find a grant to start an HVAC business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What skills are needed to run an HVAC business?
You won’t necessarily need a business degree to start an HVAC business, but if you have certain skills and experiences, the process of starting your business can be smoother and easier.
Math and physics knowledge. An understanding of math and physics will be helpful in learning this trade and understanding how HVAC systems work.
HVAC training. HVAC technicians need to receive training, which is offered at community colleges and trade schools. According to Career Trend, this training can take between six months and two years to complete. A technician can also choose to work as an apprentice for three to five years, but this option offers the benefit of both work and training.
Sales skills. To be successful, the owner will need to have confidence and talk with potential clients in order to sell projects.
Problem-solving skills. Technicians who repair systems will benefit from strong problem-solving skills. An “up to the challenge” attitude can also be helpful when working on a challenging repair.
Attention to detail. This work is highly detailed, especially when cleaning, inspecting, and repairing heating and cooling systems.
Customer service skills. A business owner will need to engage with customers, schedule appointments, provide updates, and answer customer questions. Experience in customer service is highly valuable in this industry.
Management experience. For businesses that hire HVAC technicians, management experience is important. A business owner will need the skills to hire, train, and effectively manage employees.
What is the NAICS code for a HVAC business?
The NAICS code for a Heating and Air Conditioning Contractors is 238220.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Air Conditioning Contractors of America
Air Movement and Control Association
American Society of Heating, Refrigerating and Air-Conditioning Engineers
Indoor Environment Energy Efficiency Association
International Institute of Refrigeration
Refrigeration Service Engineers Society