hvac solutions - ePL for Residential by pengxuebo

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									HVAC SOLUTIONS
    Heating & Air Conditioning Inc.


                Anywhere USA




             A Business Plan
An Indoor Comfort Solutions Service Company




                                              1
Mission Statement:

“HVAC SOLUTIONS is dedicated to providing quality residential heating
and cooling solutions to our customers in Anywhere USA.

Business Philosophy:

The philosophy HVAC SOLUTIONS will use to guide itself by is:

Focus on the core values in building the company while exceeding the
expectations of all whom come in contact with the company.

Core Values:

Innovative Solutions to Improve Performance
Exceeding the Customers Expectations
Industrious and Strong Work Ethic
Serving others first
Respect for others
Open, Honest Communication
Integrity
Accountability




                                                                        2
              Pyramid of Values



                         Innovative
                          Solutions
                         Improving
                        Performance




                 Use Technology to Improve
                    Human Performance



        Exceed                Industry
        Expectations at All   Advocate and
        Times                 Supporter



Serving                                            Strong
others                                             Work
First   Open & Honest         Respect for Others   Ethic
        Dialogue


Honesty, Integrity & Accountability




                                                            3
What the HVAC SOLUTIONS Core Values Stand for:
      Honesty, Integrity and Accountability
             Always do what you say you are going to do
             Commit to only what you can do to a standard
             Establishing and maintaining trust in all relationships
             Honesty at all times
             Be tactful yet truthful, candor with respect

      Respect for others
             Treat others as they wish to be treated
             Empathetic, and understanding
             Be sensitive to others feelings
             Listening until it Hurts – What is the meaning beyond words.

      Open & Honest Communications/Dialogue
            Understand the needs, then re-confirm the needs
            Understand the expectations clearly, re-confirm the expectations

      Serving Others First
             Responsiveness to others needs
             Place others interest first before our own
             Provide solutions in the best interest of the customer
             Find ways to help people without personal gain
             Develop Trust in all relationships

      Industrious, & Strong Work ethic
              Focus on positive attitude – control thinking to be positive
              Be passionate & enthusiastic about life and Work
              Keep perspective – maintain balance in life
              Make work like play for others
              Utilize resources wisely

      Exceed Expectations
             Maintain a high standard of quality
             Know what is expected – what is the standard
             Deliver more value than is expected every time
             Act and perform in a Professional manner at all times

      Industry Advocate and Supporter
             Give back to the industry to help others improve
             Support the industry as a professional

      Using Technology to Improve Human Performance
             Employ the use of technology to improve performance
             Use technology to enhance productivity and reduce costs
             Continual evaluation of technology solutions to enhance performance

      Innovative Solutions to Improve Performance
             Creativity in problem solving
             Stretch the performance boundaries and standards to new heights




                                                                                   4
                                  Executive Summary

The Business Structure:

The proposed structure for the business is a straight “C” corporation. There will likely be
two outside investors, and one General Manager who will operate the business, and be a
fully invested equity holder in the corporation. The background and biographical data for
the committed investors is in appendix # 1.

The Concept:

HVAC SOLUTIONS will be first and foremost a service company.

It is a concept that is based on indoor comfort in a variety of indoor comfort markets.

       Residential Replacement – Contract
       Residential Indoor Air Quality - Contract
       Residential Demand Service
       Residential Maintenance Agreements
       Residential New Construction – Custom and Trak
       Light Commercial Replacement - Contract

The success of the residential contracting model is predicated on the ability to diagnose
comfort problems, serve the customers needs, and maintain a relationship with those
customers. This allows the development of a quality reputation so a market premium can
be asked for, and achieved on a regular basis.

The model is based around service, and maintenance agreements. See the actual business
model in the operations/production section of this plan – and reference the flowchart.




                                                                                          5
The Market:

HVAC SOLUTIONS will have one location in the Anywhere USA Market. We are
presently looking for a location with approximately 1500 square feet containing offices
with a reception area and small warehouse with a short term (2 Year) lease.

The company will put a major emphasis on the residential replacement market,
residential service, maintenance agreements, complimented by residential new
construction and light commercial. While there is no optimal mix to eliminate seasonal
fluctuations in labor utilization, this blend of business mix is good from a profitability
and labor usage perspective.

The market demographics of Anywhere USA are very good. State Farm Insurance is the
major employer, offering stability and growth. In addition, the market has been growing
at about 3-4 percent a year for the last 10 years on average.

The timing is good for a well organized, HVAC service organization to enter the market.
While there are certainly good companies already existing in the market place, no one has
tried to grow and dominate the service or maintenance business, which is the immediate
strategic opportunity for HVAC SOLUTIONS.

The company will emphasize service maintenance as a tool to build a customer base,
provide workflow, and compliment the residential replacement market. The majority of
the company resources will be allocated to the residential replacement and residential
service markets.

The decision is primarily due to the higher profit margins and generally more stable
cycles associated with this market segment versus the new construction or commercial
markets. The second factor is the relative weakness in the Anywhere USA/Anywhere
USA area of Dealers/Contractors that can provide quality service and installation on a
consistent basis to an increasingly educated homeowner population.

This, coupled with the industry growth trend in the replacement sector has made the
decision an issue of strategic positioning as well as long-term growth.




                                                                                             6
HVAC SOLUTIONS Strengths/Weaknesses:

In line with these factors, the company has analyzed its potential strengths and
weaknesses much as it’s analyzed the competition. We feel that the company foundation
can successfully make this transition. What follows is a brief synopsis of the company’s
position:

                Strengths                                    Weaknesses
Management experience                        Lack of established field personnel
Market knowledge                             Need for manage working capital
HVAC business experience                     No Current customer base to Draw revenue
Organization – Plan - Focus                  No Brand/market recognition
Commitment of support from suppliers         No Immediate Network - referrals


HVAC SOLUTIONS Critical Success Factors:

1.     Establishing a Working Capital Structure that sustains operations for 6 months.
2.     Developing a large enough revenue base to recover and disperse overhead.
3.     Timing of the operational launch – marketing – labor capability.
4.     Organizing a capable labor force to complete the work.
5.     Creating Referrals from the client base to sustain growth.
6.     Develop and maintain a reputation for excellence.




                                                                                           7
Competition Overview:

                       Strengths               Weaknesses

XYZ Htg                Good Reputation         Management experience
                       Stability               Lack of controlled growth
                       Market exposure         Heavy reliability in new construction
                                               market
                       Strong workforce        Lack of emphasis on residential service and
                                               maintenance contracts
                       ABC product             Overhead burden
                       Professionalism         Pricing

ABC                    Reputation              Over diversified
                       Stability               Lack of emphasis on residential service and
                                               maintenance contracts
                       Market exposure         Overhead burden
                       Trane product           Complacency/professionalism

NBA                    Market exposure         Management
                       Quality installation    financial stability
                                               Workforce
                                               Downsizing

May Htg.               Time in Business        Management
                       Carrier product         Quality of work
                                               Professionalism

There is a large void in the market between sizes and quality of contractors once you get
past the top two.

There is opportunity for an aggressive, well run residential contractor to help fill that
void.




                                                                                             8
HVAC SOLUTIONS Short Term (2003) Company Goals

   1.      Develop the business and operating plan.
   2.      Develop a capital group structure to allow full execution of the operating plan
           for the 1st six months.
   3.      Develop an aggressive marketing program to gain as much market exposure
           as soon as possible.
   4.      Pursue the new customers – new construction prospects.
   5.      Produce 2004 revenues of $540,000, Gross Margin at blended 38% and net
           profit of 10%.
   6.      Hire and train a field workforce that will provide quality workmanship.


HVAC SOLUTIONS as a startup operation must deal with the immediate issues facing
the company.

Getting and maintaining customers, while maximizing cash flow management.

The task will be to solve the critical success factors quickly, to develop a lasting
successful operation.

These 1st year goals are the focus!

Additional goals are outlined in the detailed sections and action plans within this plan.


Why it Will Work Now:

The concept of an HVAC service company is certainly not new.

The simple reason this business will be a success is the leadership and commitment
behind the quality of the operation. Combine this with a market that has seen a decline in
the service offered by competing companies, and the opportunity is available for a
company to take share.

The fragmentation of the industry and market offers opportunity, as does the absence of
any regulations, or barriers to market entry.




                                                                                            9
                       Detailed Plan for HVAC SOLUTIONS
The Market

Due to the continued new construction growth over the past 20 years in the Anywhere
USA/Anywhere USA area, the need for residential replacement and residential service
has grown proportionally.

The trend in new construction is to install, in most cases, the least efficient and least
expensive comfort system. The quality of the system, improvements in the product as far
as reliability and efficiency, homes that are 10-15 years old are in need of a more reliable
and efficient comfort system.

Every year the market for replacement grows dramatically (estimated at 10% a year).
The residential replacement and new construction markets are strong and have endured
sustained growth (8 % blended each year).

There are some key residential new construction builders that have had a relationship in
the past with the General Manager that have expressed interest in doing business with a
new company called HVAC SOLUTIONS.

Therefore, the immediate opportunity is new home, yet the ultimate market focus will be
on the replacement sector, the service business, and the maintenance agreement business
that can be cultivated from the residential business.

Anywhere USA/Anywhere USA is a community with white-collar demographic profile
traits.

Market research indicates an excellent market for replacement equipment in HVAC
SOLUTIONS main radius of business, due to the replacement cycle of the equipment, the
timing of housing built in the 1970’s and 1980’s, and the continued inflation of utility
costs. These factors, coupled with the continued growth of the community make it an
excellent market niche to center the business around for the future.




                                                                                          10
The Competition

Presently, with the growth in the replacement market over the past 20 years, there is no
one real competitor that can claim a fundamental stake in the residential market.

The market is truly a fragmented market with little or no barriers of entry, and many
small operations with low capital cost structures.

The main competitors in the residential replacement market are Bratcher Heating and
Masters S/M.

There are several other companies that may at some point develop into strong
competitors, and they are SBC, Service Now, Air King, C.I.A., C & E, and Mayol
Plumbing and Heating.

At present, Bratcher and Masters are the key competitors and where most of the strategy
will be focused in developing sound competitive positioning for this company.

Competition Overview:

                      Strengths              Weaknesses

XYZ Htg               Good Reputation        Management experience
                      Stability              Lack of controlled growth
                      Market exposure        Heavy reliability in new construction
                                             market
                      Strong workforce       Lack of emphasis on residential service and
                                             maintenance contracts
                      ABC product            Overhead burden
                      Professionalism        Pricing

ABC                   Reputation             Over diversified
                      Stability              Lack of emphasis on residential service and
                                             maintenance contracts
                      Market exposure        Overhead burden
                      Trane product          Complacency/professionalism

NBA                   Market exposure        Management
                      Quality installation   financial stability
                                             Workforce
                                             Downsizing

May Htg.              Time in Business       Management
                      Carrier product        Quality of work
                                             Professionalism




                                                                                           11
HVAC SOLUTIONS Financial Analysis

The financial plan is based on the assumption that six months capital reserve is acquired
to operate and execute the plan.

Other financial assumptions are tied to timing for the star-up, and the continued strength
in the economy.

Below is the startup and annual costs that are estimated to run the business at start-up,
execute for the first year.




                                                                                            12
The following estimates are for the sales forecasts for each market the company will
operate within, and also in the following pages the detailed budgetary break down for
each of the markets for 2003 based on the assumptions:

       1.         Capital is acquired to required level.
       2.         Start-up occurs November 1, 2003
       3.         Yellow pages placement occurs for the year 2004


HVAC SOLUTIONS Sales Forecast Summary:

                                             2003       2004      2005       2006          2007
RR Sales                                   $340,000   $600,000 $ 900,000 $1,300,000     $1,800,000
NC Sales                                   $100,000   $150,000 $ 250,000 $ 300,000      $ 350,000
Light Commercial                           $ 20,000   $ 80,000 $ 150,000 $ 200,000      $ 300,000
Maintenance Sales                          $ 10,000   $ 40,000 $ 80,000 $ 130,000       $ 180,000
Service Sales                              $ 40,000   $100,000 $ 140,000 $ 180,000      $ 240,000
Sales Goal                                 $510,000   $970,000 $1,520,000 $2,110,000    $2,870,000
Net Profit Goal                            $ 51,000   $ 97,000 $ 152,000 $ 211,000      $ 287,000

HVAC SOLUTIONS Sales Lead Forecasts:

RR Sales goal                              $340,000 $600,000 $ 900,000 $1,300,000 $1,800,000
Avg. sale price                            $ 4,000 $ 4,200 $    4,400 $    4,600 $     4,600
# of Sales                                        71       85       101        121         144
Closure rate                                    40%      45%       50%        50%         50%
# of leads                                 $   142 $    190 $     202 $      242 $       288



NC Sales Goal                              $100,000 $150,000    $ 250,000 $ 300,000 $ 350,000
Avg. Sale Price                            $ 4,000 $ 4,200      $  4,410 $   4,630 $    4,862
# of houses                                $     50 $     60    $     71 $       84 $     100



The following pages of the Financial Plan contain:

       1.         Forecasted Line item budget for 2004 by market segment
       2.         Detailed 12 Month – monthly Pro Forma forecasts including SG&A
       3.         Summary of 2004 year-end Profit/Budget.
       4.         Detailed Cash Flow Forecast for 2004
       5.         Detailed Capital expenditure plan
       6.         Slowest 3 month model for SG&A forecast – establishes SG&A levels
       7.         All financial Direct Cost Models for Performance – KPI Accounting




                                                                                        13
        HVAC SOLUTIONS 2004 Financial Goals/Strategies:
        Action Required                                        Accountable   Date   Budget   Status
Establish a 2003 budget by market segment
Establish each month detailed financial pro forma
forecasts
Establish a sales forecast to actual system to track profits
weekly
Sales tax. Process in
Achieve $540,000 revenue in 2003 with mix as stated
above
Achieve 38 % Blended Margin in all markets.
Establish a departmental accounting system with proper
reporting.
Reporting functions to be current – and on-line – web
based.
Use initial capital to acquire capital assets to offset the
SG&A lease expense costs of (see hard cap exp. Plan):
              a. Trucks – Service and Install
              b. Computer hardware software set-up
              c. Phone system
              d. Tools for trucks

1500 Maintenance agreements average $ 99.00 each
$155.00 service ticket for flat rate average call.
Labor costs for the company below 27% of sales blended.
Ties labor control into a pay for performance base plan
for production/field employees.
Marketing at 3% or less of sales, SG&A at 27% or less
total company
Establish financial reports to include:
              a. General Managers Daily Report
              b. Receivables report
              c. Weekly sales/labor forecast




                                                                                                  14
HVAC SOLUTIONS Sales and Marketing Plan

Target Market Customers:

The company’s present target customer profile falls in the following categories of
demographics:

                 Age:                       35-65 years
                 Marital Status:            Single or Married
                 Income:                    $25,000+
                 Age of Home:               12-60 years
                 Education:                 High School and/or College Degree
                 Status:                    Householder

The marketing strategy for the upcoming years will be centered on more closely defining
the target market audience and prospective customers.

Promotional Activities:

The company’s main promotional emphasis for 2004/2005 will be mainly financing and
extended warranties.

        1.       An attractive financing program virtually all the time will be in place.
        2.       A 10 Year parts and labor warranty.

This combined with our sales process (detailed later) should create an effective strategy.

The balance of our efforts will be in more traditional media.

(See marketing planning on following pages).

Pricing:

The company will use the following pricing systems in each market segment:

Residential Replacement – Flat Rate Supermarket – 10%/5% discount levels – Sliding Commission

Residential Demand Service - Flat Rate Manual for Technicians - $100 base rate - $59.00 diagnostic fee

Residential Maintenance Agreements - $99.00 a system – 3 precision tune-ups

Residential New Construction – Custom and Trak – Dual Overhead method (piece rate labor).

Light Commercial Replacement - Contract - Dual Overhead method




                                                                                                         15
Lead Generation & Customer Marketing:

The sales lead tracking system will allow accurate tracking to occur.

The company will implement a customer follow-up program for after the sale referral
generation.

In most cases, the referral is a higher quality lead than a company generated lead, and the
company feels that to be successful in the residential replacement market, it will be
crucial to stimulate the referral business.

The company will implement customer appreciation program of sending an after the sale
gift to all replacement installation customers.

A customer service representative follow-up call to survey the customer’s feelings after
the completion of the installation will compliment the follow-up process.

These methods are proven methods to guarantee customer satisfaction and generate
referral leads.

Lead Generation

Lead generation for all departments will have the utmost emphasis in the first year of
business.

       Residential Replacement
       A balanced media and advertising approach will be required to create leads.
       However, the single most important source of leads will be from the service
       department, requiring a well-trained dispatch and service team.

       Direct mail, cable TV, and the 3 major radio stations will be used. Direct mail will
       be turn-keyed by supplier targeted at the three major zip codes with demographics
       of households that are 15+ years old with incomes over $35,000.

       A basic TV plan will be made up targeting the programs with the highest viewing
       audience in a short period of time. This will be done by A1 Media. Included in the
       cost will be production of a commercial to be produced and aired by Insight.

       Because of the lack of consistent coverage by television in the Anywhere
       USA/Anywhere USA market, no one-television source covers the entire market,
       radio is a more practical medium than it might be in other markets. An aggressive
       radio package using the top three radio stations that target our demographic
       market will be implemented in the first 6 weeks of business complimenting the
       direct mail and television packages.




                                                                                           16
Residential New Construction

A list of approximately 77 new construction contractors and remodeling contractors who
are currently doing business in the Anywhere USA/Anywhere USA market has been
generated and a company introductory letter will be generated and mailed to these
contractors making them aware that we are open for business, the product we carry, and
an invitation to allow us the opportunity to bid on any upcoming projects that they have
to see where we might fit into their future.

The General Manager will then conduct a personal follow-up phone call a week later to
strike up a working relationship.

Joining the Anywhere USA/Anywhere USA Homebuilders Association and being active
will further promote our name and intentions for opportunities that might arise.

Residential Service Marketing


The yellow pages placement will be the main lead generation vehicle for the service
department.

This can be combined with the media plan.

In addition, a possible service telemarketing approach may be employed to create
maintenance agreement and indoor air quality leads.

The key principle fundamental to service department success is marketing through tune-
ups, whether you do this through direct mail, newsletters, furnace stickers, newspaper
ads, yellow pages, door hangers, marketing or coupon flyers, other forms of direct
marketing, or conventional media – the key is to focus on building your tune-up and
maintenance programs with existing and new customers.

       HVAC Solutions Yellow Pages Platform:

       Top 6 Yellow Pages Attributes Customers Are Looking for from Research:

              1.      ON TIME SERVICE
              2.      CONVENIENT TIME – Schedule on their time
              3.      TRUST - Fix it right the first time
              4.      SERVICE MY BRAND – Service all brands
              5.      KNOW THE COSTS – To know the price to gain
                      confidence
              6.      24 HR SERVICE



                                                                                        17
             Yellow page Service Advertisement




                         HVAC Solutions
   100% Satisfaction Guaranteed or your money Back!
   Quality Workmanship             Financing Available         Free Estimates        Same Day Service
            HVAC Solutions

      Picture of a home castle                                            We are a simple company.
                                                                           We will be there on time.
                                                                You will know the price before we fix anything.
                                                                      We will fix it right the first time.

                                                           And if your not 100% completely satisfied, you won’t pay.

                                                                      Can you afford to call anyone else?



      Is your Home Your Castle?                         HVAC Solutions will treat it that way!



License # 121212                    Call 454-COOL                        HVAC Solutions Heating & Air
Conditioning
20 Years of experience                                                                  Anywhere USA – Anywhere
USA, Illinois
        Ads will be placed in Heating, Furnaces, and Air Conditioning.
        Ads will be ¼ page display with bold listing in header ads.
        Costs will be approximately $ 3600 per listing per year. Approximately $ 12,000 of
        Which co-op is 70% 1st year, and we pick-up 30% for that cash flow 1st year of $ 3600.
        Yellow pages is the book system.
        In addition, HVAC Solutions proposes to negotiate the internet book free, as well as white bold
        listing free.




                                                                                                     18
Advertising and Media Planning

Introducing a new company to a market requires a budgeted approach using the most
visible mediums available to introduce our name. It also requires name recognition to the
products you are promoting and installing.

The company has decided it will go to the market with the XXX Air Conditioning
product distributed by BBB Supply, and try to secure a main brand of Trane (American
Standard), Carrier (Bryant), or Lennox.

The company will strive in the first couple of years for a budget of 3% of the projected
gross sales in the first year, not including co-op or monies from other sources.

The plan usually revolves around a split into the early spring and early fall seasons.
What will follow are the budget calculations and the actual media mix and expenditures
for the company. This will be a monthly update to insure the budget is maintained.

The variable that can lower initial out of pocket expense on the budget is the estimated
purchases from BBB. The factor of 40% of gross sales is an industry average. This
companies’ goal is to purchase as much material that is available from BBB as possible,
which could drive that percentage up making available more dollars to co-op.

Following is the proposed advertising budget for the first 12 months. This shows the
entire budget broken down into individual expenses. First year costs such as
building signage, vehicle signage, stationary, and business cards are included. This
will be tracked on a monthly basis to insure we stay within budget guidelines.


Marketing Themes/Unique Selling Proposition:

The advertising positioning theme used will wrap around the 4 basic guarantees
HVAC SOLUTIONS will offer:

We offer our Exclusive guarantees:

       1.      100% satisfaction guaranteed or your money back
       2.      Quality Only Guarantee – Never a lemon for a product
       3.      Even Temperature Guarantee - within 2 degrees of thermostat setting
       4.      Price Guarantee – apples to apples lower price or $ 100.00 back.




                                                                                           19
Sales and Selling Process:

One of the differentiating points for our company will be our sales process.

We will utilize the one, and two call process. However, we will equip our sales
personnel with the ability to follow these principles:

       1.      Inform the customer – not sell to them.
       2.      Mandatory 100% Engineering Analysis completed on the home.
       3.      Each job will have a written Specification for the home defining work
       4.      Each package of materials given to the homeowner will also contain the
               ROI Software – payback, Load Calculations and Designs for homes
       5.      Our product positioning process will be to position the homeowner to
               always have the:
                              1. Bronze - Least expensive system available with bare
                                 bones – no warranties or efficiency – just low price to
                                 meet the low-end contractor threat.
                              2. Silver - Secondly, more attractive system that offers
                                 basic warranties, no service agreement, but a standard
                                 system.
                              3. Gold - A third, quality system, with a 10 Year parts and
                                 labor warranty, a service agreement, and the most
                                 popular efficiency range in the market – with a filter
                                 system, IAQ, and the best value package by far.
                              4. Platinum - The Premier system. Highest levels of
                                 efficiency and comfort – zoning – IAQ – Filtration, the
                                 whole process – 10 year extended warranty and service
                                 agreement.




                                                                                       20
Sales and Marketing Strategies and Goals:
Action Required                                             Accountable   Date   Budget   Status
Create a logo for the company
Create Contract invoice, letterhead., Service Invoice,
Service Agreement,
Try to capture a phone number that works into
marketing such as 1-800 –service. 1-800-hot-cold
Order the sign for the building.
Create a theme for positioning around guarantees
Generate the marketing brochures around the company
Generate Builder upgrade process – builder upgrade
brochures.
Generate business cards
Generate the Sales proposals and sales forms
Create the yellow pages advertisement.
Develop a company credibility flip book with licenses,
certificates of training, job pictures, bad job pictures,
our prices, and positioning.
Acquire a laptop and ROI, Load sizing software
Place media plan just prior to opening the store.
Order furnace stickers, premium ID’s, door hangers,
magnets etc….. .
Order sales literature.
Secure a branded product line-up to fill out the
positioning strategy.
Order GLOW in the DARK TRUCK ID kits – to create
a differentiated look in the market in the dusk and
evening settings!
Develop sales engineering specification for sales
process to outline every detail of the work performed in
the home.
Create flat rate pricing for service.
Create supermarket price book for sales team tied to
positioning.
Create customer service procedures
                 a. Happy callback on every service
                      call.
                 b. Customer satisfaction surveys.
                 c. Market research at supermarkets
                      and mall ways in area.
Door hanger program from kids in the area.

Conduct pricing study of competitors in the market
place for service, maintenance and retrofit.
Home depot project – lead generation – residential..




                                                                                               21
HVAC Solutions – Production & Operations:

Facility and Inventory

The company is currently looking for a location in the Anywhere USA/Anywhere USA
area.

The south side of Anywhere USA has the most properties available and the proximity to
the supply houses, in particular BBB supply is attractive.

We are looking at property with approximately 1200-1500 square feet. The building will
be necessary to have room for 2-3 offices/cubicles and a small shop/warehouse. Space
needed for inventory will be minimal.

The philosophy of the company is to be zero inventory.

All sheet metal fittings, common ductwork, furnaces, condensing units, coils and
accessories will be stocked at XYZ Supply. Some common fittings and a couple of
common systems will be the maximum load of the inventory at the shop.

Minimum inventory will be necessary at the shop if this process is followed. There will
be exceptions, so some inventory will be expected. Properties are currently available in
proximity of these locations for lease.

The minimum lease period found so far is 2 years with approximate costs of $1200 to
$1600 per month.


Computer System

The proposed computer system for this company is unknown at this time.

There is a specification desired, and lead-time is short within the industry. It is not
expected to be an issue if we pay in cash. Suppliers are having a difficult time.

We will have multi-user network, tied to the Internet. This will allow remote access to
the accounting, and system for the investors, but also for training purposes.

The system will be fully integrated. Each module will tie together.
In addition, the operation will look at the ability to use wireless connections for service
tickets on flat rate, to improve cost effectiveness, and efficiency.

Currently – Field Centrix, MCS accounting, and Nextel support this system.




                                                                                              22
Communications System

The communication system includes the telephone system, voice mail, answering service,
setup of system and support.

Also included in the communication system outside the phone system is the remote radio
and cell phone system. Each employee in the filed will have a Radio/Pager/cell phone
which can have wireless internet access with a minimum expense attached to it’s use.
Any expense over this base amount, is on the employee.

ABC Communications will handle all the telephone process including the answering
service.

Nextel will handle the radio and cell phone communications as they have the best two-
way radio/cell phone communications.

Labor Control Procedures

As is evident earlier in this plan, exact written procedures will be implemented upon the
opening of the business on how every aspect of the operation.

New construction work will be paid piece rate by task.

Service Technicians, and Installers will be paid on performance based pay, tied to a base
hourly rate that is low – compensation is then driven by performance measures such as
labor controls, work accomplished, service agreements sold, callback minimization,
customer satisfaction.

Pricing and compensation are tied together – with labor and quality being the keys to an
installer maximizing their earnings.

In addition, any callbacks are run by service, with install paying service full street rates as
a means to insure no callbacks.

Same day residential installation procedures will be implemented to maximize production
capacity.

During peak months – service will offer customers options to maximize weather and
seasonal demand.


The following pages demonstrate the business models, and the Key Performance
Measurements (KPI’s) HVAC SOLUTIONS will follow.




                                                                                            23
13 Operational Commandments for Success in Residential HVAC:


                                                                            Goals for 20% Pre-Tax
   1.    Ethics and ethics every day.
   2.    Equipment cost equal to or less than 25% or replacement sales                        22%
   3.    Gross Margin Equal to or greater than 42 % of total company revenue                  45%
   4.    Revenue per employee greater than $ 100,000 per employee                         $ 120,000
         (Exclude outbound telemarketers)
   5.    Service Agreements greater than 500 per 1 million in Replacement Revenue        1000 SA’s
   6.    Service and Maintenance Equal to or greater than 25% or total revenue                30%
   7.    Field to office employee ratio equal to or greater than 2 to 1                       3 to 1
   8.    All Replacements completed in 1 day                                                  Same
   9.    Replacement Sales Financed equal to or greater than 40%                              70%
   10.   All Managers and direct reports know and understand the numbers.           Every Employee
   11.   Accurate and timely departmental financial statements by 10 th of month.   5th of month
   12.   SG&A (Operating Expenses) less than or equal to 27% of Revenues            Less than 25%




                                                                                                  24
                   Residential Replacement & Service
                      Business Model to Follow
       Priority # 1                                       Priority # 2

Performance Planning                                                                      90 % Renewal on Existing SA’s
                                                                                          85% Closures on SA Customers
Having a System of                                        System Selling Including        Higher Margin – Value Selling
Forecasting and Adjustment                                Accessories, and IAQ,           Same Day Installs
                                                                                          Quality – Minimize Callbacks
is crucial to growth                                      Maintenance Agreements          Technician Generated Leads
                                                                                          Maximize Marketing
                                                                                          Reduce Overall Mktg. Expenses

People Focus More
Understand Performance
More Accountability
No Surprises
                                                                                            Tune-ups 60% conversion to
                                                                                            full Service Agreements

                                           All Customers Received Maintenance Agreement     Each New Demand Service Call
                                                   Priority # 3                             = 25% conversion Rate to
                                                                                            Maintenance Agreement
                                                        Culture and Focus for
                                                                                            100% Offer Rates
                                                           Tune-Ups and
                                                       Maintenance Agreements

                                                                                            Flat Rate – Debrief Every Call

                                                                                            25% Conversion Rate to SA’s
  Priority # 5                                            Priority # 4
                                                                                            100% Offer Rate for SA’s
Accessories Sales & Existing                            New Customer Demand                 20% repair Calls turn to
Customer Marketing Processes                            Service Processes                   Retrofit Leads



  Lead Generation Existing Customers

  Future Accessory Sales

  Each Maintenance customer = $650.00 in
  Yearly Sales




                                                                                                     25
16 Commandments for Success in Residential New Construction

                                                                                   20% plus Pre-Tax
Operational Practices for Excellence
        1.      Ethics and Excellence every day in everything you do.
        2.      Price the new home project correctly to recover overhead
                & secure reasonable GM%.
        3.      Quality installations on projects – meet or exceed all plans,
                and codes applicable.
        4.      Know, fully understand, and follow the applicable codes
                in your local area.
        5.      Understand your company’s limitations, and strengths –
                know your market place.
        6.      Must maintain equipment costs equal to or less than 26%               23% or Less
                of sales.
        7.      Materials & parts cost equal to or less than 13% of sales.            11% or Less
        8.      Labor Cost(Unburdened) less than 26% of sales.                        17% or less
                If using subcontract – same.
        9.      Flat rate (task based /piece rate pay) is the preferred method
                of controlling labor costs.
        10.     Gross Margin % of 25% or higher .                                     30% G. Margin
        11.     SG&A - Operating Expenses equal to or less than 14% of sales.         SGA 10% less
        12.     Relationships with the builders and developers are the key
                to profitable growth.
        13.     Minimize the exposure to service work (unless the co. also is in
                Only service that is required retrofit markets).
        14.     Field supervisory function to insure work is performed                Callbacks < 1%
                to company requirements of quality, being finished on time,
                and to specification is essential to the success and profit of
                the company.
        15.     Accurate & Timely reporting of financial data, and                    5Th of Month
                management reports for controls to work as they should.
        16.     Take pride in your ethics and your work!




                                                                                                     26
Key Operational Principles for New Construction

      1.     Estimate the costs, place a markup factor on costs – use market based pricing
      2.     Absolutely understand and know the proper time to walk away from a project/job-when
             not to take the bid!
      3.     Manage each project and it’s costs – all costs. You must recover your overhead or face
             certain cash flow problems.
      4.     Establish a sound, detailed cost evaluation system – for estimating and for sample
             validation of actual costs.
      5.     Timely & accurate profit & loss statements no later than 10 business days after the month
             close.
      6.     Receipt of management reports weekly, to support the weekly cycle for new construction
             labor – project detail reports (See report section & appendix).
      7.     Must have a production control system to track project progress for installation,
             invoicing, labor submissions, labor payments, shop fabrication progress (or purchasing to
             support same), and inventory to meet project requirements. This production control
             system is central to the flow of the project and it’s completion.
      8.     Train all personnel on the production control processes. Every employee shall know and
             understand it’s sequence, and why it is critical to the company’s success in controlling
             costs.
      9.     A single person must control all purchasing activities.
      10.    The relationship, and negotiation processes with vendors is important to the success of
             the company. Must be buying well.
      11.    Insure the quality standard for a project is written for the company – beyond the
             specification/plan – so labor and production supervisor know exactly what is expected on
             quality and timeliness of installs. Job supervisor uses these standards for inspecting
             every project for proper completion.
      12.    The above standard should have labor activity codes assigned with time and tasks to
             validate proper installation quality, and payroll coding for tracking reports.
      13.    Each project must have a bill of material – field supervisor will verify costs and proper
             time on the job/project bill of material.
      14.    Company must have a waste control system. All excess materials from a project must be
             returned to shop – eliminates job charge backs and allows re-use to occur.
      15.    Developing a network within the builder community, local trade organizations, builder
             associations, and developers associations will aid in sales processes. The General
             Manager/Owner must be involved in these organizations.




                                                                                                   27
Performance Accountability – Forecasting

Forecasting for performance, and accountability means you are going to meet 1 time a
week, for maybe 1- 2 hours, and review the labor activity, the sales that happened and
projected run rate, the leads, and then make some decisions about what happens this next
week.

The following is a typical agenda for controlling financial performance through
forecasting:

Week 1                   Week 2                    Week 3                    Week 4
Production Plan -
Month                    Review Week 1             Review week 2             Review week 3
Review/Update the
Budget                   Discuss the labor %       Discuss the labor %       Discuss the labor
Review Previous          Discuss Sales Trend       Discuss Sales Trend       %
Month                    Lead Responsibilities     Lead Responsibilities     Discuss Sales
Discuss the labor %      Update the Spread         Update the Spread         Trend
Discuss Sales Trend      Sheet                     Sheet                     Lead
Lead Responsibilities                                                        Responsibilities
Update the Spread                                                            Update the Spread
Sheet                                                                        Sheet




                                                                                      28
Forecasting to Actual - Execution Plan
1.    Accounting must give financial statement in spreadsheet format at month’s end.
2.    The Manager must know the company’s performance numbers and designate key
      team members to learn and share.
3.    Key team members must be taught definitions of chart of accounts and know
      monthly actual figures for last year and this year.
4.    Key team members must complete the performance accountability spreadsheet by
      projecting next month’s forecast. Operations must project actual payroll for
      labor.
5.    Every Tuesday, the operations designate must review payroll from the prior week
      with payroll clerk. Designate fills in spreadsheet for labor control and projects
      run rate.
6.    Wednesday – Operations gives this run rate to the “Keeper of the Spreadsheet”
      and discusses labor for the prior week. **Operations must review the theoretical
      production-planning forecast monthly.
7.    Each Wednesday, the team must look at new, revised spreadsheet and decide
      what, if any actions are required.
8.    By the end of the 3rd week in each month, the lead plan should be completed for
      the next month. This should be shared with everyone involved in the operations
      organization including customer service, dispatch, technicians etc…
9.    Set the company overhead target at 30% of revenues for the slowest 3 months
      budgeted. During peak months SG&A should be driven well below 25% to 20%
      or less.
10.   Set total company gross margins at a rate that takes into account the blend of
      markets, and the mix of work. 11. The more design build, and replacement
      work, the closer to 30% or above the margins can be set. Blending
      the commercial margins with more higher margin work is a key operating
      practice, plus involves labor controls and proper pricing systems.
12.   Before accounting closes monthly financials, have them complete in spreadsheet
      format. The owner and key people compare all projections and make necessary
      adjustments for the next month, and give input to accounting department.
13.   The first projection for the current month will be on the first Wednesday of each
      month using the production planner as a template. These projections will be
      inserted into the operations accountability spreadsheet.




                                                                                     29
Proposed Facility Needs:

   1.   GM Office Space
   2.   Receptionist area
   3.   Showroom/Conference training area
   4.   Open Cubicle space for CSR/Dispatching/accounting
   5.   Bathroom area
   6.   Kitchen area / refrigerator/appliances/break area
   7.   Limited shop area
   8.   Inventory parts cage – staging area as part of shop




      Area
 Shop area - Warehouse                          Training & Conference Area




    Bathrooms                                   GM Office Space
                         Break
                         Area




                                                                             Front Door
                                               Reception




                                                                              30
Production & Operations Strategies and Goals:

Action Required                                    Accountable   Date   Budget   Status
Secure an HVAC license for City/State of
Illinois.
Secure a building. with training
area/Showroom capable.
Install alarm – key systems.
Set-up Warehouse with staging area and
parts/supplies bins – organized. Locked parts
stock area.
Set-up utilities – phone system.
Research and determine computer system.
Main operating system.
Set-up e-mail provider for company – e-mail
system.
Secure GM a laptop for use in estimating.
Install Showroom equipment in building –
heat & cool Building facility
Acquire office furniture – used/rental
Acquire vehicle – and kits for vehicles.
Acquire tools for installation and service
vehicles.
ID all trucks with logos and phone numbering.
Install financial software on system for proper
payroll, accounting procedures.
Create detailed materials, parts and equipment
support list for each type of job and
application that the field is likely to see and
incorporate this into a materials printout sheet
from pricing template – to allow staging and
job organization to occur.
Utilize computer system to create a
parts/materials vehicle replenishment system
– user of vehicle is responsible for capturing
the needed materials to replenish – but system
needs to be automated so the materials are
ready and available for trucks at the end of the
day in bins.
Forms to be created: Happy call form,
Service Invoice, Contract Proposal New,
Residential Agreements, Residential
Marketing Forms Construction Invoice, Time
Ticket for Labor,
Use dispatching system which orders priority
to
                 a. Capability of work
                      performed
                 b. Skills of Labor force
                 c. Lead potential
                 d. Geographic
Create a field-training plan – for each
production employee – to insure quality
training has been applied. See training
platform in organization plan.




                                                                                      31
Organizational/Human Resource Plan


The plan is to advertise 2-3 weeks before officially opening for business to go through
the interview process.

An office person who has some organizational and Service experience. This person will
be responsible for receptionist duties, dispatch duties, data entry, and general office
responsibilities.

The other 2 positions will be one for service and one for installation. Both will have to
have experience. This will require competitive salaries and benefits. It is imperative that
the company has quality workmanship in the field and these two people will have that
responsibility to insure that happens.

The goal will be to develop, over a period of time, a sales/installation manager, a
sales/service manager and a office manager.

Developing a management team in the early stages of the company is two fold. First it
promotes accountability. By holding people accountable, you develop attitude to be held
accountable, which attracts good employees. This culture relates back to the core values,
and will be supported through leadership practice, and daily management practice.

Role descriptions, performance base pay plans, a profit sharing above 15% pre-tax plan,
policy manual, training plans, drug testing, employee bonuses and awards, recognition
plan, and feedback on performance 3 times a year will support the culture.

The company will work to maintain a sales per employee ratio of 1 employee equals
$100,000 in revenues, driving to $ 120,000 per employee.

Hiring new production employees is predicated on a theoretical production matrix. The
KPI for this is around $ 750,000 installation billings per crew of two men.

Training is also an issue to control quality and productivity– see the training matrix next
page.




                                                                                          32
Human Resource Strategies and Goals:

Action Required                                           Accountable   Date   Budget   Status
GM Pay plan organized and created based on free cash
flow.
Secure insurance and benefits packages for the
company.
Set-up Payroll system either in house or through
accounting firms to support GM Pay/Employees.
Develop employee training plan.
Develop Piece Rate pay system for new construction
Develop Task Based Service Pay for Technicians
Develop residential installation production task based
pay system.
Develop and employee handbook
Begin the hiring process.
 place ads, network with suppliers – interview and
placement agencies – try to hire top competency levels.
Hire office manager/bookkeeper. Hire Field Installers.
Begin Implementing the training plans.
Develop job application
Develop code of conduct
Develop safety manual
Develop quality control checklists
Develop time ticket for pay plans
Develop employee review
Develop role descriptions and expectations
Develop employee shared success pay plan – year end
Secure business insurance for the company.




                                                                                             33
Technology and Administrative Plan

The need exists to identify how technology will allow leverage for productivity.

In addition, is apparent the need for a quality programming/computer support vendor
exists to create the opportunity for the use of the technology to its fullest capability.

Baseline Technology:

Integrated Computer System
Software
        ROI/LOAD Calculation
        Microsoft Office Suite
        Operational System Software – ties to Microsoft
        Accounting Software – ties to extranet

Laptop for the filed – tied to integrated system

Infra red wireless color printer for field laptop printing of proposals- materials for
homeowners

Color Printer for materials and brochures
Phone system
Phones - Radio/Pager/Wireless capability Nextel




                                                                                            34
Administrative Strategies and Goals:

Action Required                                              Accountable   Date   Budget   Status
Set-up Departmental Quick books ledgers for initial
computer tracking.
Give accountant payroll data and chart of accounts.
Stock the office
Set-up templates for fax.
Set-up templates for bid proposals
Set-up templates for job tracking on all new construction.




                                                                                                35
General Goals and Strategies – HVAC Solutions Start-Up
Action Required                                           Accountable   Date   Budget   Status

Research the Market – Location, potential key customers
who may move with HVAC Solutions.
Research the Operational Issues – Vendors, Insurance,
Licenses, Etc…
Write the Business Plan
Secure Commitments for business
Incorporate the Business and select a CPA firm. HVAC
License.
Establish insurance – all benefits programs, general
insurance, liability coverage, etc….
Conduct 1st board meeting
   Buy Sell agreement
   Stock Certificates allocated
   Role of the board Members

Secure Vendor commitments for inventory consignment,
parts consignment, and co-op advertising




.




                                                                                             36

								
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