Starting an HVAC (heating, ventilation, and air conditioning) business allows you to be your own boss and capitalize on the growing demand for HVAC installation, maintenance, and repair services. But it takes more than just technical skills to launch a successful HVAC company. You need business savvy, proper licensing, adequate financing, and a solid plan. This guide will provide an overview of the HVAC industry, key steps for getting started, and answers to common questions for new business owners.
Business Overview
An HVAC business provides essential services related to heating, cooling, and air quality in residential and commercial buildings. The services range from installation and maintenance to repair of HVAC systems. An HVAC company might specialize in specific services like installation or cater to niche markets such as green energy solutions or high-efficiency systems. 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.
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Industry Summary
The HVAC industry is a stable and growing field, with a rising demand for HVAC services due to increasing construction activities, advancements in technology, and heightened awareness about energy efficiency. It is a $126.4 billion industry in the US, with over 140,000 businesses operating nationwide.
Major customer segments include single-family homes, office buildings, industrial facilities, retail stores, hospitals, schools, and more. Providers range from large national companies to small local operators. Industry revenue is driven by construction activity and replacement demand as HVAC systems wear out after 10-15 years. Rising energy costs are spurring demand for more efficient HVAC equipment.
Some key trends that are currently shaping the HVAC industry include:
- Increasing use of energy-efficient and eco-friendly systems
- Smart HVAC systems with digital controls and connectivity
- Growing demand for indoor air quality solutions
- Shortage of qualified technicians leading to higher wages
- Consolidation as large national chains acquire smaller companies
Steps To Start An HVAC Business
Step 1: Market Research
Starting a new HVAC business is a big decision. With so many factors to consider, market research is an essential step to ensure your business will be successful.
Let’s begin with understanding your licensing requirements. Different states have different rules, so you should research HVAC licensing requirements in your state and complete the necessary training through an accredited trade school or apprenticeship program.
Once you have the technical side sorted, it’s time to look at the local HVAC market. Start by evaluating the size and growth trends in your area. Consider construction activity, housing starts, population growth, and the age of housing stock. These factors will give you an idea of the market demand for HVAC services. Also, talk to commercial real estate brokers and check permit data to understand new construction volumes.
Next, research other HVAC companies in your area, looking at their strengths, weaknesses, and any gaps in service they might have. Online business directories can be a helpful resource for this. Take note of what makes these companies successful and think about what you can do differently to stand out.
As part of your research, consider reaching out to HVAC business owners outside of your area. They may be willing to share their experiences and offer advice on what worked for them and what didn’t.
Step 2: Write a Business Plan
It may be tempting to skip this step, but before taking the leap into entrepreneurship, you should write a business plan. A business plan isn’t just a document; it’s your roadmap. It’s like a travel guide that outlines your destination (your business goals), the path to get there (your strategies), and the resources you’ll need along the way (your budget, staff, equipment, and more).
One key benefit of a business plan is that it serves as a reality check. It forces you to think through every aspect of your business, from your target market and competition to your marketing strategy and financial projections. This process helps you identify any potential challenges or weaknesses in your business idea and address them before you start.
A business plan also helps you project your income and expenses, giving you a clear picture of your business’s financial feasibility. This section helps you estimate whether your business will be sustainable in the long run. It’s always better to find out in the planning stage if your idea won’t work rather than after you’ve already started.
Related: How to write a business plan
Step 3: Source Funding
The next step that we will cover is finding the money, which can be one of the most challenging aspects of starting a business. There are several options available, with the primary ones being:
Personal savings: The first place to look is your own pocket. Personal savings are often the starting point for funding a new business. This doesn’t mean you need to drain your entire savings account, but some personal investment will be required.
If personal savings aren’t enough to cover the startup costs, you’ll need to explore outside funding sources. Let’s look at some of the most common ones.
Bank loan: A common option to fund a business is obtaining a loan from a bank. Lenders typically require a borrower to invest 15%-25% of their personal funds towards the total cost of the project. They also look at your credit score and whether you have sufficient collateral. If the bank feels the loan is too risky, they might suggest using an SBA (Small Business Administration) loan guarantee. This takes a majority of the risk off the bank and easier for a small business to receive funding.
Friends and family: Another option is to turn to friends and family. They know you and trust you, and they might be willing to support your business venture. But it’s important to keep things professional. Put all agreements in writing to avoid misunderstandings and protect your relationships.
Microloans: Microloans can be a good option if your funding needs are low or you can’t get credit through a lender. These are small loans, often provided by local economic development organizations. Some microloan programs also provide business training, which can be a valuable bonus.
Related: Finding the money to start a business
Step 4: Register the Business
You’ve done your market research, crafted a business plan, and secured funding. Now, you’re ready to set sail on your business journey. But before you do, there’s one more important step – registering your business. This process involves choosing the right business structure, registering your business name, obtaining licenses, and making sure you comply with all environmental rules.
Choosing a business structure: First, decide on the type of business structure. Your options are:
- Sole proprietorship: The easiest and least expensive to start. You’re the sole owner and are personally responsible for the liabilities of the business.
- General partnership: Two or more people share the responsibilities, costs, profits, and liabilities of the business.
- Corporation: A separate entity from the owner(s), protecting against personal liability but with more operational complexities and higher costs.
- Limited Liability Company (LLC): Combines features of a corporation and a sole proprietorship/partnership. Offers protection against personal liability without as many requirements as a corporation.
Each structure has its own advantages and disadvantages. For example, LLCs and corporations provide liability protection for your personal assets, while sole proprietorships are easier and less expensive to set up.
Related: Comparison of business structures
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:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
Related: Tips and ideas for naming an HVAC business
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Obtain business licenses and permits: Depending on your state and local area, you may be required to obtain a state contractor’s license or commercial refrigeration license. The requirements for acquiring a contractor’s license typically include several years of Journeyman-Level HVAC experience and passing a state test. Check with your state and local government to find out what licenses are required in your area.
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.
Related: Common business licenses, permits, and registrations by state
Step 5: Set Up Operations
Setting up operations for your HVAC business involves several key steps to ensure everything runs smoothly from day one.
First, consider the location of your business. You have the option of working from home, renting a warehouse or office space, or buying commercial property. Your home base should have enough room for storing equipment and parking service vehicles.
Next, you need to gear up your fleet. This means buying service vehicles and equipping them with the essential tools and technology for HVAC work. You’ll also need to invest in the necessary tools and technology, such as duct cleaners, scoping cameras, and diagnostic devices.
In addition to vehicles and equipment, it’s time to stock up on supplies. This involves establishing accounts with HVAC parts suppliers and stocking key inventory items. Having a well-stocked inventory can help you respond quickly to service requests and reduce downtime.
Finally, you’ll need to map out your service processes. This includes determining how you will dispatch service calls, manage job costing, and keep track of work orders and customer records. Many HVAC businesses use specialized software like Jobber or Service Fusion for scheduling and dispatching, as well as equipment diagnostic tools and mobile devices or apps for field staff. These tools can help streamline your operations and make it easier to manage your business.
Step 6: Hire Technicians
As we continue through the steps of starting an HVAC business, you may be looking at hiring staff. Before hiring, ensure you’ve addressed these legal requirements.
First, you’ll need to obtain an Employer Identification Number (EIN) from the IRS, which is used for tax reporting purposes.
Next, you will verify the employment eligibility of your potential employees. This involves ensuring they have the right to work in the United States, typically verified through Form I-9.
Also, as a new employer, you must report your new hires to your state’s new hire reporting agency. Every state has different reporting requirements, so it’s essential to familiarize yourself with your specific state’s rules.
Worker’s compensation insurance, which provides benefits to employees who suffer work-related injuries or illnesses, is also needed. Most states require businesses with employees to carry this type of insurance.
Finally, you should be aware of labor laws that apply to your business. These include wage and hour laws, anti-discrimination laws, and workplace safety regulations. The U.S. Department of Labor provides resources to help employers understand their obligations.
Related: State guides for hiring your first employee
Step 7: Create a Marketing Plan
When starting a new HVAC business, it’s important to get the word out about your services and let potential customers know you are open for business.
Developing a brand identity that represents your business and makes it stand out from the competition should be the first task. This includes creating a memorable company name, logo, slogan, and style that will be consistent across all your marketing materials.
An informative website is another key component of your marketing strategy. This is where potential customers can learn more about your services, pricing, and company values. Use search engine optimization (SEO) to help your website rank higher in search engine results and make it easier for customers to find you. Don’t forget to also establish a presence on social media and online directories like Google My Business, Yelp, and Angi, to further boost your online visibility.
In addition to online marketing, consider using print marketing to reach local customers. This can include newspaper ads, direct mailers, flyers, and Yellow Pages ads. These traditional marketing methods can still be effective in reaching certain demographics and building brand awareness in your local community.
Last, networking and getting referrals from other industry professionals can be a valuable way to generate new business. Connect with general contractors, real estate agents, and suppliers in your area and ask them to refer customers to you. Building relationships with other industry professionals can help you create a network of trusted partners to help you grow your business.
Related: Low-cost ideas to market a new business
Step 8: Prepare to Launch!
We have gone over the major steps to establish your business, but there are a few additional steps that are probably still needed. The needs of every business will be different, but here are some common steps.
Business insurance: Obtain general liability insurance and any required bonding to protect your business from potential risks and liabilities.
Related: What types of insurance does an HVAC business need?
Bookkeeping: Set up accounting software and systems to handle daily transactions, taxes, and financial statements. This will help you keep track of your finances and make tax time easier.
Contracts: Have contracts in place, such as service agreements and maintenance contracts, to clearly outline the terms and conditions of your services. RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.
Business bank account: Open a business bank account to keep your business finances separate from your personal finances.
Accepting credit cards: Set up a system for accepting credit card payments to make it convenient for your customers to pay for your services.
Industry associations: Join industry associations, such as the Air Conditioning Contractors of America (ACCA), the Plumbing-Heating-Cooling Contractors Association (PHCC), or the Refrigeration Service Engineers Society (RSES), to network with other professionals and take advantage of professional development opportunities.
Grand opening: Plan a grand opening event to celebrate the launch of your business and attract potential customers.
Common Questions When Starting An HVAC Business
How much does it cost to start a HVAC business?
Starting an HVAC business can be a considerable investment, with costs varying significantly based on several factors, such as location, size of the business, and the tools and equipment you already own. On average, though, you can expect to spend anywhere from $10,000 to $60,000 to get your business off the ground.
Business registration: The cost of business formation varies by state, but you can expect to spend between $100 and $1,000.
HVAC certifications: Costs for obtaining the necessary licenses and certifications can vary, but you can expect to spend between $200 and $1,000.
Location: If you decide to rent or purchase commercial space, the cost will depend on the location and size of the property. Initial deposits for renting can range from $1,000 to $5,000 or more.
Insurance: Initial costs for general liability insurance and any required bonding can range from $1,500 to $3,000.
Vehicles and equipment: Purchasing properly equipped service vehicles can cost between $20,000 to $30,000 per vehicle. Initial costs for tools and equipment can range from $1,000 to $10,000.
Inventory and supplies: Initial inventory costs can range from $1,000 to $5,000.
Marketing: Initial marketing efforts, including creating a logo, website, and promotional materials, can range from $500 to $5,000.
In addition to these costs, it’s recommended to have 3-6 months of operating expenses, around $30,000-$60,000, saved as a buffer, especially since some months will be slow.
How profitable is an HVAC business?
The profit of an HVAC business depends on a variety of factors, including your location, size of operations, pricing strategy, and more. But let’s use some industry statistics to make an estimation.
First, consider the revenue. According to HomeAdvisor, the average HVAC service call costs between $170 and $639. If we use $300 as an average call, and you’re doing five service calls a day, five days a week, that’s $1,500 a day or $7,500 a week. Over a year, that adds up to a considerable $390,000 in revenue.
Next, we factor in expenses. These can include equipment costs, labor, insurance, office space, marketing, and more. Industry averages show that an HVAC business can expect operating expenses to be around 75% of its revenue.
If we apply this to our $390,000 revenue, we get $292,500 in operating expenses. Subtract this from your total revenue, and you’re left with $97,500.
Remember, these are rough estimates and the actual figures can vary significantly based on many factors.
While we didn’t include system installs in our estimates, 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.
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?
Resources:
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
