Fractional CFO and Controller Services for HVAC Companies

A service call sells labor and a part with a diagnostic fee attached. A replacement sells a piece of equipment with labor attached, often with consumer financing that costs you a percentage of the ticket. The gross margins, the sales cycle, the commission structure, and the cash timing are different, and the blended margin on a single P&L tells you nothing. A company can be losing money on every install and not know it, because the service department is carrying the average.

The fix is departmental accounting: revenue, cost of goods, direct labor, commissions, financing fees, and warranty costs tagged by business unit at the invoice level in ServiceTitan and mapped that way into the general ledger. Then overhead gets allocated on a basis you can defend, such as technician headcount or revenue, and the owner sees three P&Ls every month. The conversations that follow are usually short and productive.

Sometimes the install department is the hero and the service department is a marketing expense that generates replacement leads. That is a legitimate strategy. It should be a chosen one. Department reporting is what makes it a choice. Once the owner can see the service department's true contribution, decisions about pricing the diagnostic fee, staffing the shoulder season, and paying comfort advisors get made against numbers rather than against the loudest voice in the shop meeting.

Your revenue curve has two peaks and two valleys, and the valleys are where HVAC companies get into trouble. The spring and fall shoulder seasons combine low demand, high fixed labor cost, and the arrival of the equipment invoices from summer, with net 30 terms that expire in October. Companies that manage cash by watching the bank balance find this out annually, and it feels like a surprise every time.

A 13-week cash forecast for an HVAC contractor is built around booked calls, replacement sales in the pipeline, maintenance visits due, supplier payment terms, and the payroll dates. It tells you in August how much cash you need to carry into October, which sets the size of the line of credit, the timing of truck purchases, and whether the fall hiring plan is affordable. It also tells you whether pre-season tune-up promotions are generating cash or just activity.

We keep the forecast current every week, compare it to actuals, and use the variance to sharpen the next 13 weeks. The goal is that February is boring. The same model tells you what a mild summer does to the year, what a new truck does to the fall, and what a spring agreement promotion does to cash in the two months before the visits are performed.

A customer pays $199 in April for two visits. Most HVAC books record $199 of revenue in April. In reality the company owes that customer two service visits, and the cash collected is a liability until the work is performed. When you sell 2,000 agreements in a spring promotion, the books overstate income and the balance sheet hides the obligation. A buyer's quality of earnings team will find it in the first week.

Recorded correctly, agreement revenue is recognized as visits are completed, the unperformed balance sits in deferred revenue, and the agreement base becomes a reportable asset: number of active agreements, renewal rate, visits due by month, and the replacement revenue that flows from agreement customers versus one-time customers. That last number is usually the strongest argument in the company for selling more agreements, and most owners have never seen it.

Deferred revenue also fixes the cash forecast, because the visits due by month become a labor schedule and the renewals become a receipts line. It fixes the income statement too. Spring stops looking like the best month of the year for reasons that have nothing to do with how much work was done, and the shoulder seasons get credit for the visits they actually perform.

The agreement base is the most valuable thing an HVAC company owns and the one thing most balance sheets leave off entirely.

ServiceTitan is a strong operating system and an unreliable accounting system, and it was never meant to be the second thing. Revenue in ServiceTitan is invoiced revenue; revenue in the general ledger should be earned revenue. Financing fees, refunds, warranty parts, and inventory adjustments get handled differently by every office. The result is a monthly argument between the operations report and the P&L that the owner has to referee.

We build the mapping: every ServiceTitan business unit, job type, and invoice item to a general ledger account and department, with financing fees recorded as a cost of the install and not netted from revenue, warranty labor costed to the department that sold the job, and truck inventory counted and adjusted on a schedule. Then we reconcile ServiceTitan to the general ledger every month, line by line, and publish the differences with a reason next to each one.

Once the two systems agree, the ServiceTitan dashboards become financial reports rather than operational hunches, and the owner can stop keeping a third set of numbers in a notebook. The reconciliation also catches the quiet problems: invoices adjusted after the month closed, refunds that never posted, financing applications funded at a different amount than the invoice, and inventory that left the warehouse without a job attached.

Technician labor is the cost that decides whether an HVAC company makes money, and it is usually managed by feel. Billable hours divided by paid hours, by technician, by week, is the number. A technician at 55 percent utilization who is paid for 45 hours costs the company nearly as much as one at 80 percent and produces far less. Drive time, callbacks, training, and the parts run to the supply house are where the difference lives.

The pay plan matters as much as the rate. Spiffs, commissions on replacement leads, and performance pay change behavior, and every change should be modeled against the department P&L before it is announced in the shop meeting. We calculate fully burdened labor cost, including payroll taxes, benefits, vehicle, phone, and the tools that walk off, and use it to price service labor and to evaluate every pay plan proposal that reaches the owner's desk.

Callback rate rides along with utilization. A callback is unbilled labor, a warranty part, and a customer who is now less likely to buy the replacement. It belongs on the same page as the average ticket. So does the technician's agreement attach rate, because the technician who sells agreements on every call is building next year's revenue, and the one who does not is running a repair shop on your trucks.

HVAC has been an active acquisition market, and most owners between $5M and $50M have received a letter. Whether you intend to sell or simply want a bank that returns your calls, the questions are the same: recurring revenue from agreements, EBITDA by department with add-backs you can support, technician count and turnover, marketing cost per booked call, customer concentration in the commercial book, and a balance sheet with deferred revenue and inventory stated honestly.

A buyer's diligence team reconstructs your numbers whether you help them or not. The difference between a prepared company and an unprepared one shows up as a lower multiple, a longer process, or a retrade after the letter of intent. We prepare the data room in the ordinary course of the monthly close, so that the reports exist before the request does.

For owners not selling, the same discipline supports a larger credit line, equipment financing on better terms, and a management team that can run the business on numbers while the owner takes a week off in July. The numbers a buyer wants are, not by coincidence, the numbers that make the company better to own. That is the argument for building them now rather than in the quarter before a process starts.