Not always true. 

I know a guy started commercial HVAC company later last year. 

4-5 people including one in office. 

They have to bid projects to general contractor. Margin 10-20% (need to reserve some for warranty labor) and sometimes even lower. They can not make duct themselves so have to outsource that. Sometimes had to lower margin to less than 10%. Ocassionally they do not get paid on time because general contractors do not get paid on time. cash flow pressure is high. This guy is planning to close that business. 

__________________

too much competition already?

 

 I did ChatGPT

Here is a clear, practical analysis of why the business is struggling — and actionable steps to save it if possible. This is written for small commercial HVAC contractors (4–5 employees) bidding through GCs.

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Why the Business Is Struggling

Your friend is in a classic “small subcontractor trap”:

1. Low margins

• Commercial HVAC bidding through GCs usually yields 8–15% margins for small subs.

• After warranty labor, callbacks, project delays, and overhead → profit disappears.

2. No duct fabrication

• Outsourcing duct adds:

  • Cost

  • Lead time

  • Exposure to the sheet metal shop’s scheduling

• Makes bids less competitive.

3. Cash flow pressure

• GCs pay slow.

• 60–120 day delays are normal.

• Small HVAC companies pay:

  • Payroll every 1–2 weeks

  • Suppliers net 30–45

• This causes cash flow collapse even when jobs are profitable on paper.

4. No backlog

• Small teams rely on constant bidding.

• When hit ratio is low → revenue is unstable.

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What Could Save This Business

Below is a list of realistic options, separated into short-term survival and long-term restructuring.

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Immediate Actions (0–3 months)

1. Raise margins or walk away from unprofitable GC work

The #1 trap is “bidding to stay busy.”
In reality → busy + low margin = faster bankruptcy.

He must:

• Stop bidding GC jobs under 15% margin

• Prefer 18–25%

• Only accept <10% if extremely simple or repeatable

Most small contractors go out of business because they say yes too much.

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2. Get a line of credit (LOC) or material financing

For subcontractors, cash flow is more important than profit.

• Get a bank LOC backed by receivables

• Or use:

  • Supplier financing programs

  • BlueTarp

  • Billd (specialized for construction material financing)

  • Levelset (payment protection services)

Even a $100k LOC drastically reduces payroll stress.

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3. Require deposits or “mobilization payments”

Even in commercial, it’s possible to negotiate:

• 10% upfront mobilization

• Or Material Deposit before ordering equipment

Specially when:

• Long-lead equipment is needed

• Small GC or owner-operated job

• Private commercial job

• Design-build job

Many HVAC companies survive ONLY because they require deposits.

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4. Lean overhead immediately

A 4–5 person company cannot carry heavy overhead.

Trim:

• Unnecessary vehicles

• Office rent

• Over-ordering materials

• Misc admin services

Outsource admin tasks before firing technicians (techs create revenue; admin does not).

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5. File preliminary notices to protect payments

If allowed in their state, always file:

• Preliminary notice / NTO / pre-lien

• Lien rights on slow-paying GCs

This forces GCs to pay sooner.

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Mid-term Actions (3–12 months)

6. Diversify away from low-margin GC plan/spec work

There are several better markets:

?(A) Residential new construction HVAC

Margins: 25–40%
Payments: faster (builders pay faster than GCs)
Labor: predictable
Much lower paperwork.

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?(B) Service + maintenance contracts

Service margins: 35–50%
Maintenance contracts: recurring cash flow
Warranty labor declines because techs know system history.

Build a base of:

• small retail shops

• restaurants

• office buildings

• small industrial units

• property managers

Every mature HVAC company depends on service revenue — not construction.

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?(C) Design-build commercial

Margins: 25–30% vs 10–15% on GC plan/spec jobs.

Design-build reduces:

• Competitors

• Re-bidding

• Change orders

• Unpaid redesign work

If he can do load calculations and drawings → big advantage.

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7. Bring duct fabrication partially in-house

He doesn’t need a full shop.

Just having:

• Small plasma table

• Basic brake

• Minor fabrication setups

…can save 15–25% on duct cost and speed up jobs.

This may not be feasible immediately, but is transformative once cash flow stabilizes.

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8. Build direct relationships with owners

If he can get:

• 3–5 building owners

• 2–3 property management companies

He will never again rely 100% on unreliable GCs.

The money is in:

• Replacements (high margin)

• Service (recurring)

• Retrofits

Not public GC bids.

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Long-term Strategy

9. Hire/partner with a strong estimator

Estimating incorrectly kills more HVAC companies than anything else.

A skilled estimator increases:

• Hit rate

• Margin quality

• Change order capture

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10. Standardize job costing

Every job must have:

• Budget vs actual labor

• Budget vs actual materials

• Hourly efficiency tracking

This identifies losing jobs and prevents repeating mistakes.

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When to Actually Close the Business

If:

• No backlog

• No line of credit

• Can’t raise prices

• Always bidding low-margin GC work

• Cash flow negative for 12+ months

Then closing and restarting smaller/leaner is better than dragging on.

BUT many HVAC companies were saved by pivoting away from GC plan/spec work.

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?? Summary: How to Save His Business

Critical moves:

1. Stop bidding low-margin GC work (<15%).

2. Get LOC or material financing.

3. Require deposits/mobilization payments.

4. Protect lien rights.

5. Add service and maintenance ASAP.

6. Pursue design-build and private commercial owners.

7. Eventually bring some duct fabrication in-house.

8. Improve estimating + job costing.

The business is savable — but not if it continues depending on low-margin GC bids.

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If you want, I can draft:

• A recovery plan

• A profitable pricing model

• A bid/no-bid rule checklist

• A 30/60/90-day cash flow rescue plan

Just tell me which one.