this isHVAC Financial Analysis and a case. You have to look at the case to be able to solve the problems and to be able to write a 2 page paper questions ask about the case. Please take a look at this and let me know if you are able to solve this.

HVAC Ratio Analysis See Balance Sheet & Income Stmt. in HVAC Case on Canvas. IND LIQUIDITY RATIOS AVG 1994 1992 1993 1 Current 1.4 1.5 1.5 Name _____________________________________________ 1993 Calculation - please show your work for 1994 Calculation Detail each ratio. $1,019,968 / $691,573 1 2 Quick 1.1 1.2 2 1.3 Sales/Receivables 14.9 8.4 3 7.1 ($114,684 + $691,656) / $691,573 $5,839,956 / $691,656 Days Sales Outstanding 24.5 43.2 4 51.1 365 / 8.44344 4 Inventory Turnover 34.9 31.3 5 30.9 $3,871,000 / $123,664 5 Average Age of Inventory 10.5 11.7 6 11.8 365 / 31.30256 6 Direct Costs/Payables Sales/Working Capital 26.2 28.3 16.8 17.8 16.4 18.8 13.2 16.1 $3,871,000 / $230,431 $5,839,956 / ($1,019968 $691,573) COVERAGE RATIOS Times Interest Earned Current Maturities Coverage IAvg 2.1 1.8 1994 2.1 1.4 1993 1.4 0.4 1992 4.7 0.9 1994 Calculation $50,925 /$24,451 ($66,407 + $34,800 + $3,171) / ($76,450 + $0) LEVERAGE RATIOS Fixed/Worth IAvg 1.0 1994 0.3 1993 1992 0.5 2.0 1.5 1.9 2.3 1994 Calculation $153,047 / ($492,473 $31,126) $713,257 / ($492,473 $31,126) XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX 1993 Calculation XXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX 1993 Calculation OPER. PROFITABILITY %EBT/Tangible Net Worth IAvg 8.0% 1994 5.7% 1993 2.4% 1992 12.5% %EBT/Total Assets 3.4% 2.2% Sales/Net Fixed Assets Sales/Total Assets %Officers Comp/Sales Gross Profit Margin 14.8 3.8 3.0% 24.7% 38.2 4.8 6.1% 33.7% Operating Expenses 23.2% 32.8% Debt/Worth 7 8 3.5% 28.6 9 7.3% 10 32.1% 27.8 4.1 7.4% 28.9% 27.8% 1994 Calculation $26,474 / ($492,473 $31,126) $26,474 / $1,205,730 $5,839,956 / $153,047 $5,839,956 / $1,205,730 $354,060 / $5,839,956 ($5,839,956 - $3,871,000)/ $5,839,956 ($5,789,031 - $3,871,000)/ $5,839,956 3 7 XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX 1993 Calculation XXXXXXXXXXXXXXXXXXXXX 8 XXXXXXXXXXXXXXXXXXXXX 9 XXXXXXXXXXXXXXXXXXXXX 10 XXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX HVAC Financial Analysis Homework (listed as \"HVAC\" in Grades on Canvas) Use the balance sheet and income statement found in the HVAC-CO case on Canvas to calculate the missing ratios (carried to 2 decimal places) for the 1993 column in the table. Use the 1994 calculation detail along with balance sheet and income statement to determine the formula needed to calculate the ratios for 1993. There are 10 missing ratios. Show your calculations in the last column for each of the ratios that you calculate. You may handwrite your answers in the spaces on the ratio table provided. (20 pts) After you complete the 10 missing ratios for 1993 \"think/ponder/ruminate\" on what each ratio attempts to measure. How is HVAC-CO doing on this measure versus prior years? The industry average? What can we learn about the company from this information? After completing your ruminations you may proceed to the written analysis (3-page maximum) to specifically address the following: What is HVAC's liquidity position as measured by the current/quick ratios? Does knowledge of the company's Accounts Receivable Turnover and DSO alter (in any way) your original assessment of the firm's liquidity? Why or Why not? (10 pts) Place your name in the upper left-hand corner and double-space your discussion answers. Your written analysis is subject to scrutiny for grammar and spelling just like any other written assignment. Staple your ratio table to your written analysis CASE STUDY "I Know 1 Need to Let Go of My Business. But Will it Survive?" Gina Vega, Ph. D. Dr. Vega is president of Organizational Ergonomics, a Flushing, New York-based consulting firm that works with small businesses in transition. T he business students appeared almost impressed as they listened to their guest speaker, Jim Masters, president and CEO of HV AC-CO, a local heating and cooling company. He described his community activities: past president of the Chamber of Commerce, chairman of the March of Dimes local fund raiser, trustee of the hospital, Businessman of the Year. The list went on and on. "How do 6 Small Business Forum> Winter 199511996 you do it all and still run a successful business?" one of the twenty-something students asked. Driving home that night, Jim asked himself the same question. "How do I keep on doing all this, after nearly 50 years? More important, why do I keep on? My two sons are perfectly capable of running HVAC-CO. We have reliable employees, a strong managemen team, a healthy financial position and a HV AC-CO: The Company and the Players HV AC-CO is the fictional name of a real heating and air conditioning company in [he Northeast. It provides heating, ventilation, air conditioning, fuel and plumbing services primarily to the residential market - though in recent years it has expanded to [he commercial market as well. Founded in the 1930s as an ice and coal company, HVAC-CO is a family business [hat now employs the second, third, and (on a part-time basis) the fourth generations of the Masters family. This is a critical time for HVAC-CO and for the Masters family. They need to resolve cash flow problems, decide who is going to be the next generation's leader, and determine which markets will serve them best in the future. Total sales in 1994: $5,839,956 Total employees in 1994: 36 Running a business on trust in 1995 requires deep pockets, perhaps deeper than HVA C-CO could muster. How the Masters family fits into HV AC-CO's hierarchy: Jim Masters: President and CEO. Age: 71. With the company for 50 years. Says he would like to retire - but doesn't. Involved in many civic organizations. Generous with staff and family. Jim Masters, Jr. (Called "Junior"): Oldest son. Age: 39. Very "hands-on" with the technical aspects of the business. Well-liked by employees. Has little patience for meetings or financial concerns. Bob Masters: Second son. Age: 31. Has an MBA. Likes administrative issues. Is detailminded. Has no special allegiance to the industry. Roger Stevens: Son-in-law. Age: 42. With the company for 20 years. Does some of the work that his wife used to do. Is primarily a dispatcher. Susan Masters: Youngest daughter. Age: 26. With the company for two years. Does bookkeeping and record keeping. Several grandchildren work part-time and/or as contingent employees in the office and warehouse. superior reputation in the community and in rhe industry. I'm ready to let go, but some~g always holds me back." His thoughts continued in this vein, shifting ':"om business to family and back to business ril he found himself in his own driveway. - Always thinking, always thinking," Cecile, his wile of 47 years, murmured as she greeted him. "Surely you can take a break once in a while." It was true. Despite his frequent vacations znd somewhat shortened hours, Jim rarely felt e could take a rest. The challenges presented v a changing economy, new technology, and the spectre of succession kept him busier than ever. Not to mention his new concerns about cash flow. Over the years, HV AC-CO had become synonymous with good service, professional15mand easy credit. The business ran on trust and caring, and it thrived. The close bonds among the family members and the gentleness nd concern that underlay business decisions were strengthened by the principles that were the backbone of the company: "Service, quality, and commitment to our customers." But change was in the air. Running a business on trust in 1995 requires deep pockets, perhaps deeper than HV AC-CO could muster. Jim's thoughts drifted back to the meeting he had held with his accountant and banker earlier that week. These men, trusted advisors for years, were concerned about his finances. Early in 1995, Jim and his sons had decided to purchase a piece of property from a failed lumberyard. This property would allow them to consolidate their business, keeping both the oil trucks and equipment inventory in the same location as the offices and dispatch location instead of in the separate locations that currently housed them. The new piece of property, if not exactly a "steal," was a good buy and just what they had been looking for for years. Of course, it required some renovations to make it ready for HV AC-CO's operation, but that would have been the case with any property they bought. Small Business Forum s Winter 1995/1996 7 HVAC-CO, Inc. Balance Sheet as of December 31, 1994, 1993 and 1992 Assets His daughter kept telling him to stop delivering oil to non-payers, but he couldn't do it. 1994 1993 1992 Current Assets Cash 114,684 41,336 126,993 Accounts receivable 691,656 773,186 797,713 Inventory 123,664 114,892 131,014 Oil options 19,157 21,587 1,139 Prepaid expenses 70,807 70,208 24,744 $1,019,968 $1,021,209 Land and building 163,616 163,616 163,616 Trucks and delivery equipment 875,870 852,281 816,862 Furniture and office equipment 135,938 135,938 135,937 Less: accumulated depreciation 1,022,377 955,970 911,260 Total property, plant and equipment $153,047 $195,865 $205,155 12,826 27,226 40,426 9,900 23,100 36,300 8,400 16,800 25,200 $31,126 $67,126 $101,926 1,589 1,589 1,589 Total Current $1,081,603 Property, Plant and Equipment Intangibles Customer list (net of amortization) Covenant not to compete (net of amortization) Goodwill (net of amortization) Total intangibles Other Assets Officer's life insurance Total Assets No, the property itself was not the problem. The real problem was that Jim was having some difficulty disposing of the other two properties he was holding. He had three mortgages, renovation costs, and a laborintensive business to run. With 25 mechanics/ drivers to pay, the extensive benefits he provided as a means of retaining these highquality technicians, an office staff and his management team, and all the associated costs of doing business, he was fast heading for a cash crunch. . 8 Small Business Forum. Winter 1995/1996 $1,205,730 $1,285,790 $1,390,273 His accountant had reminded him of the delinquent accounts that he carried for months at a time. The outstanding receivabl had been a bone of contention for as long as he could remember. His daughter kept telling him to stop delivering oil to non-payers, bur he couldn't do it. He thought of the times he had slipped a customer's request for oil fro "NG Account - Do Not Deliver" and adde; it to the delivery schedule. "No one should without heat, especially the long-time custom ers," was his usual explanation. The result -----------------------------------------------~--------------------------------------------- 1994 1992 1993 Liabilities and Shareholder's Equity Current liabilities Accounts payable 230,431 Bank loan payable 306,011 0 36,108 0 Installment notes payable (current) 76,450 149,407 121,945 Sales tax payable 21,691 27,800 24,618 291,001 280,211 273,588 Deferred service income Profit sharing plan payable 72,000 0 0 0 0 2,220 Customer deposit payable -' 229,481 Total-current liabilities $691,573 $723,007 $728,382 21,684 73,481 173,173 $713,257 $796,488 $901,555 20,437 20,437 20,437 472,036 468,865 468,281 $492,473 $489,302 $488,718 $1,205,730 $1,285,790 $1,390,273 "What has changed in the way you're doing business, Jim?" the banker said. "I think you're heading for trouble. " Long term liabilities Installment notes Total debt Shareholder's equity Capital stock - 100 shares Retained earnings Total shareholder's equity Total Liabilities and Shareholder's Equity was an impressive list of unpaid accounts dating beyond 120 days, with a growing list of outstanding receivables of over 90 days. The collection agent he had hired had reduced these receivables temporarily, but they seemed to be building again as the cold weather arrived. The banker reminded him of the bridge loans that he had had to take on a regular basis the previous year to cover his payroll and expenses. "What has changed in the way you're doing business, Jim?" the banker said. "I see you are still paying your bills within ten days, but where is the money coming from? Looks to me like the money is coming from my bank, not from your revenues. I think you're heading for trouble. You either need to find a way to reduce expenses or collect the money due you more efficiently. At this rate, you'll never be able to make the bigger bank payments due on the new mortgage." Reducing expenses was something that Jim had hoped to avoid. His long-time friend and office manager was retiring that year and perhaps that reduction in the payroll expense would be enough to cover some of the other expenses. Jim didn't want to change his guaranteed permanent employment policy or give up the benefits he offered - health insurance, dental coverage, tuition or training refunds, continuous technical training, profit sharing, bonuses, generous vacations, birthdays off, frequent raises, overtime, free uniform cleaning. There had been only one occasion when he had had to layoff personnel in the history of the company, and he didn't want to repeat that experience. His sons and he often laughed about their reluctance to terminate employees. "Word on the street is that you can't get fired from here," his older son had said. Jim's stomach lurched at the Small Business Forum. Winter 1995/1996 9 HVAC-CO, Inc. Statement of Income and Retained Earnings For the Years Ended December 31,1994,1993 But how smoothly would the business function without him at the helm? and 1992 1992 1994 1993 Fuel oil sales 2,515,931 2,531,048 2,797,075 Heating/cooling equipment 3,324,025 3,067,862 2,901,112 $5,839,956 $5,598,910 $5,698,187 Direct costs 3,871,000 3,766,538 4,051,873 General and administrative 1,744,824 1,694,276 1,427,822 Profit sharing/retirement 72,000 24,000 80,689 Deprecia tion 66,407 44,711 41,531 Amortization of intangibles 34,800 34,800 34,800 $5,789,031 $5,564,325 $5,636,715 Earnings Before Interest and Taxes (EBIT) $50,925 $34,585 $61,472 Interest $24,451 $24,281 $13,000 Earnings Before Taxes (EBT) $26,474 $10,304 $48,472 Taxes $23,303 $9,720 $19,200 $0 $0 $1,086 $3,171 $584 $30,358 Retained earnings - beginning $468,865 $468,281 $437,923 Retained earnings - ending $472,036 $468,865 $468,281 Sales Total sales Expenses - Total expenses Gain on sale of property (after tax) Earnings After Taxes thought that they might have to reevaluate that policy. He came back to earth with a thud. Reevaluating the guaranteed employment policy was one thing, but a more difficult evaluation was hanging over him. His two sons and his son-in-law formed his management team, but how smoothly would the business function without him at the helm? His extensive 10 Small Business Forum' Winter 199511996 reading of management literature came flooding back to him - people need to know who is in charge; people need to know who reports to whom; without leadership, a company will founder; planning is the best insurance; mission is not enough. You ha ve to know how to implement it and someone has to take the final responsibility for doing so. The buck stops somewhere. But where? "I've always kept my eye on change and I've tried to keep a step or two ahead of trends," Jim thought. "But this time, things seem to be catching up to me. Anyone who didn't see gas heat coming in to overtake oil is just hiding his head in the sand, but who could have imagined how hard the do-it-yourself competition would hit once the superstores moved in? Maybe 1 should have done things differently right from the beginning." The business had changed many times over since Jim inherited it from his father. It was originally an ice and coal company. When Jim returned from the War to a burgeoning economy, he managed the transition to oil, building his company on personal service up to a fleet of 20 trucks serving a primarily residential market in the Northeast. Oil was cheap and plentiful, housing developments were springing up faster than the weeds surrounding them, and HV AC-CO's entry into the new construction market was a natural extension of the existing business. Many of Jim's residential customers dated from this era of growth. This customer base was aging and, coupled with a tight economy, often had to extend payments for oil deliveries until monthly checks came in. But Jim's loyalty to these customers never flagged they supported him in the early years and he would return the loyalty now. "Drop the residential market? Not me," Jim thought. But what about the commercial sector, the one that had so consumed his resources of late? Jim considered the large contract he had just landed for the local hospital. This was "easy" work - easy to schedule, easy to plan, easy to execute. No need to coordinate his technicians' activities with someone's day off, no worries about accessibility, no fears about getting paid. Eventually, that is. This plum had fallen into his lap, the result of one of those many community activities. Could he get more jobs like this? Did he want to? Jim struggled to articulate a plan of action. "Whom should 1 be focusing on?" he wondered. "I can't desert my residential customers - they're too personal to me. I used to go to their homes to deliver the oil myself, collect the money and share a cup of coffee on those bitter cold mornings. But many of those oldtimers have moved, retired, or worse. Now, the new people have no real relationship with me. They think they can manage without service, doing it all themselves. Do I really want to be running a delivery service like my Dad did? Are my sons going to be content with that? We need to grow. But with all the members of the management team involved in their own special niches, who could handle generating new business? Who is interested in responding to RFPs, writing bids, making commercial sales calls?" Junior, his older son, was most interested in the technical aspects of the business. Jim fondly remembered the early years when Junior rode the oil trucks with him as a boy. He had started at the very bottom, doing the grimiest, most basic work and moving up slowly through the ranks to his present position in charge of installations. Junior always loved the industry, and planned his education around it. He studied mechanical engineering in college, then apprenticed as a plumber and obtained his license. His people-skills made it possible for him to demand perfect quality from the technicians, and they responded well to him. Bob was different. He grew up never making the connection between HV AC-CO and the family income. When asked once what his father did for a living, Bob said, "He goes out to work and comes home dirty." He never had had any intention of joining the firm, even while working for his MBA. But at the urging and encouragement of professors, mentors, friends and family, he made his career decision and joined the company upon graduation. His focus was administrative and detail-minded. Jim wondered if it mattered to Bob whether the company he had worked so hard to build was a retail store, a restaurant at a gas station rather than a heating and air conditioning company. Bob's interest in tracking procedures and other modern administrative techniques was helping to organize things, though. Jim had to admit that. Roger, the oldest of the three men, had been with HVAC-CO for more than 20 years. He began in service and installation and worked his way up to head technician. He married Jim's eldest daughter and trained Junior when he began in the firm. His position as dispatcher and his technical skill made him as indispensable as any of the members of the team. Jim smiled then as he thought of his grandson, Roger's boy, stocking parts that afternoon in the warehouse. Surely there would always be a younger generation, a HV AC-CO to support the growing families, and an everrenewing talent pool to locate and develop new revenue streams. But how can he make sure that each family member is treated fairly? How can the formal management structure of HVAC-CO be Small BUSiness But Jim's loyalty to these customers never flagged - they supported him in the early years and he would return the loyalty now. Forum s Winter 1995/1996 11 Could the business thrive under shared leadership? designed to stimulate the continued growth that the increasing size of the family requires? With its present set of markets and procedures, HVAC-CO is operating in a holding pattern and is unlikely to grow further. Even maintaining its current status in the residential market will be a challenge in the face of the do-it-yourself competition from the superstores. "We've gotten here by the seat of our pants and we can't go over the top. We have reached a point that, unless we do something dramatic, we're liable to start backsliding," Jim thought. He pondered these problems until he fell asleep, dreaming about the possibility of Junior being responsible for outside activities and Bob for financial and administrative areas. Could the business thrive under shared leadership? Does one person have to have the ultimate responsibility for the whole organization? How would they handle personnel? How would they solve the cash flow issue? Who would report to whom? What would the future hold? Field Notes These are the notes and observations made by the consultant who worked with Jim, Sr. History Some 60 years ago, at the nadir of the Great Depression, an optimistic widower with a young child set out to make his fortune. He had been an ice and coal man with his two brothers in Brooklyn, but had a falling out with them and decided to set up his own ice and coal business on Long Island. He sent his son to live with his sister back in Brooklyn, where the boy stayed until his father remarried and brought him home. The boy, Jim, had been a shy child, but once he was reunited with his father and new siblings, his personality blossomed. He played trombone, which endeared him to the girls of the era, and was elected president of his high school student organization. Upon graduation in 1942, he joined the Army Air Force, and became a pilot. He emerged a lieutenant at the end of the war with two years of college under his belt. His college career continued for two more years at the New York College of Pharmacy because that was all that was available to him at the time. His feeling was, "If it works out,okay. If not, I'll change." Jim had always rushed to embrace life and had never feared change. As the eldest of four 12 Small Business Forum' Winter 199511996 children, it was assumed that he would go in his father's business, and so, after two more years of college but no degree, he went to work for his dad in the ice and coal business. The economy was changing rapidly, as was the business of cooling and heating. With oil becoming the fuel of preference, most of the small coal and ice men were going out of business. Jim urged his father to shift to oil because it was obvious to him that coal was on the way out. He got training for himself in oil burners and technology, bought one route. then two others. The business kept growing, and Jim broug in his two half brothers to assist him. After .; father's death, they left and Jim began to hire the people whose companies he bought. HV AC-CO kept growing and, when new construction hit an all time high, a consortiu of oil men was established. Jim was instrumental in encouraging a cooperative approac to service issues and, as a devoted volunteer and a valued participant in community activities, he gained the trust of the oil "broth erhood." This association helped one another make deliveries in emergencies, loaned one another trucks and personnel when necessary and made sure that there was no cut-throat competition among the members. Customers were sacrosanct, and the members did not try to undercut one another or steal accounts. At its peak, there were 17 oil companies in the county covered by HV AC-CO, but durins the late sixties and early seventies many of these began to go out of business. Because Jim had earned the trust of the other oil men, they began to sell their routes to him and, in the case of widows, they called him and requested that he buy their trucks and routes. Soon HV AC-CO was one of the largest oil companies in the geographic area. They have now expanded into gas and plumbing because, in Jim's words, "You'd have to be dead not to know that there's no future in oil." HV ACCO has always been ready to grab its competitive advantage. Description Jim continued his community activities, serving on many boards, including the local hospital, the Lions, and the Chamber of Commerce. In fact, he served as president of the chamber despite the fact that in the early years he had to arrive late to every meeting because he was out driving an oil truck early in the morning. As of 1994, Jim had been a trustee for the hospital for 25 years. His office was papered o with awards, certificates and plaques for community service. In the words of his long-time general manager, "Jim is a giver." In 1994, as in the very beginning, HVACCO runs on love. Although love is not a word generally used to describe a corporate culture, it suits this organization very well. The close bonds among the family members are evident in the way they talk about the business, about one another and about their future. The relationships among family and management, as well as the way they treat their employees, exemplify the finest in family-style management. HVAC-CO has 36 employees, including Jim, president; Junior (the older son), vice president of installations; Bob (the younger son), treasurer; Roger (a son-in-law), service manager; Pete, office manager; Susan (a daughter), accounts payable; 20 or so mechanics; half a dozen truck drivers; a dispatcher and several office and technical staff. Annual sales are between five and seven million dollars and annual growth for the coming five-year period is estimated at between 7 percent and 10 percent. Return on sales is approximately 2 percent. The initial investment to establish HVAC-CO in the 1930s was $5,000; today it would cost closer to $500,000 to launch. HVAC-CO's mission is to exceed the customer's expectations. According to some of the letters of thanks on display in their offices, it is apparent that they have succeeded. The father and two sons are active members of more than a dozen local organizations and give their time, energy and money freely to the community. Although sharing most smallbusiness owners' frustration with the difficulty of day-to-day management, they stick to it because of "family tradition and responsibility to the customers, employees and the local economic community." HV AC-CO's commitment to quality and to the needs of their customers is evident in the way the business is run. Each manager told me, in one way or another, that the quality of the job is most important; that service is the number one priority; that HV AC-CO is a "service" company. It is clear that they are committed to filling the needs of their customers, sometimes at the expense of short-term profits. They have established a corporate identity of professionalism. A bright blue HV AC-CO truck in the street projects a certain image, reinforced by the technicians and mechanics in their uniforms and identification badges. They produce a quarterly newsletter that allows them to emphasize their customer focus and remain in personal touch with their many individual accounts. HV AC-CO's owners provide benefits to their employees that would do a Fortune 500 company proud. It's no surprise that turnover is so low. Integrity, pride and commitment are the watchwords of HVAC-CO. I heard these values mentioned unself-consciously by everyone I spoke to. Challenges HV AC-CO also exemplifies many of the problems most commonly experienced by small businesses, as well as some unique challenges as a third-generation business. The one thing HV AC-CO's owners would change if they could redesign their entrepreneurial dream is to "hire better and manage people more closely." There are other pressing issues that management wanted to discuss with me as well: Outstanding receivables This was the number one issue that everyone at HV ACCO mentioned. The "over 120's" have become urgent, and it's not being done by the person assigned to the task. Several times, Jim has taken a customer's call slip from the "hold" pile and placed it into the "deliver" group, counter to the credit manager's recommendations. The kindness factor has caused some serious cash flow problems, sometimes requiring bridge loans to cover expenses because of poor collections. Personnel issues HVAC-CO has established a guaranteed permanent employment policy. I asked Jim how to get fired from HVAC-CO, and he told me that if I steal or if I am a third time drug offender after two rehab experiences, then I am at risk of getting fired. At HVAC-CO, even if I am incompetent, I am guaranteed a job. In order to clear a profit, HV AC-CO has to charge three to four times what they pay the mechanics for installations. Their current charges are $75 for the first half hour and $32.50 for each half hour thereafter. A top mechanic earns $21 per hour. On difficult or time consuming jobs, they barely cover expenses. Nonetheless, the mechanics press for increases. The mechanics are often reluctant to give up their free time for weekend overtime work. They sometimes HVAC-CO's commitment to quality and to the needs of their customers is evident in the way the business ts run. Small Business Forum. Winter 199511996 13 When Jim turned over the responsibility of the business to his sons, it was not made clear who was accountable to whom. have to call three or four men before someone agrees to work. The office staff makes a great many personal calls, takes extended lunch periods, and executes projects poorly. Jim holds professional training classes regularly for the mechanics, but says, "Employees don't do anything to help themselves." The men do not want to attend, or to put themselves out for extra learning. According to Bob, "We have the best technicians ...probably in the city." Communication Management does not tell staff when things are not going well. Most of the managers seem to hope that things will get better by themselves. The managers have stated their concern that some of the employees may cry when corrected. They seem to be afraid of making anyone unhappy, and therefore have accepted the responsibility for doing all the work themselves. Roger's busiest time is early in the morning, when the emergency calls come in and he has to assign jobs. During the hour or so from 7:30 a.m. to 9:00 a.m., .there are meetings in the dispatch area, heated discussions and requests for information. Roger schedules service calls for the ~0}&nV;'?f{:, i~'j '~v1;-tLWC'v'C'i lfif,r";llu'te, 'kilt, Junior almost always can schedule installations in advance, since they are not emergencies. Junior rarely posts his schedule the night before. For almost four years beginning in 1986, the owners held periodic meetings. People seemed to enjoy them until 1990. 1990 was a very bad year economically for HVACco. Everyone, management and employees alike, took pay cuts, fringes were temporarily eliminated, and some employees were laid off. Parenthetically, it is a tribute to the loyalty of HVAC-CO's employees that an entire work crew volunteered to work only four days a week if that would save the jobs of the others. The regular meetings with their improved communication scheme began to improve operations, and the company has been profitable since then. Their meetings were originally held Monday nights, moved to Tuesday lunchtime, and then became monthly off-site. They were primarily brainstorming sessions and the managers shared wonderful ideas, but nothing got accomplished because no one wanted to sit down and actually implement any of the ideas. In 1993, the meetings were abandoned in disgust. Roger, 14 Small Business Forum. Wimer 199511996 Bob and Jim feel the loss acutely. Junior doesn't miss the meetings at all; he feels they were rather a waste of time. Management Jim said, "We are poor managers. The managers are poor managers. We get caught up in the everyday things that we do and we don't manage." Bob said, "None of us are people managers ...no one knows who they report to." Susan said, "People have to be held responsible for not following through ...there's no chain of command." Junior says, "Workers fail beca use management fails." In some cases, the employees have learned to delegate to the managers. All of the managers have the same tendency to want to delegate to their staff, but none of them has developed the skill of effective delegation. When a manager accepts the responsibility for someone else's job, that staffer has successfully learned how to delegate upwards. As Susan says, "I,f employees don't do the work properly, the manager takes it on." Or, as Junior says, "If you don't do your job, then we do it.' Jim has done his best to create an autonomous organization. He wants Junior and Bob to make their own decisions, both as a '"dnimg 'CKPtl:lTIl't'C ~I.TlD 'oecause 1ft n1:Yreves that the business is theirs and they need to run it themselves. When Jim turned over the responsibility of the business to his sons, it was not made clear who was accountable to whom. Junior says that his father is in charge and that he reports to him. Bob says that no one is in charge and he doesn't report to anyone. Systemic Problems Junior, in charge of installations, is running an organization that is almost unrelated to the front office operation. He is passionate about his work and throws himself into it alongside his men. I saw him, dressed in a crisp, white shirt on a hot summer day, join two mechanics in hoisting an 8' x 6' air conditioning unit onto a truck, and apparently enjoy himself. He supersedes attempts at enforcing time sheets for pay periods. He doesn't share his excellent people management skills or methods with the other managers. He has no patience for meetings or talking or planning. He is content with Bob's handling all front office responsibilities as long as he can handle the mechanics and the technical work. Bob doesn't want to work the long hours that are often required in a service business. d, r He doesn't want to go to community meetings three nights a week. He wants to chat with his friends on the office phone. He wants to be home with his wife and young children. The growth of HV AC-CO is attributable, in part, to Jim's charisma and his total and unflagging commitment to his company. He drove an oil truck for years and often filled in for absent employees. No job was too small for him; if it had to be done, he did it. By all accounts, the success of HV AC-CO is dependent on Jim's personality and sociability, the power of which are pervasive. According to Pete, "Jim is the nucleus for getting the customers we're getting today - his way and his integrity." But what will happen when Jim leaves the company for good? ~ Jim is a remarkably charismatic founder who honestly wants to pass the baton while remaining involved in some of the daily activities of the business, such as sales and customer relations. Jim truly believes that he "rarely makes a decision on my own. I let my two sons make the decisions because they have to live with it." Pete is 75 years old to Jim's 71, and is his long time friend. He joined the company in the sixties and has been a loyal employee and office manager ever since. He and Jim worked closely throughout the hard years and their mutual loyalty is a palpable force in the company. All of Pete's opinions are colored by his allegiance to HVAC-CO and the family. He never has a sour word to say about the current management structure. Junior and Bob see Pete as being in the way. By working three days a week, he does just enough work to prohibit handing over his tasks to someone else, but not enough to really be responsible for anyone area. Junior claims that Pete is Bob's biggest problem, keeping Bob from learning how to accept responsibility for the front office staff, teaching Bob to be more conservative than intuitive, and refusing to take some of the burden off the over-worked family. Junior (39 years old) enjoys outside work and cannot tolerate being "stuck" in an office. He has fine "people" skills and is a perfectionist when it comes to work quality. Junior alone is content with the business the size it is now; he is not convinced that the growth of HVAC-CO is a positive thing. He denies the existence, or potential existence, of business problems in the future. The best future scenario he could come up with was a kind of shared responsibility, with Bob handling all the financials and him handling everything else. Junior believes that the brothers share goals and vision and that there is no ego battle or power struggle between them. He says he is more inclined than Bob to "set the course" for HVAC-CO, but he doesn't know if they have the ability to do the long range planning and to decide where to go. As far as Junior is concerned, their new income base (colleges, hospitals and public works) "just evolved" from their community contacts, and was not a planned approach to business success. He sees nothing unusual or dangerous in this approach, nor does he intend to pursue this growing market. Bob (31 years old) saw his niche as financial control; the accountant was not providing the kind of analysis and detail that Bob liked. His entire focus is administrative and financial. He is introducing tracking procedures and other "modern" administrative techniques to the company. Roger, (42 years old) began in the service area and worked his way up to top technician. He trained Junior and married the eldest sister ten years later. As service manager, he currently holds the job that his wife used to have (she resigned and currently runs her own nursery school with one of her sisters). Roger has become caught within powerful family forces and has had to learn to play carefully to each of the different strong personalities involved in the company. He has some resentment over his position, yet claims that he gets as much respect as the brothers in the company. By all accoun s. the success of HVAC-CO is dependent on Jim's personali _ and sociabili _. the power of which are pervasive. The Future Roger and Bob echoed Jim's fear of being unable to reach fuller potential growth without some changes being made. Bob sees the future with one person in charge (him), holding all of them accountable for image, culture and financial success. He sees longterm planning and establishment of accountability as the primary need for this business. Bob wants more experience with decision making and feels that his father lets him make decisions even though he knows they are "bad," rather than teaching him to make the better choices. He believes his credibility would improve with his father's weight behind him and that, since Junior has no interest in the inside work, he would have no objections to this plan. Nonetheless, Bob has not had the courage to present it to the management team. Roger hopes "HVAC-CO will always be HVAC-CO with the fine reputation it has [now]." He hopes that one of his two sons will someday come into the business, but acknowledges that the boy will probably not Small Business Forum> Winter 199511996 15 What are the future goals of HVAC-CO? 16 Small Business Forum> Winter have an opportunity to erve in management. He is afraid that, because of the lack of communication and constant control is ues the company will always be in a state of chaos. "The president has to give key people the reins and also give them the responsibility. " _ What is HV AC-CO's financial condition? Why is accounts payable paying all bills on the tenth of the month if accounts receivable is unable to make collections in the same time frame? How can HVAC-CO measure achievement, both on an individual level and a corporate level? Other Issues The Next Step _ How is the formal management of HV ACCO to be designed? Is Junior going to be responsible for all outside activities and held accountable for them? Is Bob to handle all financial and administrative areas and to be held accountable for those? _ What are the future goals of HVAC-CO? Is it going to grow by seeking out new markets? Will the company concentrate on its current markets by differentiating their product or service from the competition? How? What will HVAC-CO look like in five years? How is it going to get there? Jim is considering organizing a retreat for himself, his two sons and his son-in-law. This will be an opportunity to thrash out some of the above issues and to work on a strategic plan. He has asked me to facilitate the process and guide them in the development of the plan when they are ready. In the interim, he has hired someone to handle collections and has attended a motivatidnal seminar with his management team. In his words, "Now we are all motivated again." _ 1995/1996 Reprint No. CS018