New Year's Resolution: Plan for 2007

OF THE 90,000 to 100,000 plumbing and HVAC contractors in business today, less than 10% do any planning, consultant John LaPlant told us a couple months ago. This month, consultant Steven Little says that these contractors aren't alone. He says that only 12% of small businesses do any planning to grow their companies. Since this is the time of year that we make our New Year's Resolutions, we encourage

OF THE 90,000 to 100,000 plumbing and HVAC contractors in business today, less than 10% do any planning, consultant John LaPlant told us a couple months ago.

This month, consultant Steven Little says that these contractors aren't alone. He says that only 12% of small businesses do any planning to grow their companies.

Since this is the time of year that we make our New Year's Resolutions, we encourage you to add this one to your list. Along with quitting cigarettes, starting an exercise program and flossing your teeth, create a business plan in 2007 and implement it.

This resolution applies whether your company does primarily residential or nonresidential work, mostly service or new construction. Benefits should include fewer surprises, more growth and improved profits.

We'll publish our annual industry forecast next month. From what we've been hearing and reporting so far, however, 2007 appears to be an exceptional year for which to start planning, if you haven't done so already.

Many mechanical contractors got caught short a few years ago when prices for metals and other construction materials spiked dramatically. A leading economist for the construction industry tells us this month that future cost explosions for materials are likely.

Associated General Contractors' Ken Simonson points out that the construction industry is different from much of the rest of the economy because it usually is required to use a fixed quantity of materials, many of which are in limited supply due to worldwide demand. Manufacturers, on the other hand, often can make products smaller and lighter, and many service businesses use few materials at all.

Another factor that will contribute to higher construction costs next year, he says, is that materials must be delivered to jobsites. That makes them subject to high freight and fuel costs, as well as transportation bottlenecks.

Overall, Simonson says, construction material costs over the next year should increase at about twice the rate of inflation for the rest of the country. He sees prices rising 6% to 8% vs. 2% to 4% for the U.S. economy.

Uncertainty in the housing market also makes 2007 a great year to create a business plan, especially if your company focuses on residential work. While Simonson says he expects private nonresidential construction — despite the higher material costs — to maintain its strong pace, he has a different view for residential contractors.

He sees private residential construction as a mix of increasing rental projects and sharply falling single-family and condo construction. Higher material costs could hamper the plans of public housing agencies that may have to defer or redesign projects as a result.

One sign of a cooling housing market came in September when new home prices experienced their biggest decline in more than 35 years, according to government figures. In October, the National Association of Realtors reported the sharpest year-over-year drop on record for the median price of existing homes.

Keep in mind, however, that the record high median price for a new home was just posted in April. And, not everyone has dire predictions for the residential market. Former Federal Reserve Chairman Alan Greenspan told a conference in October that "most of the negatives in housing are probably behind us" and that the outlook for housing is reasonably good.

Higher material costs and a softer housing market do not mean that the sky will be falling in 2007. They are among the excellent reasons, however, that you should create a business plan for your company. Consultant Little points out that small companies usually are myopic when it comes to managing external forces. While no one can predict the future, higher fuel and material costs should catch no one by surprise, he says.

And, as consultant LaPlant notes, an effective business plan allows you to run your business, rather than the other way around.

We wish you all a happy, productive and prosperous 2007. And, that you plan accordingly.