1 Contractor in 5 Closes Annually: Report

DALLAS An analysis of government data reveals an annual business failure rate of 20% among plumbing, heating and air conditioning companies, according to a white paper recently released by the Service Roundtable. According to government statistics there are roughly 200,000 plumbing and air conditioning contractors, Service Roundtable CEO Matt Michel said. Just over half are sole proprietorships or

DALLAS — An analysis of government data reveals an annual business failure rate of 20% among plumbing, heating and air conditioning companies, according to a white paper recently released by the Service Roundtable.

“According to government statistics there are roughly 200,000 plumbing and air conditioning contractors,” Service Roundtable CEO Matt Michel said. “Just over half are sole proprietorships or partnerships without a payroll. Our estimates are that nearly a quarter of non-payroll contractors close annually. Overall, one out of five close every year, only to replaced by new starts.

“There’s fairly solid data on larger shops, but little is available for the smallest contractors. They’re overlooked by nearly everyone. They are the industry’s underclass.”

The statistics reveal that one of the surest ways for a contractor to increase his business success rate is to grow, Michel said. The close rate drops rapidly with contractor size. For example, only 6% of contractors with five to nine employees close every year.

“As an industry, we should be doing more to help the smallest contractors. The large contractors of tomorrow are the small contractors of today,” he said. “While growth isn’t a requirement of success, it does increase the odds. There are many successful small contractors. There are also many small contractors who fail or operate just well enough to hang on. These contractors are less likely to pay their suppliers and more likely to under-price their services. This hurts everyone.”

The white paper, “Business Closure Rates For Plumbing & HVAC Contracting Companies” is available on the Service Roundtable Website, www.ServiceRoundtable.com, under the “Freebies” tab.

The Service Roundtable claims to be the nation’s No. 1 contractor group, in part, because it was designed so that even the smallest contractor can afford membership. A $50 monthly subscription gives contractors access to a library of sales, marketing and business tools. In addition, the company manages an ongoing contractor networking and exchange group.