Making Plans & Setting Goals for the New Year Terry Tanker 5
My Plate’s Overflowing
Ryan Kalmbach 6
Prioritize Events That Show Your Team Love Richard Lewis 9
The AIM Act Changes 2024 – An Interview with Jim Cika HVACR Staff 10
Schedule Periodic Reviews of Distributor Relationships Jacob Halter 18
HVACRBUSINESS.COM JANUARY 2024 / VOL.19 / NO.1
ALIGNING EMERGING REFRIGERANTS WITH EQUIPMENT OPTIONS Page 14
ALSO INSIDE » Management Resource Shelf ............................................... 4 Is a Family Transfer Right for Your Business? Keven Prather ........................................................................................ 17 Financially Fit Business - Part 3 Ruth King .......... 20 Product Focus ..................................................................................... 21 20 Questions with Mark Hyde, Hydes Air Conditioning, Heating and Electrical.................................. 22
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CONTENTS
JANUARY 2024 / VOL.19 / NO.1
F E ATU R E S
6 My Plate’s Overflowing – When Letting Go is Necessary for Growth in Business A must-read on the importance of releasing the need to micromanage as you grow your business. By Ryan Kalmbach
D E PA RT M E N T S
5 Publisher’s Page | Making Plans & Setting Goals for the New Year Eight strategies to keep you moving forward. By Terry Tanker
9 Prioritize Events That Show Your Team Love
As part of your growth and success plan, make time to schedule events that support a thriving company culture. By Richard Lewis
10 The AIM Act Changes 2024 – An Interview with Jim Cika
International Code Council updates on all the AIM Act changes taking effect in 2024. By HVACR Staff
4 MRS | Importance of Partnership
We go off the beaten path with some lessorknown podcasts and books on partnership.
21 Product Focus 22 20 Questions with Mark Hyde,
14 Aligning Emerging Refrigerants With Equipment Options
A Copeland perspective on how the changing refrigerant landscape is shaping refrigeration equipment decision-making.
Hydes Air Conditioning, Heating and Electrical
By Andre Patenaude
18 Schedule Periodic Reviews of Distributor Relationships Is your team value-driven right down to the distributors? By Jacob Halter
CO L U M N S
17 Is a Family Transfer Right for Your Business?
An overview of the pros and cons of a family transfer, in this installment, Prather also offers alternative options. By Keven Prather
20 Achieve Your Freedom with Your Financially Fit Business - Part 3 King shows you how to determine overhead costs for your HVAC business. By Ruth King
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Management Resource Shelf
Importance of Partnership As we begin a new year, we go off the beaten path with some lesser-known podcasts and books on partnership. Business-speak over the past few years has shifted from ‘How?’ to ‘Who are you?’. So, we found four podcasts and two books that speak to the importance of partnership whether that is with your clients, your industry, or your team. Some are more philosophical, and others speak directly to strategy. Enjoy the finds.
The Power of We: Succeeding Through Partnerships
Areté: Activate Your Heroic Potential
Jonathan Tisch and Karl Weber
By Brian Johnson
“In The Power of We, Jonathan Tisch reminds us again that working together still yields the best results. Jon has spent a lifetime mobilizing people and organizations to get a job done in business and civic service. His experience, optimism, intelligence, and common sense are reflected in this fresh look at the rewards of partnerships.” -President Bill Clinton “Being a leader requires vision, focus, and influence. Jonathan Tisch has exhibited all three in this great body of work about what it takes to be a partner and something bigger than yourself. The Power of We is a must-read.” -Pat Riley, President, the Miami HEAT https://www.amazon.com/Power-We-Succeeding-ThroughPartnerships-ebook/dp/B000W7YG88/
The Intentional Growth Podcast Hosted by Ryan Tansom Intentional Growth™ is a podcast for entrepreneurs and business owners wanting to view - and run - their company like a financial asset so they can have fun, create wealth, and make an impact. Truly make the entire journey of owning and running a company “worth it”. With over 10,000 downloads per month, weekly, content-rich episodes provide you with information on how to get clear on what you want from the business and why, the way companies are valued, strategies to increase that value, and the variety of ways you can transition your role or exit your ownership. From technical episodes dissecting the inner workings of private equity and ESOPs to intense discussions with authors and thought leaders like Gino Wickman, Bo Burlingham, Dan Martell, John Warrillow, Jack Stack, and Alan Beaulieu, this podcast is full of information you need to stay competitive in today’s market. https://arkona.io/podcasts
Nearbound Hosted by Producer Jared Fuller & Co-Host Isaac Morehouse Nearbound is the fastest-growing and most effective motion in B2B SaaS today. Nearbound is the goto-market strategy that taps into those buyers’ trust at every stage of the journey for intel, intros, and influence. It impacts sales, marketing, success, and partnership teams. It’s not a department, but a strategy that overlays every department with a series of motions and tactics. Nearbound matters because buyer behavior matters. We’ve moved from the ‘How’ to the ‘Who’ economy. https://podcasts.apple.com/us/podcast/ nearbound-podcast/id1533135144
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HVACR BUSINESS JANUARY 2024
AN INSTANT PUBLISHERS WEEKLY BESTSELLER In Areté, Brian Johnson integrates ancient wisdom, modern science, and practical tools to, as per the sub-title of the book, help you activate your Heroic potential and fulfill your destiny. If you asked the ancient stoic philosophers how to live a good life, they’d answer you in a single word: Areté. We translate Areté as “virtue” or “excellence” but the word has a deeper meaning—something closer to being your best self, moment to moment to moment. https://www.amazon.com/ Aret%C3%A9-Activate-Your-Heroic-Potential/dp/B0C75GW5X3
Business Is Boring: The Spinoff Hosted by Simon Pound With 369 episodes, Simon Pound’s podcast has found a true following. Think business is boring? This podcast proves it’s anything but. Join Simon Pound as he talks to everyone from accidental entrepreneurs to industry leaders about their business journeys and what propelled them to where they are today. Made in partnership with Spark Lab. https://podcasts.apple.com/us/podcast/business-is-boring/ id1118188207
Howdy Partners Podcast Hosted by Will Taylor and Ben Wright
This podcast covers the world of Strategic Alliances and tech partnerships. Join Will Taylor, Ben Wright, and Tom Burgess on the trail to green pastures and unchartered territory through raw stories and dialogue, allowing our listeners to learn and decide how strategic partnerships can drive success... whether you are a VP or a professional looking to break into the space, join us on the Howdy Partners journey. https://open.spotify.com/ show/1DnllGVJc1Otlzp4gIWayU
www.hvacrbusiness.com
THE HVACR MANAGEMENT MAGAZINE
TERRY Tanker Publisher ttanker@hvacrbusiness.com TOM Peric Editor in Chief tperic@hvacrbusiness.com
BY TERRY TANKER
PUBLISHER’S PAGE
ADVERTISING STAFF TERRY Tanker Publisher Tel 440-731-8600 ttanker@hvacrbusiness.com
MEGAN LaSalla Creative Director mlasalla@hvacrbusiness.com BRUCE Sprague Circulation Manager bs200264@sbcglobal.net BARBARA Kerr VP Operations bkerr@hvacrbusiness.com HVACR Business, founded January 1981, is a monthly national trade magazine serving contractors, mechanical engineers, manufacturers, manufacturer representatives, wholesalers, distributors, trade associations, and others in the heating, ventilating, air conditioning and refrigeration (HVACR) industry primarily in the U.S. The editorial focus and mission of HVACR Business is to provide business owners and managers with the very best business management concepts available. Critical topics covered include leadership, management, strategy, finance, sales, marketing, training, education, staffing, operations, human resources, legal issues, customer service and more. We are dedicated to helping contractors master these key management skills and provide them with the resources necessary to build strong, profitable companies. Every effort is made to provide accurate information, however, the publisher assumes no responsibility for accuracy of submitted advertising and editorial information. Copyright©2024 by JFT Properties LLC. No part of this publication may be reproduced or retransmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorneys’ fees. This publication should not be utilized as a substitute for professional advice in specific situations. If legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. Neither the authors nor the publisher may be held liable in any way for any interpretation or use of the information in this publication. The authors will make recommendations for solutions for you to explore. Any recommendation is always based on the authors’ research and experience. The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and authors can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. Subscription Rates: Free and controlled circulation to qualified subscribers. Non-qualified persons may subscribe at the following rates: U.S. and possessions: 1 year $48; 2 years $75; 3 years $96; Canadian and foreign, 1-year $108 U.S. funds only. Single copies $8. Subscriptions are prepaid, and check or money orders only. Subscriber Services: To order a subscription or change your address, write to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039 or call (440) 731-8600; or visit our Web site at www.hvacrbusiness.com. For questions regarding your subscription, please contact bkerr@ hvacrbusiness.com. HVACR Business (ISSN 2153-2877) Copyright ©2022 is published monthly by JFT Properties LLC,31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039, Phone: 440731-8600. Periodicals postage is paid at North Ridgeville, OH and additional mailing offices. (USPS 025-431) POSTMASTER: Send address changes to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039.
31674 Center Ridge Road, Suite 104 North Ridgeville, OH 44039 Tel: (440) 731-8600 Web site: www.hvacrbusiness.com (ISSN: 2153-2877)
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Making Plans & Setting Goals for the New Year EIGHT STRATEGIES TO KEEP YOU MOVING FORWARD.
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hile growing up, I was always involved in sports. At each level, the planning and goal setting became better and more focused — even though often it was more difficult. As a result, our team had more wins and I met personal goals with greater regularity. That was fun. You planned, practiced, played, kept score, and either won or lost. The following Monday, you celebrated the good and corrected any mistakes. Without a game plan and specific goals it’s impossible to see where you’ve been or where you’re heading. Starting a new year is an ideal time to get your business plan in order. If you don’t have one – you need one. If your plan hasn’t been updated in the last several months, it’s time to sit down and spend some quality time thinking about your strategies and how they will move you ahead this year. Below I’ve listed eight goal-setting strategies that ultimately should be reflected in your business plan. Your plan doesn’t have to be elaborate and long. The most important aspect is that it has to be specific and the following points should be built in. Be Specific: Set a precise goal, and make sure you can measure it. Success is in the details. Measure: If you can’t measure it, it’s not a goal. Measure
with dates, times, or amounts. When you do this, you will know how and why you have succeeded, and this will give you the direction and motivation to keep moving the ball forward. Be Realistic: It’s important to set goals that you can achieve. Appreciate the obstacles you must overcome and skills you’ll need to achieve a particular level of performance. Make Them Relevant: Don’t write goals for your banker, lawyer, or advisers. These are for you and your business. They are in place to help you succeed. Prioritize: Some goals are simply more important than others, and some need to be realized before you can move forward with others. Work on them in the right order. Write Down Goals: This helps you to be specific, helps you to measure, and helps you to prioritize your goals.
Acknowledge Success:
Hey, it’s OK to celebrate the singles and the home runs. That’s what this whole process is about. Plans and goals aren’t just for the beginning of the year. They are year-round documents that will help you manage your company, employees, and yourself. One of our company goals is to renew subscriptions by 25% before the end of January. If you like this magazine and would like to continue to receive it, you can help me reach one of my goals! Please renew your subscription at www.hvacrbusiness.com/ subscribe/ Thanks for reading this issue of HVACR Business.
HVACR Business Welcomes A New Editor In Chief We’re starting our New Year off with a new editor Tom Peric. Tom has a great deal of experience in our industry and the person I’ve selected to help HVACR Business hit our editorial goals. Here’s a little bit about Tom. He attended the American University on several academic scholarships, earning degrees in Communications and History. After graduating, Tom worked as a journalist in Washington, D. C., until moving to Cleveland, where he worked as an awardwinning reporter and editor on several daily newspapers and magazines. These included The Akron Beacon Journal and as business editor for the Morning Journal. Tom was the founding editor of HVACR Distribution Business magazine from 1998 to 2014. He then became editor of Heating, Air Conditioning Distributors International HARDI’s official publication, Distribution Center. Tom speaks Croatian and lives in Haddonfield, NJ, with his wife, Cheryl Federline. Tom’s passion and hobby is Jiu-Jitsu, winning a world championship in 2017. He is also the author of several books on martial arts, including Martial Arts: The Lessons. Please feel free to reach out and welcome Tom at tperic@hvacrbusiness.com. u
Adapt: The best teams make changes at half time; they adapt. If things aren’t working, it’s OK to change the approach.
HVACR BUSINESS
JANUARY 2024
5
MY PLATE’S OVERFLOWING WHEN LETTING GO IS NECESSARY FOR GROWTH IN BUSINESS
BY RYAN KALMBACH
I
magine this: working crazy hours, feeling overwhelmed, and not seeing much growth despite all the effort. My brother Michael and I were caught up in the chaos, bombarded with questions from our growing team. Stress was off the charts. We realized we were stuck in a rut, running things like a small mom-and-pop business, even micromanaging the choice of toilet paper brands. During the summer I would send my family on vacation without me so that I could spend more time working. Then, I realized finally – something needed to change.
The Wake-Up Call After realizing that we were following the same old playbook our parents used: work harder than everyone else and control every little detail, my brother and I had a conference. How could we do it better while loosening the reins? After a day of reviewing our business with my
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If you don’t trust the leader to make their decisions, you need to ask yourself why. Is it because you don’t believe in their capabilities or is it because you are having trouble letting go? mentor William Efird, he hit us with a reality check: “Is this what you want? Are you happy with the results?” Five years of the same routine, all of which didn’t lead to exponential growth, and we knew it was time for a new approach. The saying about insanity and doing the same thing over and over? It hit home.
the system that got us here the same one that could take us higher? In 2015, we started utilizing the Four Disciplines of Execution, shifted to Entrepreneurial Operating System (EOS) in 2017, and eventually moved to the Pinnacle Business Operating System.
Moving from Business to Intentional Business
Intellectually, we understood that we were the bottleneck to growth – notice that the neck of the bottle is always at the top. But emotionally learning to let go is much harder than the initial decision that it must happen. I’ll admit, I had some control issues (and probably still
Dr. W. Edwards Deming once said, “Every system is perfectly designed to get the result that it does.” That got us thinking – our business had a system, but was it intentional or just accidental? Was
HVACR BUSINESS JANUARY 2024
Learning to Let Go
do). EOS and Pinnacle are supposed to help leaders like us trust our teams more – easier said than done. Letting go of the sales leader role was tough for me. My identity was all wrapped up in it. Spoiler alert: I never fully let go, and it cost us a great leader.
Right People, Right Seats As we upgraded our “operating system,” we figured out who the “right people” were for us. Then, we defined what roles we needed, starting with the leadership team. This of course comes from Jim Collins’ seminal book, Good to Great – which discusses the idea of having the right people in the right seats. At first, Michael and I wore many hats. But eventually, we brought in leaders for sales, operations, and finance. It took the load off us and added energy and efficiency to our operations.
www.hvacrbusiness.com
Owning the Decision I remember a planning session where another team member and I argued loudly about a sales issue. Michael Erath, our Guide, stopped us and asked, “Who owns the decision?” We both stopped dead in our tracks and pointed at the sales leader. Erath then asked our sales leader, “Do you have all the information you need to decide?” And of course, the answer was “yes”. The key mindset we had to adopt is that these leaders own their functional responsibility which means they own the results and the decisions.
After a day of reviewing our business with my mentor William Efird, he hit us with a reality check: ‘Is this what you want? Are you happy with the results?’
MINDSET 3:
WE LEARN FROM FAILURE, NOT SUCCESS. Recently, a warehouse person knocked over some shelves with a forklift, costing us about $50,000 in damaged products. We turned it into a learning opportunity – reviewing what happened, how it happened, and what we needed to do to prevent it in the future.
MINDSET 1:
TRUST YOUR LEADERS TO OWN THEIR PART OF THE BUSINESS.
If you don’t trust the leader to make their decisions, you need to ask yourself why. Is it because you don’t believe in their capabilities or is it because you are having trouble letting go?
A-Players are Always Free Growing our leadership team meant dealing with the cost of new positions, especially at the leadership level. But we learned that A-players pay off. Their ability
response? “Why would I fire you when I just invested $5000 in your education?” Over the years I have learned that as you empower and entrust others, they will make mistakes – this is part of the learning process.
to get results is way more valuable than the cost difference from a B or C Player. This is exponentially true as you bring in expertise that allows you to focus your time on what you love and are great at.
me losing it when a child spilled milk at Thanksgiving – not exactly my best moment. We had to learn that mistakes are part of the deal as you empower others. It’s a learning process.
MINDSET 2: PLAYERS
Another now infamous story that comes from my dad is about one of our counterpeople who accidentally sold the wrong voltage unit to a customer who then proceeded to install it. The “smoke” got let out of the unit. The employee thought my dad was going to fire him. My dad’s
ARE ALWAYS WORTH IT Mistakes Happen I haven’t always handled mistakes gracefully. There’s a family story about
Address failures and use them as a tool for learning. • What happened? • How did it happen? • What do we need to do to fix it right now? • What can we learn from this? • What do we need to do to make sure it doesn’t happen again in the future? continued on page 8
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HVACR BUSINESS JANUARY 2024
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continued from page 7
This was a tremendous learning opportunity for all involved. We implemented forklift train-the-trainer training across all our locations and identified warehouses with racking that needed to be bolted down.
Decentralized Decision-Making Moving from a place where Michael and I made all the decisions to one where our front-line folks were empowered to make decisions, required a plan. Now, our decision-making checklist is very straightforward – partially adapted from the book Scaling Culture. 1. Is this good for the customer? 2. Is this good for the JSOG? 3. Are you willing to be accountable for this decision? We think policies can’t cover every situation, so we trust and empower the front line to decide. Here is a real-world example from our company. Recently, Damon Williams, Stockton Store Manager, made a
After a day of reviewing our business with my mentor William Efird, he hit us with a reality check: ‘Is this what you want? Are you happy with the results?’ judgment call. A new dealer had issues with the first two package units he installed. The first one had a bad inducer and there were none available anywhere, but Damon went the extra mile and discovered one at an alternate source. The second unit was DOA and Damon made the judgment call to swap the unit out with a new unit. This quick thinking helped our customer to look good in a difficult situation with their homeowner. This also helped to protect the equipment and Johnstone brands. Damon’s actions helped to build confidence and trust with a new dealer, which built the foundation for a long-term partnership.
MINDSET 4: TRUST
YOUR FRONT LINE TO MAKE DECISIONS. As we have grown, we have needed to constantly evolve our operating system.
In addition to a leadership team, we now have a mid-management team. We started to see misalignment and silos between departments. This past year we implemented a new planning process based on the concept of Direction, Alignment, and Commitment (DAC) from the Center for Creative Leadership. Shortly after our leadership team completes our quarterly or annual planning retreat, we pull together the entire leadership and mid-management team and: 1. Review each department’s quarterly results and accomplishments. 2. Review the direction the company is going in. 3. Each team creates their quarterly/ annual plan. 4. Each team presents its plan to the entire team - this gives everyone a chance to ask questions, give input,
and identify cross-department issues or constraints. In the ever-changing world of business, change isn’t just a choice – it’s how you survive. Trusting your team and letting those on the front lines make decisions isn’t just a fancy strategy – it’s the key to growth and success. Success means empowering people at all levels, using the model that works for your business. Our model might not be yours, but with some thought, you can use these tips to configure what works for you. We’re always reevaluating our system and mindset because what brought us here won’t always be the same thing that takes us further. u
As Ryan Kalmbach is the CEO of Johnstone Orion Distribution with twelve locations and 125 employees located in California. He has over 20 years of experience in operating a family distribution business. The core passion at The Orion Group is to partner with its customers and employees to help them to grow. Ryan can be reached at ryan.kalmbach johnstonesupply.com
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HVACR BUSINESS JANUARY 2024
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PRIORITIZE EVENTS THAT SHOW YOUR TEAM LOVE Company Culture vs. Financials BY RICHARD LEWIS
O
ne of the secrets to a successful business is a great company culture. Today almost threequarters of CEOs highlight culture as a top factor that positively influences financial performance — up from 26% in 2021. A strong culture can positively impact engagement, retention, productivity, and business performance.
A Good Company Culture Impacts Financial Performance One of the many things I’ve learned after 15+ years in business is the power a company’s culture can have on its financials. Highly engaged employees can lead to a 202% increase in performance. And with the latest data finding one in five businesses fail within the first year, it’s never been more important to put people first to elevate business success. There is no doubt that running a business is challenging and requires discipline, time management, and attention to detail. However, if you shift your mindset and look at it as an investment in people that will pay off financially – the research proves it – then you will realize it is also worth the time and investment to create a thriving culture. My suggestion – schedule events throughout the year to show employees appreciation. But do it in advance and make these events as important as if you were meeting with a top client. We all know that scheduling time to focus on team building can get deprioritized and often falls off the calendar. As leaders in business, we can change this and set a tone that puts people first and creates a healthy culture. www.hvacrbusiness.com
Team-building activities are a great way to bolster your company culture. At Redwood Services, I always remind our managers and leaders: You never have to ask permission to spend money on your team. And I mean it — because prioritizing people drives business (and financial) success.
Team Building Supports a Thriving Company Culture What is the best way to create a thriving company culture? Teambuilding activities are a great way to bolster your company culture. Activities should be booked in advance and set in stone to avoid rescheduling when “more pressing” items come up. My team found that planning and putting events on the calendar every December for the following year is the best way to go — especially when including partner companies. Below are culture-building events I’d recommend getting on the calendar now for 2024: • Annual Holiday Party The holiday party is an obvious one, but it can get lost in the shuffle or pushed off. Don’t let that happen. Holiday gatherings are important and a great time to connect at the end of the year. They also provide a non-threatening setting to get to know people outside of the formality of the office. • Regular All-Hands Meetings Quarterly or bi-annual (at a minimum) meetings to celebrate wins, share results, and recognize employees for their hard work are crucial. Regular meetings help
you stay connected to teams, champion their work, and keep a finger on the pulse of the business. If these meetings aren’t scheduled in advance, I find that they just don’t happen. • Off-Site Management Meetings Host off-site meetings for management and leadership twice a year. This allows the team to break away from day-to-day operations and focus on strategy — these can be very powerful sessions. What’s more, leadership will walk away inspired to take initiative and do their part to achieve the business’s goals. And that creates culture. • Family Picnic Days Like the holiday party, family picnic days are another way to show appreciation and bond with your team. We like to play lawn games, set up a volleyball net, and relax together outside the office. Bringing the entire family – including kids – into the mix helps create a different kind of culture. If you’re already holding these types of events, keep it up! For those who need a little help getting events on the books, my advice is to schedule now (even for events a year out) and start planning later. Your team will feel appreciated, and your business will benefit in the long run. And remember, if you’re having trouble getting employees to attend culture-building activities, the problem is the culture — not the activity. There is a deeper issue. If you find yourself ‘behind’ with culture, to the point where you are afraid people won’t come to a summer picnic, start with events that take place
during work hours. Where you — the business owner — are paying for it with your own time. Another option is to plan events that are family-friendly and when planning, it should be more fun for the family than the employee. If the spouse and children are actually excited by the activity, they will be pushing their spouse to attend. In an industry as competitive as ours, connection is everything. I believe this to be true and the awareness has helped me create a supportive and productive company culture. Nothing is more powerful than bringing like-minded, motivated employees and leaders together to bond as a team. It goes a long way to creating a culture that accelerates business success – bottom line, putting people first is paramount. u Richard Lewis is the CEO and Founder of Redwood Services – an investor in residential HVAC and Plumbing companies. Before forming Redwood, Richard spent 12 years in a variety of operating and leadership roles at The ServiceMaster Company, working with iconic service brands, including Terminix, TruGreen, Merry Maids, and more. Richard began his career as an Analyst at Bear Stearns with an MBA from Emory University and earned his B. A in Business from Yeshiva University. Learn more about Redwood Services: https://redwoodservices.com
HVACR BUSINESS JANUARY 2024
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THE AIM ACT CHANGES 2024 An Interview with Jim Cika
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BY HVACR STAFF e sat down with Jim Cika of The Independent Code Council to help educate the HVAC industry on all the AIM ACT phase-down changes happening now, and one big change coming in 2025.
What are the changes taking effect in 2024? This is a historic time because the second phase of the EPA’s program phase-down is taking effect. It’s about the production and consumption of the HFC refrigerants which is impacting the residential and light commercial HVAC markets only. It’s not affecting large commercial companies currently. That will come.
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The AIM Act outlines a 15-year phasedown schedule to reduce the production and consumption of HFCs by 85% on a weighted global warming potential (GWP) basis. As we all know, the first phase-down went into effect on January 1, 2022. At that time the EPA imposed a 10% reduction on HFC refrigerants. The AIM Act directs the EPA to phase down the production and consumption of HFCs to 15% of their baseline levels in a tiered manner by 2036 through an allowance allocation and trading program. The AIM Act outlines a 15-year phasedown schedule to reduce the production and consumption of HFCs by 85% on a weighted global warming potential (GWP) basis.
HVACR BUSINESS JANUARY 2024
Policy) and they’ve listed the refrigerants to be used as substitutes for HFCs. For this equipment – for HVAC for residents and light commercial – it’s the A2Ls only. That is what is driving this transition. It must happen.
In so doing, we are anticipating a big price increase on the HFC refrigerants, and the availability may come to a crawl in some locations.
Are there any workarounds to avoid higher prices or any possibilities of exemption?
For those who have equipment that uses the HFCs, will they still be able to find it?
No, unfortunately with the EPA regulations, it’s mandatory. We need to reduce those levels to help the environment. We eliminated the chlorofluorocarbons in refrigerants which helped to eliminate the ozone hole. But in terms of global warming potential, the HFCs are high global warming potential refrigerants. That is why this phase-down is underway.
It will be harder to find, and it will be expensive. People may think that there are other refrigerants out there they can use. Unfortunately, the EPA has its SNAP program (Significant New Alternatives
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Also, there is another wrench to throw into the mix, and that’s the building codes. The problem for folks, and it will be an issue, is that the 2020 building codes as well as earlier iterations, don’t allow A2L refrigerants to be used for human comfort use – residential heating/ air and light commercial. The 2024 codes have been finalized. They address the A2Ls and allow for these applications, but it’s up to all the local jurisdictions to get to that level of code coverage. That’s where The International Code Council (ICC) as well as other partners have been integral in trying to work together to raise awareness to get changes made in local regulations. We hope to eliminate any hurdles or problems associated with that or at least bridge the gap to information.
What should company owners do to prepare? The first thing I would recommend to anybody, be it the business owner or customers, is to reach out to their local building officials and find out exactly what steps to take to address these refrigerants.
We eliminated the chlorofluorocarbons in refrigerants which helped to eliminate the ozone hole. But in terms of global warming potential, the HFCs are high global warming potential refrigerants. That is why this phase-down is underway. codes and one focused on all the training and resources, including the equipment information, information about the refrigerants, and more. The plan is to interlink – we’re working on that now.
Talk about the pros and cons of A2Ls. The A2Ls are very similar to the HFCs in performance. So, the owners of the equipment aren’t going to see much change as far as performance. I’ve heard anecdotally that in some cases the A2L is a more efficient refrigerant. So long term, that would be a lower cost. That is a pro. But the main pro is that these new refrigerants do less damage to the environment. Again, that is what drove this – the ability to lower global warming potential.
Each jurisdiction has the authority to handle the transition the way they deem appropriate for the safety of their residents. Some jurisdictions have launched legislation to stop these actions, and others like Georgia have added amendment codes. So, there is a lot to unpack.
The cons – A2L is slightly flammable which is driving labeling requirements. And it’s more expensive in the short term.
Other than the EPA, is there a central hub where owners can reference all the updates and resources?
Going back to an earlier comment, contractors need to get educated on how to approach the building officials in the local jurisdictions who can set penalties wherever they like.
At the ICC we’ve developed a hot topics website where you can find everything including the latest updates. We’ve put resources on our website that outline the changes in the code – labeling requirements, ventilation requirements – things that need to be addressed, leak detection and alarm systems, etcetera. Also, we have partnered with AHRI who are launching a page dedicated to AIM as well. So, as of this month, the ICC and AHRI, have dedicated pages with all the information. I’ve been working with them and some other industry partners to develop dedicated industry sites for all contractors. There will be two sites, one focused on
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What do we know about penalties, inspections, and potential issues if noncompliant?
The fines will vary based on jurisdiction. It’s up to owners to get acquainted with the fines for code violations from their building officials. In certain areas, if something is changed without a permit, some jurisdictions will make the contractor remove the equipment, and start over. You can imagine the cost of doing that is going to be high. But again, the jurisdictions have the authority to handle that as they deem fit for the areas that they cover. Back to the CFCs and HCFs – those were phased out, and illegal now completely. Once these are produced and, in the market,
they can stay there as long as it doesn’t leak into the atmosphere.
What Is the best way to explain changes to customers? It’ll probably be a while before people want to change out their HFC equipment because it hasn’t been in the market that long. It’s relatively new from the standpoint of refrigerants. It’s already getting expensive for the service contractors to get it and it’s going to make it exponentially higher for the customers to get it. You can keep your equipment as long as you want. The EPA is not saying you must replace your equipment. Unfortunately, a lot of these HFC systems are young, so they can be out there for another 20 years or so. The main thing we need to stress is that the 2021 codes and earlier don’t even allow these A2Ls to be used. It is vital to reach out to the local building officials if they have concerns. Lastly, there are storage changes because the A2Ls are flammable, so contractors need to be aware of that as well. With flammables there are storage implications for dealers and contractors – not so much on their trucks when they’re going out to a site, but if they’re storing refrigerants in a building. There are limitations on the equipment that can be in the room. For instance, you can’t have a boiler in there that’s going to have a hot surface temperature near the product. There are also requirements for ventilated shafts for refrigerant piping in light commercial.
Who’s watching? Are inspectors going to come randomly inspect a warehouse?
inventory levels – this will impact the contractors, dealers, and distributors. It greatly affects the PTAC and window units. Regarding self-contained systems that go out the door ready to plug in and use. You cannot manufacture those after January 1, 2025. You can’t import, manufacture, or distribute them. They’re done. They can’t have HFCs. This is important. This just came out – published in the Federal Register on October 26th. It will have a major impact if you’re servicing hotels but also on split systems as well. Again, this is not for residential, only light commercial – but you cannot install a new system that operates on HFCS. After January 1, 2025, you can repair any equipment you have, if you need to replace the condensing unit, but you cannot install a new self-contained HVAC system in a building after January 1, 2025. It is a very important change and it kind of happened very quickly. That is certainly one that your readers may not know. It just happened! u
Jim Cika is director, PMG technical resources for the International Code Council, where he serves as a subject matter expert to the plumbing, mechanical, fuel gas and swimming pool & spa codes. He represents the Code Council in federal and state coalitions, task forces, committees, and councils where expertise in PMG technical matters is required. Cika has a degree in Mechanical Engineering from the Georgia Institute of Technology and started his career as an HVAC design consultant. In addition, he has over 20 years of experience as a chief engineer responsible for regulatory, product standards, building code and product engineering matters for manufacturers of water heating and space heating appliances.
Well, you are hinting at what’s coming for next year. The EPA just added another rule at the end of October. Regarding
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BUSINESS INSIGHTS »
NEW REFRIGERANT
TRANE’S TAKE
What dealers can do today to prepare for the industry transition to low-GWP refrigerants
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eginning January 1, 2025, the U.S. Federal Government will require residential HVAC dealers to install equipment with a Global Warming Potential (GWP) of less than 700. This comes with an introduction of A2L refrigerants, including R-32 and R-454B.
HVACR Business spoke with Mark Woodruff, senior product manager at Trane Residential, about what dealers should consider now to successfully navigate the refrigerant change. Woodruff shared these steps to support current and future customer needs safely and to ensure seamless installation and servicing of impacted residential HVAC equipment through the product phase-out period.
Educate Yourself
OEMs will continue to make educational resources readily available to keep dealers informed on regulatory changes, product phase-in/out timelines, and more. Take advantage of these transition playbooks, consistent communications, training, Q&A sessions, and consumer, sales, and technical literature to stay versed and increase confidence around the new refrigerant nuances.
New Versus Old
While there are some obvious changes that are required when using a new refrigerant (such as new compressors, thermostatic expansion valves, etc.), the most significant difference for new equipment will be that most OEMs will include some form of sensor and control that will detect refrigerant leaks. These are called refrigerant detection systems (RDS) and are needed for any refrigerant coils that are within the indoor airstream of the home. Examples would be a furnace coil, an air handler, or the indoor section of a packaged unit. As part of the safety requirements for the future A2L refrigerants, all manufacturers, including Trane Technologies, will introduce an RDS. In general, an RDS must be applied when there are more than four pounds of refrigerant in the system, and that includes the factory charge plus any charge added during installation. This means that any air handler, furnace coil, or packaged unit with four or more pounds of refrigerant charge must have an RDS, including third-party furnace coils. For simplicity, Trane has decided to include the sensor and mitigation on all residential air handlers and cased coils. That way the dealer does not have to charge the system to determine if they need to add an RDS based on system charge. For packaged units that are charged at the factory, all units that ship with more than four pounds will include factory-installed RDS systems.
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HVACR BUSINESS JANUARY 2024
Mark Woodruff
Senior Product Manager 903-245-7953 www.trane.com/residential/
FOLLOW UP (CTA): FOR ADDITIONAL INFORMATION ON TRANE RESIDENTIAL, https://www.trane.com/ residential/en/for-dealers/
Because these new A2L refrigerants have different handling requirements than what has existed in the past, new product labeling and markings will be used to help installers and service technicians differentiate these units. In Trane’s case, service ports and line set connections will have highly visible red markings to note that the unit has A2L refrigerant.
Inventory Management As with previous phase-outs, the supply of R-410A refrigerant will be reduced over time. In the past, dealers have been able to field convert units (most commonly indoor units) from R-22 to R-410A using a TXV or orifice kit to accommodate the different refrigerant expansions. However, in the upcoming transition, it will not be possible to perform a field conversion of an existing unit to use an A2L refrigerant because those older systems are not rated for that refrigerant type. Systems must be rated for the refrigerant type they use to comply with UL/CSA safety regulations, where the design refrigerant must be present on the factory nameplate for both indoor and outdoor units.
Leak Detection & Mitigation The new refrigerant is heavier than air and will pool in the lowest point, so to effectively detect a refrigerant leak, the sensor needs to be mounted in the lowest part of the unit housing the evaporator coil. If a leak is sensed, detection de-energizes the compressor and other electrical devices, then starts the indoor fan to disburse the refrigerant. However, it does not require calibration of the sensor during its life, as it is intended that the sensor works for the unit’s life or 10 years.
Update Your Toolkit Working with mildly flammable refrigerant calls for new tooling to service the equipment. Impacted tooling includes A2L compatible gauges, recovery machines, vacuum pumps, and leak detectors. It will be important
to only use A2L compatible tools when handling A2L systems. Trane Supply is preparing to support A2L refrigerants and is currently offering a wide array of A2Lcompatible products from trusted partners Fieldpiece and Yellow Jacket.
Storage, Handling & Disposal
A2L refrigerant storage and transportation are governed by the Department of Transportation, the National Fire Protection Agency, and local codes. Always check with your local codes for warehouse storage requirements in your area. Installation and service trucks cannot contain more than six 25-pound cylinders of A2L refrigerants. The cylinders must be stored so the pressure relief valve is positioned on the vapor (top) side of the tank. This can be accomplished with refrigerant racking systems that are upright or horizontal. For additional safety precautions and possibly a best practice, some companies are modifying their work vans. They are isolating the driver from the back of the van, adding refrigerant detector sensors, and adding ventilation to keep the van cooler which will allow refrigerant to vent and not pool if a leak occurs. But this is not a requirement, just an enhanced safety practice. Refrigerant cylinders should be stored at temperatures below 125 degrees, but this requirement is not new with A2L refrigerants. This 125-degree temperature applies to R-22 and R-410A cylinders as well. Refrigerant recovery cylinders can be returned to the part centers where refrigerant is purchased.
A Greener Incentive
Transitioning to low GWP refrigerant is part of Trane Technologies’ commitment to a more sustainable future. For customers opting to upgrade to a more environmentally-friendly system like a heat pump with the new low global warming potential refrigerant, it’s beneficial to share information on tax credits, incentives, and financing options available to them for qualified products through the Inflation Reduction Act or through local rebate offers. u www.hvacrbusiness.com
© 2023 Trane. All Rights Reserved.
THE DEALERS’ CHOICE. WE’RE PROUD TO MAKE THE BEST, MOST TRUSTED1 SYSTEMS IN THE INDUSTRY—AND EVEN PROUDER TO BE WORKED ON B Y T H E B E S T DEALERS IN THE WORLD. WE’RE STRONGER TOGETHER BECAUSE WE RUN TOGETHER.
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Trane received the highest numerical score in the proprietary Lifestory Research America’s Most Trusted® HVAC Brand study for years 2015, 2016, 2017, 2018, 2019, 2020, 2021 & 2022. Study results are based on experiences and perceptions of people surveyed. Your experiences may vary. Visit www.lifestoryresearch.com.
Learn how to become a Trane dealer.
ALIGNING EMERGING REFRIGERANTS WITH EQUIPMENT OPTIONS
How the changing refrigerant landscape is shaping refrigeration equipment decision-making
BY ANDRE PATENAUDE, DIRECTOR, SOLUTION STRATEGY AT COPELAND
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fter years of uncertainty about the refrigerant transition, many retail supermarket, convenience store (c-store), and restaurant operators find themselves at a historic crossroads. The passing of the American Innovation and Manufacturing Act (AIM Act) in 2020 has led to recently adopted federal regulations that authorize the hydrofluorocarbon (HFC) phasedown and mandate the use of new lower-global warming potential (GWP) substitutes. In addition to the AIM Act, the transition to lower-GWP refrigerants is also underway within member states
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Recent refrigerant regulations and updated safety standards are helping to shape the future of commercial refrigeration. Under the authority of the AIM Act, the Environmental Protection Agency (EPA) published a Technology Transition rule in 2023 that mandates new GWP limits and higher-GWP HFC restrictions across HVACR sectors. of the U.S. Climate Alliance. As federal regulations progress over the next several years, the HFC phasedown will impact the entire commercial refrigeration
HVACR BUSINESS JANUARY 2024
supply chain — and essentially prohibit the use of higher-GWP HFCs in new equipment. Continuous reductions in HFC supplies are expected to raise
market prices for legacy refrigerants, impacting operating costs for the existing installed base of HFC equipment. Migrating to lower-GWP refrigerants has become a critical initiative for retailers working toward sustainability goals and defining the path to net zero operations. In addition to GWP ratings, retailers must evaluate the impact of energy consumption and total greenhouse gas (GHG) emissions in their nextgeneration refrigerant decisions. As these efforts become top priorities, many retailers are leveraging their progress along their sustainability journeys as a competitive differentiator.
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Whether you’re evaluating R-744, R-290, or an emerging A2L for future refrigeration systems, each has unique characteristics, stipulations, and regulatory mandates that, to some degree, dictate their probable end uses and applications. But with new refrigerant alternatives come new equipment and system architectures; questions persist about operational costs, refrigeration reliability, and application safety. Many operators are unsure about which refrigerants will be used in which equipment types, or which types of equipment will be suitable for their future store footprints. Fortunately, the refrigerant landscape is shaping up along mostly predictable lines, as emerging lowerGWP alternatives are set to fill distinct commercial refrigeration niches. From smaller-charge, self-contained units to condensing units and remote systems to large supermarket racks, A3 (R-290), A2L (e.g., R-454A, R-454C and R-455A), and A1 CO2 (R-744) refrigerants each have their place.
NEW REFRIGERANT REGULATIONS PROVIDE GUIDANCE & CLARITY Recent refrigerant regulations and updated safety standards are helping to shape the future of commercial refrigeration. Under the authority of the AIM Act, the Environmental Protection Agency (EPA) published a Technology Transition rule in 2023 that mandates new GWP limits and higher-GWP HFC restrictions across HVACR sectors. In the retail food sector (i.e., commercial refrigeration), GWP limits, refrigerant restrictions, and manufacturer and/or installation compliance dates are determined by sector.
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Self-contained refrigeration: 150 GWP limit as of Jan. 1, 2025
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Food processing and dispensing equipment (< 500 grams of charge): 150 GWP limit and manufacture compliance as of Jan. 1, 2027
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Food processing and dispensing equipment (> 500 grams of charge): cannot use any of the 38 restricted refrigerants and manufacture compliance as of Jan. 1, 2027
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Ice cream makers (within the scope of UL 621, 7th edition): cannot use any of the 38 restricted refrigerants and manufacture compliance as of Jan. 1, 2027
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Retail food supermarket rack systems (> 200 lbs of charge): 150 GWP limit and installation compliance as of Jan. 1, 2027
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Retail food supermarket rack systems (< 200 lbs of charge): 300 GWP limit and installation compliance as of Jan. 1, 2027
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Retail food remote condensing units (> 200 lbs of charge): 150 GWP limit and installation compliance as of Jan. 1, 2026
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Retail food remote condensing units (> 200 lbs of charge): 300 GWP limit and installation compliance as of Jan. 1, 2026
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Remote refrigerated food processing and dispensing equipment: cannot use any of the 38 restricted refrigerants and installation compliance as of Jan. 1, 2027
In self-contained and remote automatic commercial ice machines (ACIMs), compliance is determined by the ice production method (i.e., batch or continuous) and daily harvest volumes.
Emerging Equipment and System Architectures
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Self-contained ACIMs of smaller volumes (≤ 1,000 lbs of batch type; ≤ 1,200 lbs of continuous type): 150 GWP limit and manufacture compliance as of Jan. 1, 2026
From small to large applications, the migration to the next generation of lower-GWP substitutes will take place along the lines of greatest compatibility per equipment or sector. Whether you’re evaluating R-744, R-290, or an emerging A2L for future refrigeration systems, each has unique characteristics, stipulations, and regulatory mandates that, to some degree, dictate their probable end uses and applications.
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Self-contained ACIMs of higher volumes (> 1,000 lbs of batch type; > 1,200 lbs of continuous type): cannot use any of the 38 restricted HFCs specified in the rule and manufacture compliance as of Jan. 1, 2027
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Remote ACIMs: cannot use any of the 21 restricted HFCs specified in the rule and
• R-290 in stand-alone equipment Already listed as acceptable by previous SNAP Rules 17 and 21, R-290 continued on page 16
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installation compliance date of Jan. 1, 2027 In addition, the EPA has recently proposed new refrigerant options under its Significant New Alternatives Policy (SNAP) program, SNAP Rule 26. This proposal includes listings for the following lower-flammability A2L refrigerants: HFO-1234yf, R-454A, R-454C, R-455A, R-457A, R-516A, and HFO-1234zeI — as well as higher charges of the higherflammability A3 (R-290, aka propane). All proposed listings are defined as “acceptable, subject to use conditions” per the requirements of the Underwriters Laboratories (UL) 60335-2-89, 2nd edition product safety standard, and ASHRAE 15. If approved, the SNAP 26 proposal would enable A2Ls to be used in much higher charges than R-290 (i.e., pounds compared to grams), which will make them likely substitutes for legacy HFCs such as R-404A and HFC-134a. The EPA’s recent rulings and proposals lay the groundwork for the adoption of A2Ls in the U.S. while expanding the roles — and refrigeration capacities — of R-290 in stand-alone equipment. By establishing parameters that collectively take GWP rating, equipment type, and charge size into account, these regulations define the path forward for the future of commercial refrigeration.
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continued from page 15
has established a niche within commercial refrigeration. Today, it is widely used in commercial ice machines, water coolers, low-temperature refrigeration, and stand-alone equipment — all with a 150g charge limit.
It’s important to note that A2Ls cannot be used as drop-in replacements in existing HFC systems. All new refrigeration equipment and systems must be designed and qualified to use A2Ls per applicable safety standards.
SNAP Rule 26 has proposed increasing charge limits up to 300 and 500g, which would support expanded application and adoption of R-290 in stand-alone applications — such as closed-door and open reach-in cases found in supermarkets, restaurants, c-stores, and dollar stores.
Confident Refrigeration Decisions That Align with Your Operational Goals In our recent TCO study, the results of which will be published soon, we compare the relative costs of leading refrigerant and system options within the context of various U.S. climate zones and regional installation considerations. We’re leveraging this data to help retailers evaluate all factors contributing to system costs — including Capex (i.e., equipment costs), maintenance, and energy consumption throughout a system’s 20year lifecycle — and determine which systems may meet their operational and sustainability goals in various store locations.
If approved, larger R-290 charge limits would significantly raise stand-alone system capacity up to 4 horsepower (HP), thereby increasing the refrigeration potential to even include smaller walk-in units. Currently, due to the 150g charge limit, larger-capacity R-290 cases must be supported by multiple condensing units, compressors and refrigeration circuits. Increased charges would simplify this scenario by supporting more system capacity with a single compressor. Stand-alone R-290 units may be simply air-cooled, discharging condenser heat into the retail space; multiple units can be connected to a shared, chilled water loop to remove excess case heat from the stores.
• A2Ls in stand-alone and remote systems Compared to R-290, A2L refrigerants have the potential to play important roles within a wider range of equipment and systems, from stand-alone units to remote systems. Higher A2L charge limit allowances and relative capacities will enable their use in higher-capacity applications within the 0 to 60 HP range. At the smaller end of the spectrum, A2Ls offer increased charge limits than R-290, enabling larger equipment capacities and refrigeration loads in standalone equipment — while delivering improved coefficient of performance (COP) for more efficient overall per-unit cooling capacity. Today, remote systems — such as outdoor condensing units that support
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performance and energy efficiency, regardless of climate and/or installation conditions. The E3 supervisory control for CO2 applications was designed specifically to address retailers’ operational concerns, simplify system start-up, and automate system management.
walk-in coolers, freezers, and mini racks for distributed architectures — almost exclusively use legacy HFC refrigerants. At higher charges and capacity ranges, A2Ls deliver a much-needed, lowGWP alternative in these distributed applications. It’s important to note that A2Ls cannot be used as drop-in replacements in existing HFC systems. All new refrigeration equipment and systems must be designed and qualified to use A2Ls per applicable safety standards.
• CO2 in centralized rack systems CO2 refrigeration has been a proven food retail solution on the global stage for more than two decades. With zero ozone depletion potential (ODP) and a GWP of 1, the environmentally friendly refrigerant has long been EPA SNAP-approved. Early adoption of CO2 transcritical booster technology began in recent
HVACR BUSINESS JANUARY 2024
decades with few sustainably minded retailers; today, adoption is accelerating rapidly among U.S. food retailers. In the absence of a true regulatory mandate, misperceptions about its high-pressure characteristics, system complexities, and operational costs have hindered its adoption. Today, as the total cost of ownership (TCO) for CO2 systems approaches parity with traditional HFC systems, their many sustainability benefits and potential for heat reclaim have made them more appealing to the U.S. market. The emergence of design strategies that can optimize system efficiencies per climate zone — combined with technological advancements that simplify and automate system operation — is making this a proven, viable centralized architecture for large and small retailers alike.
To learn more about lower-GWP refrigerants and emerging system architectures — and make more informed and confident decisions about your future equipment selections — please visit our E360 resource hub. u
Andre Patenaude is responsible for supporting system-related innovation and leveraging Copeland’s global cold chain to drive adoption of integrated solutions in North America. He most recently led marketing efforts pertaining to Copeland’s food retail and chiller markets. Prior to that, he had managed Copeland’s global CO2 development. Andre has more than 35 years of industry experience in sales, marketing, training and business development of HVACR system architectures and applications with compression and component technologies. He is a certified Mechanical Engineering Technologist C.E.T. (since 1984), and is a member of AHRI, ASHRAE, and RSES.
Copeland has led the research and development of design optimization strategies that maximize system
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PROVIDED BY KEVEN PRATHER, CFBS
SUCCESSION PLANNING
Is a Family Transfer Right for Your Business?
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hen planning for the future of your business, you have a wealth of options related to who should continue to run it. However, many business owners’ plans fall short simply because they are unaware of the many options available to them and the pros and cons of each path.
necessary when transferring ownership to your family. Values-Based Goals: Sometimes family transfers run amok if your goals are not in line with those of your family.
None of these challenges are insurmountable unless you fail to recognize the existence and significance of each, and you fail to create a written and comprehensive road map to address them. But if you stay one step ahead in your planning, you will be able to transition well.
One common exit path is a family business transfer. This allows you to keep the business in the family and still have an attachment to the business. You may not get as much money for this type of transfer, and it could take longer to complete, but there may be real benefits as well.
Benefits of a Family Business Transfer Many benefits come along with transferring the ownership of your business to your children or someone else in your family. Financial Security: If you properly
structure the business transfer, you may be able to receive the amount of income you need and want by the end of the transition process. Further, you can design the transfer so that you retain control of your business during the transfer period and until you receive all of the money you want. You might achieve this benefit through ongoing involvement with the company, participation in profits as an owner, and/or sale of ownership. Time: If you are not ready to leave the business today, you can structure the transfer to the next generation to take 5–10 years, depending on your goals and objectives. You can create a custom transition that addresses the abilities of the successor owners and the readiness of the business.
The timeline for this path gives you time to slow down, develop new interests, and prepare yourself and your business for life after the transfer. It also gives you time to collect income from salary, perks, and
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One common exit path is a family business transfer. This allows you to keep the business in the family and still have an attachment to the business. distributions while maintaining control. Taxes: Using a strategy customized to family transfers, you may be able to minimize certain taxes. You might create a balance among income tax, capital gains tax, and gift and estate tax that fully leverages multiple tax planning techniques. You may be able to achieve a better outcome with a thoughtful combination of planning strategies. Values-Based Goals: Owners often choose to transfer their businesses to children because, if done correctly, it achieves so many of their values-based goals. From the role of the business in the community to taking care of future generations, family business transfers can help to achieve these types of goals in ways that a traditional sale might not.
Challenges of a Family Business Transfer Although there are some obvious perks to keeping the business in the family, you should be aware of the challenges as well before you make your decision.
We strive to help business owners identify and prioritize their objectives concerning their business, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience. u
Keven P. Prather is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. Call 216-592-7314, send an email to kprather@financialguide. com or visit transitionextadvisors.com.
Financial Security: Basing a business transfer on your family ties, especially ties to someone who can’t or won’t run the business properly, is a huge threat to your financial security and the very existence of your business. Time: If you want to leave your business within a year, remember that getting paid full value for the company from children generally takes several more years than a sale to a third party or Employee Stock Ownership Plan (ESOP). Taxes: Without careful tax planning, you could pay far more in taxes than
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SCHEDULE PERIODIC REVIEWS OF DISTRIBUTOR RELATIONSHIPS Is your team value-driven right down to the distributors?
BY JACOB HALTER
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urturing and sustaining robust relationships with distributors is among the most important cornerstones of success when growing an HVAC business year to year or when planning for expansion. In terms of inventory costs – these relationships are key, allowing for negotiating and monitoring if you have courted these partnerships well.
Nurturing Distributor Relationships Is the Cornerstone of Any HVAC Business Essentially, your distributor partnerships become some of your most strategic alliances to sustain a strong foundation and cost bottom line. Additionally, these relationships will provide an array of resources and support – vital for amplifying growth trajectories. At Eco Plumbers, Electricians, and HVAC Technicians, we work hard to build strong and trusting relationships with our distribution partners. Here is some advice on how to ensure these relationships are reviewed and nurtured well as part of your regular business growth.
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Contrary to what people often think, checking in on distributor relationships doesn’t only have to be about fixing problems. Effective Communication for Successful Distributor Partnerships Pick up the phone. At their core,
successful distributor relationships depend upon effective communication. This exchange fosters a partnership that goes beyond transactional interactions. When communication begins to break down, operational functions start to crumble. Regularly checking and evaluating these relationships is important. If and when communication breaks down, it causes problems throughout the partnership, affecting different aspects of operations and how things work. But no partnership runs smoothly all the time. Have a list of contacts to whom you can reach out. Trusting a dependable point of contact at each supplier is crucial for quickly solving any issues that arise. When there is a problem, it’s wise to avoid going back and forth via email as things can get misread for tone. Pick up the phone and deal
HVACR BUSINESS JANUARY 2024
directly with your contact. The importance of a dedicated point of contact within the supplier’s company can’t be stressed enough. Whether it is an inside or outside sales representative, consistency is instrumental in addressing issues surrounding inventory management, pricing discrepancies, and logistical challenges.
Who Are Your Distributors and Why? Reduce the number of distributors. Our inventory team has
more time to build the relationship since moving the bulk of our inventory needs to the fewest number of distributors possible from negotiations held early in the year. We work closely with our supplier representatives to exchange information daily about product updates, orders, supply chain issues, and delivery confirmations. These are regularly scheduled updates on certain days and are adhered to by all parties.
Regularly Scheduled Review
Schedule Meetings. Contrary to
what people often think, checking in on distributor relationships doesn’t only have to be about fixing problems. Scheduled engagements and planned meetings, like talking to outside sales representatives every week as well as monthly discussions with distributor management, provide an organized and structured time for multifaceted conversations. Your distributor needs contractors like you to help grow their business. Make sure to hold their feet to the fire when it comes to meetings. If they are not willing, perhaps you need to seek a different distributor. Eco meets with our regular distributors every week as well as other partners as needed. During these meetings, we pay close attention to the always-changing market trends. The demand for products is influenced by how the market is shifting, so it’s important to talk about it proactively to ensure a synchronized supply chain. Also, we have discussions about how well we’re doing, pointing out what’s good and where we can get better. This can help create a positive environment for working together and growing together.
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As a regular practice for our team – we check our contracts consistently to make sure that agreed-upon prices, discounts, and rebates support both of our goals to grow together. This strategic alignment often results in better and longer-lasting partnerships and mutual growth. Review contracts. As a regular
for our team – was a clear example of why these relationships are so important. This exemplified their commitment to enhancing our workplace culture! We value our partnerships, but we have also worked hard to nurture and consistently review our list of distributors, so it continues to be mutually beneficial for all.
Work with flexible distributors.
Aim for a Shared Vision
practice for our team – we check our contracts consistently to make sure that agreed-upon prices, discounts, and rebates support both of our goals to grow together. This strategic alignment often results in better and longer-lasting partnerships and mutual growth. Being able to adapt quickly is very important as a business grows and changes. When our way of doing things inside the company changes, our suppliers need to adjust too. As we grow at Eco, our operational needs continue to change, so we are appreciative to have suppliers who work closely with our ever-evolving business. A specific example from our experience shows how logistical constraints triggered a shift towards overnight deliveries. The responsive and accommodating approach from our supplier showed their adaptability by making this happen within a week, allowing us to increase our operational efficiency almost immediately.
Training Demos & Well-Equipped Facilities Training. Training. Training.
The true essence of these partnerships goes beyond pricing and availability. Distributors have a wealth of resources capable of boosting a business’s capabilities. Distributors that are committed to helping their nurtured list of business rosters grow, will have well-equipped training facilities. When leveraging good rapport with suppliers and vendors, your partners should be more than willing to extend support in various ways. This can include anything from offering technician training as mentioned – and you should expect at least this or moving on to another partner – and they may also offer specialized promotional offers like helping to coordinate events for the team. For instance, Eco’s Employee Appreciation Day was organized by our distributors and it showcased their important role in helping coordinate multiple vendors for the event. Their participation in creating the event from organized raffles, and giveaways, down to securing a food truck www.hvacrbusiness.com
Our successful distributor relationships rely heavily on consistent communication and a shared vision of what we expect from the partnership. These are not merely transactional relationships; rather, they are collaborative relationships aimed at mutual growth. A commitment to transparency when it comes to expressing needs and objectives, creates a good collaborative relationship. In conclusion, the significance of nurturing and sustaining distributor relationships in business is crucial for providing substantial support and mutual growth. The continual development and reassessment of these partnerships remain key in navigating the ever-evolving landscape of business expansion. Eco Plumbers, Electricians, and HVAC Technicians have learned it firsthand as we have grown. Whether you are just starting or have been in business for decades, solid, nurtured, and regularly reviewed distributor relationships are some of the most important pillars of your business foundation! u
Jacob is the director of inventory control at Eco Plumbers Electricians and HVAC Technicians in Columbus Ohio. He has over a dozen years of experience and can be reached at jacob@geteco.com
HVACR BUSINESS JANUARY 2024
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FINANCE
BY RUTH KING
Achieve Your Freedom with Your Financially Fit Business Part 3
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ast month I gave you the first step: Know how you generate revenue and maximize it. Now, let’s move to the second step.
Then, there are specific overhead expenses that are not shared. For example, the installation department should not be responsible for the service manager’s salary and vice versa. These people spend 100% of their time in a specific department.
STEP 2: Know your overhead cost per hour for each department.
Likewise, truck expenses. The truck costs for installers should go into the installation department, etc. The only vehicle expenses that should be shared are those for owners, operations managers, and others who do not work in a specific department.
To determine how much profit drops to the bottom line for each billable hour, you must calculate your overhead per billable hour. • How to calculate the overhead cost per hour: Determine for every billable hour or revenue-producing hour, how many dollars you need to add to cover the overhead cost of the department. • For smaller companies where a field person performs service, maintenance, and replacement, simply calculate the overhead cost per hour for the company. Formula to calculate the overhead cost per hour calculation for smaller companies: Total overhead divided by the number of billable hours.
Overhead Payroll Costs vs. Cost of Goods Sold Make sure that your overhead payroll costs include only overhead personnel. Field labor costs should be in the costs of goods sold. If they are in overhead, make the payroll corrections necessary to put them in the cost of goods sold. Otherwise, your overhead cost per hour will be inflated.
Departmentalization Departmentalization is important when one field person works in only one department. You have technicians who don’t do installation and vice versa except on rare occasions. Then you can see which departments are the most profitable based on their overhead cost per hour. Different departments can have different overhead costs per hour. Generally, the highest overhead costs per hour are for service and maintenance. The lowest
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If materials or services are bought only for one department then that department gets 100% of that expense. New construction is generally word of mouth and referral marketing. This department should not share in advertising expenses because they don’t benefit that department. Marketing and advertising expenses should be shared among the departments that benefit from these expenses.
To determine how much profit drops to the bottom line for each billable hour, you must calculate your overhead per billable hour. overhead costs per hour are for new construction. Here’s how to calculate your overhead cost per hour for departments: There are two types of overhead costs: space-related and people-related. Space overhead. Five things cause space expenses: rent, utilities, building maintenance, building taxes, and building insurance. These include security systems, snow removal (in the North), landscaping, janitorial services, and other building maintenance. Productive Space. Determine the total productive space used by each department. Productive space is the space occupied by either people or things related to a revenue-producing department. Do not include common areas such as a conference room, kitchen, and bathrooms or space occupied by accounting and other overhead-related people.
HVACR BUSINESS JANUARY 2024
If the warehouse contains parts and materials for several departments, make an educated guess as to the square footage for each department. People overhead. Every overhead item is not included as space overhead is related to people. For example, the more people you have, the more office supplies you have. The more people you have, the more telephone calls you have.
If you know the exact amount of time that somebody spends in a particular department, then take that percentage rather than the overall estimate. For example, you, as the owner, should estimate the amount of time you spend in each department. One of my clients spends 75% of his time in one department. This is the department that he personally manages. So, 75% of his payroll costs go into that department’s overhead. The other departments split the remaining 25% of his time for oversight.
Once you know the total amount of overhead for each department, then calculate the overhead cost per hour by dividing each department’s overhead by its revenue-producing labor hours. This value will be critical to determining proper pricing, the next step of a financially fit business. Next month I will address the question: what if the overhead cost per hour is too high? This will be the second part of the overhead costs section before moving on to part 4 of the financially fit series. u
Ruth King has more than 25 years of experience in the HVACR industry and has worked with contractors, distributors and manufacturers to help grow their companies and become more profitable. Contact Ruth at ruthking@hvacchannel.tv or at 770-729-0258.
AVAILABLE ONLINE Visit: www.hvacrbusiness.com/documents/
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PRODUCT FOCUS »
ADRIAN STEEL To accompany our 16” Deep Shelving, we developed two styles of pipe and conduit storage. First, Adrian Steel eliminated wasted space around the wheel well with an 8” shelf option keeping loose pipe, fittings, and other cargo from rolling around the van floor. They also created a revolutionary underthe-shelf conduit tray to prevent slips, trips, and falls by pulling the conduit off the roof of the van and securely storing your conduit under the shelves for easier and safer access! Whether you have one commercial vehicle or thousands, we can help you get the most out of your fleet. https://www.adriansteel.com/ products/accessories/
DAIKIN
Daikin fan coils are distributed heating and cooling equipment designed to condition the air space they serve. The unit can either be exposed or recessed. An exposed unit features a painted metal cabinet. A recessed fan coil unit is covered with a wall plate or uses ductwork connected to the conditioned space. Our fan coil units come in three basic configurations: horizontal in or along the ceiling, vertical running the height of the wall, and unit heaters low along the wall. The fan coils feature advanced HVAC technologies including MicroTech® III controls, the Lowest published sound data, ECM motor selections, and factory-installed valve/ piping packages.
EMERSON
Improve reliability with the Emerson AMS Trex Device Communicator. Increase productivity in the field with your Trex unit by doing more types of tasks. When assets are not performing properly or issues go undiagnosed in the plant, it can cause costly unexpected downtime. The AMS Trex Device Communicator allows for simple issues to be addressed on the spot, avoiding unnecessary, and potentially destructive, invasive physical investigation of the problem. With a Trex communicator in hand, you can properly diagnose device issues in the field. https://www.emerson.com/en-us
https://www.daikinapplied.com/ products/fan-coils
GOODMAN AIR CONDITIONING & HEATING Installing the correct coil is essential for getting the highest performance and comfort from your system. Cased with TXV Option Upflow/Downflow, the CAPT/CAPTA Series features an aluminum tube and aluminum fin coil construction and grooved aluminum tubing. Every unit is helium pressuretested during construction and every all-aluminum coil is pressure-tested and vacuum tested. At Goodman, they believe in American dependability. Units are designed, engineered, and assembled in the U.S.A. For over three decades, the Goodman brand has concentrated on something more important than simple brandrecognition consumer advertising. https://www.goodmanmfg.com/ products/air-handlers-and-coils/ coils www.hvacrbusiness.com
HEIL
The Heil Air Purifier is installed on or near the furnace/air handler of your home comfort system to help capture airborne particles that circulate throughout your home. Capturing these particles keeps the equipment components clean, and more importantly, helps reduce particles from the air you breathe. Because your indoor air is under constant attack, you need an effective defense – the kind you get with the Heil air purifier. When you choose Heil® heating and cooling equipment, you’re choosing enhanced dependability and innovation in home comfort. Heil products are designed to deliver the best in quality, energy efficiency, and reliability, and each is 100% run-tested. https://www.heil-hvac.com/en/ us/products/air-purifiers/dgapa/
TACO
Taco 4900 Series® Commercial Air & Dirt Separators help you save money and prolong the life of system pumps, piping, and components by removing air, dirt, and other contaminants from the system to prevent problems such as reduced heat transfer, loss of efficiency, pipe corrosion, pump damage, noise and the waste and cost of increased energy consumption. Patented PALL ring technology, and an optional switchable on/off magnet, clear the system of microbubbles as small as 18 x 10 -6 meters, magnetite, sand, dirt, and rust. For more on the TACO 4900 series, visit the site. https://www.tacocomfort.com/ product/4900-series-commercialair-separators/
GE APPLIANCES
HVAC products from GE Appliances have been rigorously tested in real-life conditions. So, when the inevitable heat wave arrives, you won’t have to sweat it; your GE unit will keep you comfortably cool. GE appliances are used in 50 percent of U.S. homes. Have peace of mind knowing the iconic GE brand carries a legacy of quality, reliability, and innovation. GE Air Handlers feature aluminum alloy tubes and fin coils you can trust to last season after season. Highly rated for air quality, their antimicrobial drain pan helps keep mold, mildew, and other unwanted microbes out of the unit and the air in your home. https://www.geappliances.com/ hvac-air-handler
THERMO PRIDE
Thermo Pride’s AH2/AH4 Series Hydronic Air Handlers provide complete comfort for central or zoned heating, cooling, or both. For heating, when you install an optional hydronic coil in the air handler and attach it to a boiler, you enjoy warmth. The air handler can supply warmer air to your home than most furnaces on the market today and requires only a fraction of the space, investment, and cost of operation. Warranty – The factory-installed evaporator coil and optional hydronic heating coil carry a 5-year warranty to the registered original homeowner. A 5-year parts warranty is extended to any homeowner. http://www.thermopride. com/products/air-handlers/ hydronic-air-handler/ ah2-ah4-series/
HVACR BUSINESS JANUARY 2024
21
20QUESTIONS
>> with MARK HYDE
Terry Tanker sat down with Mark Hyde, one of the three brothers who own Hydes Air Conditioning, Heating and Electrical in Indio, California. The two discussed operating a family business, the pending refrigerant change, company culture, and being awarded American Standard Heating and Air Conditioning’s Building a Higher Standard Award.
1. Where would we find you Friday night after work?
Out on a date with my wife. We’ve been married for 36 years and we work together but we still find time to go out to dinner or a sporting event. We’ve got a new hockey arena and we’re big fans of the team.
2. What would people be surprised to learn about you?
I’m the only naturalized American citizen in our family. My parents were immigrants. They came to North America from England and Scotland in the mid-fifties and landed in Canada and that’s where my brothers were born. They moved to the States in 1960, and a year later I appeared.
3. Did you go to school to be a sportswriter?
I got started in high school on our school paper. My brother played college football so there was an interest there. And I went to Cal State Fullerton and was in their journalism program and if I had entered that field, I would have tried to cover sports.
4. How did Hydes come to be in 1972?
My dad was an engineer on the Apollo space program. He grew tired of government contract work and started an appliance repair business. He also sold new appliances. He was always looking for the next best thing. My two brothers worked around the office and did service calls. Then my dad moved about a hundred miles from where we were in Orange County in 1980. My oldest brother and I stayed behind and we ran the appliance business, but we eventually moved to the desert too. Because of the heat, we added AC sales to the business – a very humble beginning.
5. What does your typical work week look like?
In addition to my finance obligations, I try to add to the company culture and check in with the office and personnel, then down to business. Since I’m handling the financial end of the company, I usually start with the prior day’s tickets and then tackle payables, etc.
6. What’s the largest challenge of managing a family business?
I think managing the third generation is the most difficult because the dynamic changes from brothers to nephews and cousins. Over time the brothers built trust in one another and we relied on each other to manage each end of the business. It could be sales, finance, or service. The third gen now has to earn and build that trust.
7. What is your present-day business mix percentage?
The bulk of our business is residential HVAC. We do a little bit of light commercial. And we are working on growing our electrical business.
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HVACR BUSINESS JANUARY 2024
8. What aspect of your job is most satisfying?
I enjoy trying to add to the culture of our company, which is just an opportunity you get to influence people positively. And, to try and create an atmosphere where employees can be successful.
9. Who was your mentor?
My dad. Just watching him. He had the vision when he left the aerospace industry and started the appliance business and then the HVAC company. He tried building homes and buying real estate. He was always willing to try something new.
10. What is the best business advice you’ve received?
To move to performance pay. I know it’s nothing new, but it’s been long-lasting and changed our business significantly for the better. My brother loves to tell the story of installs that used to take eight to ten hours. Under performance pay the job is done in three or four.
11. What leadership lesson do you wish you would have learned earlier?
Having a vision for the company and knowing where you’re going with the ability to communicate it. Second, the ability to embrace change. We’re a heavily regulated industry, especially in California so we have to embrace the changing business landscape, changing employees and business attitudes.
12. How has Hydes built a great company culture?
For many years our tagline was “a family you can trust”, and if you’re going to say that you better mean that. We work on this and nurture it.
13. Did you have your service techs and CSRs switch jobs?
That was a while ago, but yes. Collectively, they had to understand the challenges of each position. An angry customer on the phone, or a 130-degree attic — both are challenging. CSRs go through a lot of training to handle calls with the care they need. And our techs go through a lot of technical training. Both are different, and neither is more important than the other.
14. Hydes recently won American Standard’s, “Building A Higher Standard” Award. Was that a 2023 goal? American Standard has great products and we know because we install them here in the desert where we have extreme conditions. We’ve worked with them and our distributor Howard Industries for over 25 years and it was an honor to be recognized.
15. What do you love most about your company? I love the opportunity to work with my family, especially my wife and son, as well as being a positive influence for our 50 employees.
16. What company goals have you established for 2024?
Building up our middle management team. My wife has really been stressing this and moving us toward this goal. It’s easy for us to be narrowly focused on the day-to-day. We want to develop the next level of leaders at Hydes because we have three owners in their sixties.
17. How will your team navigate the upcoming refrigerant changes?
Our transition to the new refrigerants will look a lot like the first transition we had from R22 to R410a. We will try to maintain a stock of all the refrigerants the manufacturers use, but ultimately it is our job to educate our customers in the direction that best suits them.
18. How has technology aided the company’s success?
The equipment we install and the tools we use to diagnose problems have all become more sophisticated. Technician’s tools have become digital but the ability to understand what those tools are telling you remains the key. The same is true with the integrated software we use in the office.
19. How are you mentoring rising talent and/or training techs?
Every week we have install and service training as well as online coaching through Zoom. Our service manager will also review issues from the previous week and share ideas and troubleshoot calls that they’re getting on. Techs can also become NATE certified as well as earn certifications from training offered by American Standard.
20. What is next for Hydes Air Conditioning?
We need to navigate our next generation of managers and figure out how that will work. We’ve been in this community for 40 years, and we have an excellent reputation. Our names and pictures have been on our service vans for a long time. And we want to continue to provide a great work atmosphere.
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5538ND
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VCD-Series
Features • Accepts traditional 24VAC thermostats for convenience and advanced control options • Wired programmable control included • Optional electric resistance heat kits • Multi-position air handler
Extreme Performance Cold Weather Heat Pump Up to 18.0 SEER2 Six models to choose from 18,000 to 60,000 BTUH
Operating range: Cooling
5°F (-30°C)
Heating -22° to 86°F (-30°C to +30°C)
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