Service agreements are absolutely essential to the success of an HVAC company, but why?
MOST IMPORTANT. We Are a Service Agreement Company
We should consider ourselves to be service agreement companies service agreements.
Yes, service agreements are really that important.
During the course of performing the duties outlined in our service agreements, we perform all kinds of HVAC services related to health, safety, comfort, security, and peace of mind. However, we are still a service agreement company.
Our priority is to sell service agreements during the course of everything we do.
Accounting for Service Agreement Revenue
When we sell a service agreement for a full upfront fee, we are promising to do work that we have not yet fully completed. Accountant’s call this “Billings in Excess of Work Completed”.
There are a variety of ways to book service agreement income.
- Record the entire sale as income at the time of the sale. This is not recommended.
- Record a portion of the income each time the planned visits are completed.
- Divide the total amount of the sale by the number of months for the agreement.
Monthly Service Agreement Billing
More and more contractors are adopting the practice of signing up their clients on a monthly billing plan. The client’s credit card is charged each month until the client cancels.
- Reduces billing expenses for the contractor.
- Clients and contractors do not have to worry about renewals.
- Clients can cancel anytime.
- Contractors find that their clients tend to keep the relationship going longer that they would with an annual billing plan.
Want to know more about service agreements? Please checkout my articles at MrHVAC.com.
James R. Leichter
President, Aptora Corporation
Majority Shareholder: RA Tax and Accounting, LLC
Owner: Mr. HVAC LLC
Black Belt Contracting Editor
EGIA Founding Faculty Member
About RA Tax and Accounting – The Nationwide Contractor’s Choice
If you are looking for a high-performance accounting firm that specializes in the contracting industry, then RA Tax and Accounting is a top choice. We are laser-focused on the HVAC, plumbing, electrical, and related industries. We offer full bookkeeping, accounting, tax planning, income tax form preparation, IRS representation, registered agent, deal with IRS notices, and specialized financial consulting. We also offer software training for QuickBooks, Sage, and Aptora products.
We make an award-winning software suite built to manage all aspects of a contracting business. Aptora’s Total Office Manager® was designed by James Leichter, a well-known industry expert and founding faculty member of EGIA Contractor University. This super tool is the most complete, feature-rich, and customizable business management system of its kind. Residential to commercial, service to new construction, we have you covered. There is no need for expensive clunky add-ons to make it work and you won’t outgrow it. It completely replaces QuickBooks® but you keep your historical QB financial information. Your data is securely stored in a Microsoft SQL Server database which you fully control. If you decide to leave, your data is not held hostage, as many companies do. We are most proud of the tight relationship we have with our users. In fact, they drive our software development. That’s because we’re really in the people business; we just happen to make great software.
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