24 • OIL
&
ENERGY
Professional Services
first meet many of our financial advisory
clients, the sense of frustration that comes
from years of dealing with a deteriorating
banking relationship is palpable. This often
stems from the fact that each party’s focus
is quite different. While banks examine
liquidity strength, cash flow cycles,
industry metrics and historical profits, fuel
dealers are tackling immediate operational
and financial demands associated with
rising commodity prices, weather demand
and the need to pay suppliers immediately
to get the best pricing. By acting as an
interpreter of sorts, a skilled professional
advisor can bridge these gaps, help the
dealer anticipate the bank’s areas of sen-
sitivity, convey the dealer’s own areas of
sensitivity and formulate a lucid plan to
address the financing need. An effective
advisor will clue you in to common ratios
and metrics so you can look at your busi-
ness through the lens of your bank – and
avoid a frustrating encounter.
3. Fuel dealers as a group are not effective
budgeters.
For over a decade I have analyzed
fuel distribution companies of all sizes, and
one thing I can say with certainty is that few
dealers prepare a meaningful profit and loss
projection and even fewer prepare a cash
flow projection. In prior decades, before
high prices, commodity volatility and net
customer list attrition kicked in, companies
could survive without one. Nowadays,
having no roadmap is a recipe for a slow but
certain decline. Furthermore, the lack of a
budget is an unwanted sign to your lender
(or potential lender) that a management
team is ill prepared to drive activities toward
concrete month-end goals and to take the
hard steps necessary to maintain consistent
profitability. In tight credit markets, there
Five Reasons to Work With a Financial Advisor
Fuel retailers need a disciplined approach to succeed with lenders
By Jeff Simpson, Angus Energy
“OLD HABITS DIE HARD.” FOR BETTER OR
worse, this well-worn phrase applies to
many who operate in the fuel distribution
industry. Certain habits have helped dealers
run consistently efficient operations and
maintain a solid customer base despite
increased competition.
But other habits – particularly those
on the
financial
side of the house – have
served to undermine the long-term viability
of numerous companies. Many dealers are
now gone, and many others are locked
in a daily fight just to maintain the cash,
supplier credit and banking relationships
necessary to pull through another winter.
The financial challenges endemic to the
heating oil industry require all the support
you can find, and an experienced financial
advisor can help you both form new habits
and shape the discussions with your
financing partners in a positive way. Banks,
private lenders and suppliers evaluate more
than just your financials. They also evaluate
your business acumen, management team
and your company’s willingness to sharpen
its financial discipline.
To this end, here are my top five reasons
why you should consult with an advisor on
financial and banking matters to improve
your operations:
1. Bank lending standards remain tight.
The most recent
Federal Reserve Board of
Governor’s Survey of Senior Loan Officers
published in August shows that banks
have eased their lending policies in 2013.
This is good news for small businesses,
but the improvement is far from dramatic.
According to the study, for those borrowers
with sales over $50 million, 79 percent of
banks surveyed remained unchanged in
their lending policies while 18 percent
eased standards somewhat. For borrowers
with sales under $50 million – most fuel
distributors – 90 percent of banks stated
their standards remain unchanged, and just
10 percent eased their standards somewhat.
While any easing is welcome news after
years of tight credit availability, borrowing
remains very challenging – particularly for
companies in an industry with inconsistent
earnings and limited tangible collateral.
2. Owners are often unaware of the fac-
tors driving a bank’s decision.
When we
is scant room for excuses if profits are weak
or non-existent. A good advisor can assist
you in preparing these projections so that
you have a guide to arrive predictably at a
month-end profit goal.
4. Knowing your peak cash need is
critical.
My greatest concern when
working with my clients is ensuring that
the combination of the dealer’s bank line,
supplier credit and cash on hand will be
adequate to support the company through
the upcoming 12 months. The prior year
is losses, high commodity prices and many
dealers’ entry into the propane market are
just three examples of factors that can dra-
matically alter a company’s peak cash need.
With the majority of most companies’ value
held in the customer base – and the risk of
this asset rapidly deteriorating if cash runs
out – assessing your company’s liquidity
position in advance of the heating season is
invaluable.
5. A team approach puts banks and
investors at ease.
One advantage large
companies commonly have over small ones
is depth of management. Most fuel dealers
fall into the small business category and
have a limited number of managers who
must wear multiple hats. Introducing a
professional advisor to assist with planning
and banking relationships – essentially
acting as a part-time CFO – adds a depth
of knowledge to your arsenal for just a
fraction of the cost of a fulltime manager;
helps in identifying any “blind spots” in
management strategy; and serves to provide
comfort to financing partners by showing
there is expertise influencing the direction
of the company.
