Tools and techniques to manage your cash flow

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Although the diversification of services has helped to mitigate the cyclical nature of the North American energy industry, the fact remains that the majority of propane sales and deliveries take place during the winter. The slowdown in the off-season means some propane dealers face challenges in managing cash flow. Here are some helpful ideas for making the most of the income generated during the heating season, keeping enough cash on hand to pay bills during the shoulder season, and having enough cash to prepare for the peak season.

(Photo: Smilja Jovanovic/iStock/Getty Images Plus/Getty Images)

⦁ Count your money: You need to know how much money you have at any given time. Too many propane business owners rely solely on bank account statements or current balances that may be out of date. For example, checks may have been cut and not posted by the bank, which can lead to significant calculation errors. It’s essential to track everything you spend and earn on a daily basis.

⦁ Accounts Payable: To help optimize your cash cycle, negotiate with suppliers for longer terms and lower payments during the off season and higher payments during the heating season. Be sure to make all payments on time and as negotiated to stay in good standing and avoid falling behind.

⦁ Customer accounts: Invoice customers immediately after a delivery or service call. Make sure the invoice is correct, so that it is not disputed. Focus on collecting by the due date. If you’re behind on accepting credit card payments, upgrade now. The processing fees you pay will be less than the costs incurred in prosecuting late paying customers.

⦁ Diversify. Continue to seek additional revenue streams to capitalize on during busy seasons and smooth cash flow during slower months. It’s important to focus on your core products and services during your busy season, but keep an open mind for other revenue opportunities. Before accepting an additional product or service, make sure it fits your core business and your overall vision for your business and won’t negatively impact your core business areas.

⦁ Monitor your staffing levels. Appropriate staffing between seasons is essential. Understaffing during your peak season can mean lost sales, but overstaffing during the offseason can mean extra expenses you don’t need and can’t afford. Still, if you can keep heating season staff in the offseason, take advantage of it. This can help combat the statistically high turnover of seasonal employees and avoid the recruitment burden of redoing staff for the winter.

The importance of cash forecasting

Forecasting is all about helping you make strategic decisions about your business. Seasonal cycles make forecasting your cash flow essential for a propane business. A good cash flow forecast will help analyze available funds and costs throughout the year. Essentially, you want to create future estimates of when you will receive money from customers and when you will pay your bills. You don’t have to predict every bill and every bill payment; making broader estimates in your forecast is acceptable.

You should develop monthly sales, expense, and cash flow forecasts based on drivers (gallons, margin per gallon, service revenue, etc.) that match the information you get from your accounting software. Ensure cash forecasting handles the nuances of on-account sales, credit payments, inventory management, and other cash-sensitive items such as debt repayment and asset replenishment. Maintain your forecasts with monthly reviews and revisions. As things change, use the monthly review to tie changes in sales and expenses to cash flow expectations.

If you still do cash forecasting using spreadsheets, you need to upgrade your accounting and financial management software to have access to more accurate and up-to-date information.

Conclusion

Stop thinking in terms of season and off-season. Most successful propane businesses do not view their business as seasonal at all. Instead, they focus on different times of the year and plan for the long term. Take the time to develop a three to five year strategic plan to ensure you are prepared for the unexpected and have clear goals in mind for the future.


Marty Kirshner and Joe Ciccarello of Gray, Gray & Gray, a consulting and accounting firm serving the propane industry.

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