Propane companies must put financial tools in place

November 1, 2008 By and    

There is a small business myth about hard work and results that remains alive in our industry. In retail propane this myth says that if we take real good care of our customers and treat our employees well, the financial side of the equation will take care of itself. The fact is that by doing all of the right things, except utilizing financial skills and quality measurements, your company is most likely underperforming its potential.

Carl Hughes
Carl Hughes

Further, in tough times you may put the entire business at risk. The irony is that your customers and employees expect your management to be financially astute and the company fiscally solid.

What is financial IQ?

The made-up term means having the financial tools in place and expertise in hand to do the following:

1. Know your financial position at all times – this includes the performance of income and operating side as well as the balance sheet aspect of the equation.

2. Having financial reports and tools at your disposal that will help you make more sound day-to-day business decisions.

3. Producing financial reports that are timely and accurate.

Key questions

  • At what point during a season do you see an income statement on your company?
  • Do you have an annual audit, review or compilation prepared by a qualified accounting professional?
  • Does your company’s board, shareholders or management review your company’s financial performance on a periodic basis?
  • Does your company establish financial goals and track such goals?
  • At what point do you know gross margins of your various customer segments?
  • How well do you know your true cost of product? When do you know it? Is it accurate? How do you price based on what you know?
  • How do you track expenses?
  • If you have a customer base of fixed pricing or cap-priced programs, how confident are you on a daily basis of your sales commitments and how they match your hedge purchases?

Timetable for improvement

If you have reached the conclusion that it’s time to become financially stronger from a skills standpoint, you have taken the first step. The solution will take an investment in time, dollars and education of the senior management team. This process will take several seasons.

An important step is to measure your current level of financial expertise. The best way to do this is to bring in an outside accounting professional to conduct an assessment. The beauty of using a consultant is that you will learn a great deal about your company and you’re not committed to anything further once the results are in.

It’s possible that you will learn that your current team does not have the financial skills to reach the level you need to attain. This includes your internal and external teams. You will need a strong external advisor and someone within your company who can produce reliable operating reports and statements.

The appropriate quality level is reached when the internal statements consistently agree with the external reports that are prepared by a qualified CPA who has full access to your records. Typically these external reports are in review form, which is a step above a compilation and a step below a full audit.

Benefits to the company

  • You will be better informed.
    Gaining access to weekly reports on key company operating activities such as gallons sold, cost of product, gross margins and receivables aging will give you a much better feel for the business and allow you to catch small issues before they become large.
  • You will make better decisions. Following the all-facts-are-friendly notion, your ability to judge the company’s situation from day to day will improve. Your confidence in the decisions about pricing, procuring wholesale product and addressing customer risks in receivables will improve.
  • Profits will increase. These improved decision-making activities will produce surprising results. Better decisions about pricing and purchase decisions will lead immediately to improved gross margins. Collections will increase and write-offs will decrease, with both contributing to better profits.

Carl Hughes is senior vice president of business development for Inergy LP. He can be reached at
or 816-842-8181.

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