Tools and techniques to manage your cash flow

While diversification of services has helped to smooth out the cyclical nature of the North American energy industry, the fact remains that the bulk of propane sales and deliveries occur during the winter. The slowdown during the offseason means some propane dealers face challenges in managing cash flow. Here are some helpful ideas for making the most of the revenue generated during the heating season, keeping enough money on hand to pay bills in the offseason and having enough money to get ready for the busy season.

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⦁ Count your cash: You should know how much cash you have at any given time. Too many propane business owners rely only on bank account statements or current balances that may be out of date. For example, checks may have been cut that haven’t been posted by the bank, which can lead to significant miscalculations. It’s critical to track everything you spend and earn daily.

⦁ Accounts payable: To help optimize your cash flow cycle, negotiate with suppliers for longer terms and lower payments during the offseason and larger 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.

⦁ Accounts receivable: Invoice customers immediately after a delivery or service call. Make sure the invoice is accurate, so that it won’t be disputed. Place an emphasis on collecting by the due date. If you are late to the game in accepting credit card payments, make that upgrade now. The processing fees you pay will be less than the costs incurred chasing late-paying customers.

⦁ Diversify. Continue to search for additional revenue streams to capitalize on during the busy seasons and to smooth out cash flow during slower months. It’s important to keep your core products and services as your focus during your busy season, but keep an open mind for other revenue opportunities. Before taking on an additional product or service, make sure that it fits with your core operations and overall vision for your company and won’t have a negative impact on your primary lines of business.

⦁ Watch your staffing levels. Staffing appropriately between seasons is essential. Insufficient staffing during your busy season can mean lost sales, but overstaffing during the offseason can mean extra expenses that you don’t need and can’t afford. Still, if you can keep heating season staff on for the offseason, take advantage of it. This can help fight the statistically high turnover for seasonal employees and avoid the burden of recruiting to staff up again for winter.

The importance of cash flow forecasting

Forecasting is 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 with analysis of funds available and costs throughout the year. Essentially, you want to create future estimates of when you’ll receive money from customers and when you’ll pay your bills. You don’t have to forecast every invoice and bill payment; making broader estimates in your forecast is acceptable.

You should develop monthly sales, spending and cash flow forecasts built on drivers (gallons, margin per gallon, service revenue, etc.) that match the information you get from your accounting software. Make sure the cash flow forecast manages the nuances of sales on account, payments on credit, managing inventory 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 link changes in sales and spending to expectations for cash on hand.

If you are still forecasting cash flow using spreadsheets, you should upgrade your accounting and financial management software so that you can access information that is more accurate and up to date.

Conclusion

Stop thinking in terms of on-season and offseason. Most successful propane businesses don’t consider their operations as seasonal at all. Instead, they shift focus during different times of the year and plan with the long term in mind. Take the time to develop a strategic plan for three to five years out 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 business consulting and accounting firm that serves the propane industry.