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How Are You Doing with Those New Year’s Resolutions?

Yes, I know it’s June, but I want to wish you a Happy New Year!  No, not that New Year — your financial and banking New Year.  I agree that the typical New Year’s celebrations that immediately jump to mind are long over and our accompanying resolutions (that life-changing diet and the new gym membership) have likely gone the way of twerking and Psy’s Gangnam Style, only to be replaced with ice cream cones and binge-watching those hit new series.  And, I also admit that after a long and challenging winter for many dealers, the last thing on our minds is setting new resolutions.  But my experience as a financial advisor to many dealers tells me that now is the starting point for a focused effort on one particular aspect of your fuel distribution business ‘ addressing capital concerns and banking relationships.  In this respect, the New Year is upon us.


With the operational stresses of a very cold winter behind us, it is time to formulate your company’s financial resolutions and stick to the plan!  ‘Tis the season” for your new resolutions and herewith are my top recommendations based on our experience:


Resolve to fund growth properly.  With the pressure on dealers to expand offerings in light of slow but consistent heating oil demand erosion, many have moved into new lines of business in recent years including the supply of propane, natural gas and electricity.  Many business owners have established a foothold in these markets, but find in time that the cash requirements to support and grow these endeavors cannot be derived effectively simply from normal cash flow or even from their regular line of credit.  Many experience a negative impact on available cash, and, as a result, the core heating oil business operations are squeezed at the peak time of the year.  It is important to recognize that the purchase of long-term assets such as propane tanks, vehicles and bulk storage upgrades must be matched with suitable long-term loan facilities.  Equipment lines of credit and leasing solutions specifically tailored to fund the purchase of such long-term assets must be used or you will unwittingly back your business into a tight financial corner.


Resolve to find the right financing partner(s) for your situation. Our team is often called upon to assist dealers in establishing or restructuring banking relationships and locating new financing sources.  Depending upon a company’s size, product mix, growth plans and performance history, locating an effective financing partner (or, in some cases, multiple financing partners) can mean the difference between a temporary fix and lasting satisfaction.  Cobbling together loans and lines of credit on the fly may seem cheaper and easier when you are too busy to carefully tailor a long-term strategy, but this often returns to haunt you in later years in the form of missed profits or acquisition opportunities and administrative costs.  A host of financing partners exist, including local banks, big banks, leasing companies, mezzanine lenders and even private equity providers that cater to small and medium sized businesses.  Exploring these options takes time and thought, and conducting the search outside of your peak operating season is indeed the time to tackle it.  This process is akin to assembling a puzzle, and your company’s situation and strategy may call for multiple financing partners to bring different advantages to the table.  The best solutions often take several months to secure.


Resolve to closely examine your line of credit adequacy.  How often have you worried in the dead of winter if your company will have enough cash to stay current with your fuel suppliers and equipment vendors?  On far too many occasions, owners and managers wait until the last minute to react, placing their company in a precarious position.  Problems often arise for two reasons: either the company’s available short-term assets, such as receivables and inventory, are inadequate to support larger bank borrowings (leading to the dreaded ‘over-advance” situation and resulting tension with your lender); or the line is simply too small relative to the inventory demands and level of receivables carried by the company.  Both of these issues can be detected well ahead of the peak season with some financial analysis.  Often, dealers face tight line of credit availability because the realities of the fuel distribution business have not been factored into the mechanics of the line of credit.  For example, there is no recognition of fuel or service part inventory as collateral, narrowly-defined bank advance rates on collateral were accepted at face value without thoroughly evaluating the potential impact or receivables associated with reliable budget customers have aged to the point of becoming ineligible collateral. 


For many, the impact of addressing these variables is material. Quick relief from banks in the midst of the winter rarely occurs, and this results in stress and distraction from what should be your primary focus’serving your customers in an efficient manner. Savvy dealers tackle line of credit fixes well before the heating season begins, when thoughtful discussions with a bank can occur.


Resolve to communicate effectively with your banker. Let’s face it, dealer interactions with bankers are typically limited.  Too many dealers take a ‘drop it and run” approach to presenting financial results to their bank and suppliers.  Each interaction with your lender (and supplier) is an opportunity to exhibit your managerial competency.  When you take steps to improve the financial standing of your company through specific adjustments to your operation, let your financing partners know. If handled correctly, you build a well of goodwill with people who, in the end, are paid to judge your ability to lead an organization. 


Such goodwill is priceless when financial challenges arise.  If your company’s results are disappointing, avoid the urge to hide until you get the inevitable questions.  It is imperative that you control the message.  While lenders are trained to examine historical results to form their future credit decisions, understand that they fundamentally want to support you.  Help your bank and supplier representatives formulate the argument on your behalf to ‘the powers that be” behind the scenes.  Summarize the non-recurring issues that have impacted your company’s results and avoid relying too heavily on yet-to-materialize revenue sources from marketing campaigns and new products as the primary source of correcting the financial issues facing the company.   Bad news in and of itself isn’t the problem.  Bad news presented without mitigating factors and the steps you have already taken to attack the challenge is toxic.


While the banking environment for fuel dealers may be marginally better than during the depths of the financial crisis, for many small businesses it can still be less than accommodating and requires a well-formulated approach to place your company in a position to maximize profitability. Success is determined in large part by your company’s ability to capture opportunities when they arise.  An improperly functioning debt structure can be an unrecognized but significant drag on both your company’s profitability and personal mental state, and often requires a significant amount of time to correct.  For those managers who have simply survived in recent years but know opportunities were missed due to cash constraints, now is the time to explore the options available and seek to upgrade the structure now in place.  Resolve to make this the year you take control of your company’s financial health.


Jeffrey Simpson is managing director of Angus Energy’s Advisory & Finance team and has worked in the fuel distribution industry for nearly two decades in operational, banking and financial advisory roles.  Angus Advisory & Finance provides advisory services for evaluating strengths and weaknesses, improving financial management practices, supporting banking relationships and also designs/implements growth, risk management and acquisition strategies.  The group also provides funded capital solutions through the investment fund, Angus Fund, L.P.  Jeff can be reached at (860)299-3358 or jsimpson@angusenergy.com.

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