Fuel Oil News

Fuel Oil News June 2014

The home heating oil industry has a long and proud history, and Fuel Oil News has been there supporting it since 1935. It is an industry that has faced many challenges during that time. In its 77th year, Fuel Oil News is doing more than just holding

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26 June 2014 | FueL OIL neWS | www.fueloilnews.com BUSINESS OPERATIONS By Jeffrey SimpSon, AnguS AdviSory & finAnce Y es, 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 start- ing 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 prop- erly. 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 busi- ness 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 busi- ness 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 com- pany'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 financ- ing partners exist, including local banks, big banks, leasing companies, mezzanine lenders and even private equity providers that cater to small and medium sized busi- nesses. 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 inven- tory, are inadequate to support larger bank borrowings (leading to the dreaded "over-advance" situation and result- ing 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 How Are you doing with Those new year's resolutions? And yes, I know It's June… Jeffrey Simpson

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