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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managers, on an exception basis, to focus on any issues threatening the desired results. In addition to the financial plan, a banking plan is integral to your ability to meet the stated goals. Ensure that you have an adequate short and long term debt structure in place, coupled with the disciplined use of your credit line. It is paramount that you have adequate access to cash or line of credit throughout the entire season to capitalize on profit opportunities. If you have doubts before the heating season, seek advice from a financial advisor. Month-to-Date BuDget Variance reporting Once your financial plan is in place, you must have a tool by which to monitor your DAILY progress, toward your month end goals. For those companies who do not budget, you are strongly encouraged to set goals for projected liquid product volumes and unit and extended margins, down to the product, trade class and price agreement level. In addition, track service revenues by segmenting service sales into categories for service contracts, hourly billing and installations. Watch the unforgiving payroll expense line closely. Lastly, customer gains and losses must be considered in your plan-as it represents your anticipated future growth or attrition. By keeping these categories in line and quickly adjusting your daily operations and margin targets for any bumps along the way, arrival at month end should be close your forecast. Of course, that's what we want…increased predictability in our lives. To accomplish this, it is imperative that you monitor your progress throughout the month. Without the right systems in place, com- paring your actual numbers to where you "should" be can prove to be a challenge. Any anomalies you find have the potential to derail your success unless they are resolved quickly. It is far easier to effect incremental changes over the course of a month than it is to make sweeping changes late in the period, after the financial damage has been done. A simple but effective way to accurately calculate and illustrate your intra-month progress is to divide your segmented monthly budgeted units and margins by the number of working days of each month. These metrics will empower you and your staff to make the necessary, informed and accurate decisions swiftly and decisively. Margin analysis We know it's all about unit and extended margins. Within this simple calculation is a layering of product-related costs and operating expenses that, if not watched closely, could represent the difference between a profitable period and one less so. In our seasonal industry, the opportunity to book materially profitable months is limited. During your planning process, you projected your desired unit margins and extended gross margins down to the product, trade class and price agreement levels. Then, of course, you protected these desired results by hedging your pricing program gallons prop- erly, further minimizing the threat to your goals. But it doesn't end there. Other factors continually challenge your targeted profitability. These forces include product price volatility (hindering your ability to adjust your posted price), decreased volumes caused by warm weather, short positions in your program gallons (requiring you to go to the rack at then-market prices in order to cover your deliver- ies) or perhaps even input and maintenance issues on sales and purchases. You must closely watch these numbers daily to ensure that your plan stays on track. It is not uncommon for managers to discover errors well after the fact which may represent thousands of dollars in unanticipated losses. Identifying such issues immediately allows you to correct business processes or other errors, for the pur- pose of getting back on course over the remainder of the month to preserve the desired profitability. custoMer gains anD losses With any successful company, the topic of growth is always front and center. Customer gain and loss reporting is critical to monitor on a daily basis, giving special attention to your losses. Make sure that the recorded data accurately identifies all details of the gain or loss activity so that proper analysis can be performed. Although a gain report is mostly used as a sales report, the gain rea- sons will also identify the effectiveness of your marketing dollars. Retaining your current customers is clearly the most efficient and effective foundation for stability and growth. Your customers www.fueloilnews.com | FUEL OIL NEWS | AUGUST 2014 29 BUSINESS OPERATIONS