Five Reasons to Work With a Financial Advisor

by Jeff Simpson, Angus Energy

Old habits die hard.” For better or worse, this well-worn phrase applies to many who operate in the fuel distribution industry. Certain habits have helped dealers run consistently efficient operations and maintain a solid customer base despite increased competition.

But other habits – particularly those on the financial side of the house – have served to undermine the long-term viability of numerous companies. Many dealers are now gone, and many others are locked in a daily fight just to maintain the cash, supplier credit and banking relationships necessary to pull through another winter.

The financial challenges endemic to the heating oil industry require all the support you can find, and an experienced financial advisor can help you both form new habits and shape the discussions with your financing partners in a positive way. Banks, private lenders and suppliers evaluate more than just your financials. They also evaluate your business acumen, management team and your company’s willingness to sharpen its financial discipline.
To this end, here are my top five reasons why you should consult with an advisor on financial and banking matters to improve your operations:

1. Bank lending standards remain tight. The most recent Federal Reserve Board of Governor’s Survey of Senior Loan Officers published in August shows that banks have eased their lending policies in 2013. This is good news for small businesses, but the improvement is far from dramatic. According to the study, for those borrowers with sales over $50 million, 79 percent of banks surveyed remained unchanged in their lending policies while 18 percent eased standards somewhat. For borrowers with sales under $50 million – most fuel distributors – 90 percent of banks stated their standards remain unchanged, and just 10 percent eased their standards somewhat. While any easing is welcome news after years of tight credit availability, borrowing remains very challenging – particularly for companies in an industry with inconsistent earnings and limited tangible collateral.

2. Owners are often unaware of the factors driving a bank’s decision. When we first meet many of our financial advisory clients, the sense of frustration that comes from years of dealing with a deteriorating banking relationship is palpable. This often stems from the fact that each party’s focus is quite different. While banks examine liquidity strength, cash flow cycles, industry metrics and historical profits, fuel dealers are tackling immediate operational and financial demands associated with rising commodity prices, weather demand and the need to pay suppliers immediately to get the best pricing. By acting as an interpreter of sorts, a skilled professional advisor can bridge these gaps, help the dealer anticipate the bank’s areas of sensitivity, convey the dealer’s own areas of sensitivity and formulate a lucid plan to address the financing need. An effective advisor will clue you in to common ratios and metrics so you can look at your business through the lens of your bank – and avoid a frustrating encounter.

3. Fuel dealers as a group are not effective budgeters. For over a decade I have analyzed fuel distribution companies of all sizes, and one thing I can say with certainty is that few dealers prepare a meaningful profit and loss projection and even fewer prepare a cash flow projection. In prior decades, before high prices, commodity volatility and net customer list attrition kicked in, companies could survive without one. Nowadays, having no roadmap is a recipe for a slow but certain decline. Furthermore, the lack of a budget is an unwanted sign to your lender (or potential lender) that a management team is ill prepared to drive activities toward concrete month-end goals and to take the hard steps necessary to maintain consistent profitability. In tight credit markets, there is scant room for excuses if profits are weak or non-existent. A good advisor can assist you in preparing these projections so that you have a guide to arrive predictably at a month-end profit goal.

4. Knowing your peak cash need is critical. My greatest concern when working with my clients is ensuring that the combination of the dealer’s bank line, supplier credit and cash on hand will be adequate to support the company through the upcoming 12 months. Prior year losses, high commodity prices and many dealers’ entry into the propane market are just three examples of factors that can dramatically alter a company’s peak cash need. With the majority of most companies’ value held in the customer base – and the risk of this asset rapidly deteriorating if cash runs out – assessing your company’s liquidity position in advance of the heating season is invaluable.

5. A team approach puts banks and investors at ease. One advantage large companies commonly have over small ones is depth of management. Most fuel dealers fall into the small business category and have a limited number of managers who must wear multiple hats. Introducing a professional advisor to assist with planning and banking relationships – essentially acting as a part-time CFO – adds a depth of knowledge to your arsenal for just a fraction of the cost of a fulltime manager; helps in identifying any “blind spots” in management strategy; and serves to provide comfort to financing partners by showing there is expertise influencing the direction of the company.

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