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Renting or Buying

Renting or Buying

As the statistics continue to show, the percentage of residences occupied by renters, versus those occupied by owners, continues to grow to the highest levels since World War II. In 2005, the rate of homeownership was over 69%, and has now fallen to 63%.  Although there are 2 million more homes now than just a year ago, ownership decreased by about 400,000, while rentals increased by almost 2 million (WSJ, July 28, 2015).  The logic behind that trend is fairly easy to understand:  an increasing number of Millennials leaving their parents’ homes, a suspect economy, painful memories of the imploded real estate bubble, and housing stock that “just seems too expensive”.  The logic of renting gives the renter a good deal of flexibility, with the obvious downside of no true ownership, equity or interest write-offs. As we hit the time of year, the fall, where we the shoppers are aplenty, and the new customer deals SEEM illogical, we just need to wonder how many oil dealers are “renting” customers, when they think they are buying them.  If you are spending hard-earned marketing dollars to acquire new customers, it might pay to have a better idea as to the real VALUE of that acquired customer, and how to maximize that value. Typically, customers choose a (new) dealer due to a specific price offer at a time when the customer is “willing to listen”.  Very often customers are not the evil shoppers that they are made out to be, but rather they are approached with an offer that seems well better than how they perceive their current dealers’ offer, and their...
Five New Habits to Help Your Finances

Five New Habits to Help Your Finances

“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 in our industry. 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. In addition to your financials, banks, private lenders and suppliers also evaluate your business acumen, your management team, and your company’s willingness to sharpen its financial discipline with the times. After working with many fuel dealers, here are my top five reasons you should consult with an advisor on financial and banking matters to improve your operations: Bank lending standards remain tight. The most recent Federal Reserve Board of Governor’s Survey of Senior Loan Officers published in August shows that in 2013, banks eased their lending policies. This is good news for small businesses; however the improvement is far from dramatic. According to the study, for those borrowers with sales of more than $50 million, 79% of banks surveyed remained unchanged in their lending policies while 18% eased standards somewhat. For those borrowers...
Propane Pitfalls and Your Business

Propane Pitfalls and Your Business

In recent years, long-established heating oil dealers have been jumping into the propane delivery business at a quickening pace, in an effort to diversify their offerings and seek new avenues for profitability. This strategic move makes tremendous sense for many in our industry, based upon the steady contraction in the retail heating oil market, and the values assigned to propane distribution businesses in today’s merger and acquisition environment. Business owners expanding into the propane business often face numerous unanticipated headaches associated with growth. While operational bumps are to be expected in any new endeavor, the potential financial pitfalls often are not fully understood. A growing propane business requires cash – lots of it – and over time capital demands can begin to stress the entire organization if measured steps are not taken. Slowly but surely, cash reserves and bank lines of credit that were previously more than adequate to support the base operations of the company become insufficient. This puts a strain on banking and vendor relationships, a situation we have witnessed on many occasions as financial advisors to the industry. In fact, it is a scenario that I have seen enough to dub it “Hitting the propane wall.” The greatest aspect of a propane distribution business, which is the dealer’s ownership of the customer tank and the resulting lucrative “ownership” of the customer, can become a burden for the dealer. Propane is more of a financial play for a fuel dealer than delivering heating oil. Because of the consistent capital outlay, what’s important is return on capital, maintaining liquidity and structuring financing in anticipation of growth, and not...

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I have been offering a price protection plan to my customers since 1989 and have used various hedging methods throughout the years. During a very volatile year of pricing I followed Angus Energy’s Best Buy program which was the least stressful year hedging I have ever had.
–Dean L. Smith, Scott Smith & Son

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