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Summer 2017, Vol. 2

RASHAAN

FINANCIAL BEST PRACTICES: BUDGETING

RASHAAN BASKERVILLE, DIRECTOR OF ANGUS FINANCE

Have you ever gotten in your car and decided to just drive to a destination without a plan on how to get there? What streets would you take? Would you need to stop for gas? Would you need your GPS? These are just a few of the many items that you would need to consider in order to arrive safely and successfully at your desired destination. Determining where your business is headed is no different; the best way to improve your chances of reaching your goal is to make a specific plan on how you will reach it.

The financial plan that successful businesses employ is a budget. It identifies the products and services offered by your company’s divisions and it quantifies the projected profit and loss within each area that will result in your company’s net income for the year. The key to developing a realistic budget is to base it on the latest available company-specific information, while also accounting for targeted marketing, capex, cost cutting, or other initiatives, and factoring in the risks that your company will face during the year.

Developing a sound budget is all about quantifying your business model for the next 12 months. What are the elements that drive your business and how do you expect them to unfold in the short term? For the fuel distribution industry, the general business drivers are heating degree days and commodity prices. However, each company will also have its own specific business drivers that may not impact the industry at large, such as the average age of local HVAC equipment and the associated opportunity for maintenance/repairs/upgrades revenue, or, for example, the regional installation of a new natural gas pipeline and the potential for conversion away from other energy sources. Whatever opportunities and risks your company faces, planning will enable you to manage them proactively rather than merely reacting in the heat of the moment, and thereby will enable you to make better decisions.

Better decisions tend to lead to better financial results over the long term. However, while not all companies that have a budget are the most successful, the most successful companies always have a budget. Just think of some of the most well-known and successful brands, such as Google, Apple, and Samsung in the technology arena. Businesses such as these realize that, to excel, they must not only work hard, but also work smart, in order to thrive. They recognize the need to implement financial best practices in order to grow their businesses. Budgeting is one of the most fundamental financial best practices and it is critical to companies in all industries. Actually, the seasonality of the fuel distribution business only heightens the importance of having a budget to follow because there is a limited window to earn the majority of the profits that must sustain the business throughout the year.

What A Budget Does

Developing and following a budget forces you to understand your numbers and what pricing levels are required to remain profitable. Consequently, it becomes likelier that your company will base its pricing on its true cost structure rather than simply reacting to the competition. With a budget in place, the tradeoffs of engaging in pricing wars become much clearer. You see the direct link between reducing margins and your ability to meet payroll, keep up with obligations to vendors and lenders, and grow the business. You become much less likely to make short-term decisions that will be detrimental to long-term results. In fact, your budget will also help you optimize short-term results by serving as a basis for your cash flow management, which is another essential element of financial best practices.

 

ANGUS EDUCATIONAL SERIES

UPCOMING WEBINAR

TOPIC: HOW TO INCREASE YOUR PROPANE DELIVERY EFFICIENCY
DATE: OCTOBER 3, 2017 11:00AM EDT
PRESENTER: DANNY SILVERMAN
This 30 minute webinar will explore what is driving propane delivery inefficiency, and why that will only get worse, We will share the eye opening study of over 500,000 oil deliveries in 9 states. We will reveal how technology embedded in the GREMLIN® Tank Monitoring System and App can save you tens of thousands of dollars.

Click here to register for our upcoming webinar.

NEW CLIENTS –
WELCOME TO ANGUS ENERGY

 

Drum Oil, Gasport, NY
F.M. Brown’s Sons Inc., Reading, PA
Santilli Oil Inc., Shoemaker, PA

If you are interested in any of our solutions to make your business run more efficiently, effectively, and profitably contact us today.

What A Budget Does Not Do

Although your budget will contain detailed forecasts for all areas of your business, they are estimates and should not be considered an exact blueprint for reaching your targets. Much like your GPS may offer alternate routes to reach your destination, your budget is a framework that highlights the various scenarios that can lead to your financial goals, based upon your specific operational traits. And while there will always be market forces and other external factors that will cause variances to your budget, as long as you are tracking performance against your budget on a regular basis, you have the ability to make course corrections throughout the year to meet the plan. For instance, warm weather may limit the total volume of fuel you sell in a given season, while the shuttering of a competitor in the same season may offer you the opportunity to win additional customers to offset the loss of gallons and grow the service business. Your budget will help you determine how much you should spend in marketing to gain enough customers to fill the profitability gap created by the warm weather. Your budget can also be used to calculate numerous financial and operational efficiency metrics (gross profit/gallon, cost/delivery, gallons/stop, etc.) that you can monitor and manage on a consistent basis in order to improve profitability over time. However, in order for your budget to be effective, your management team must be committed to taking actions that align with the goals established by the budget. A budget without corresponding actions is like an engine without gas; there is the potential for motion but there will be no movement.

Now that you have an understanding of the basic concepts of a budget and how it empowers you to take greater control of your business, you can begin to explore the best way to implement your first budget or improve upon your existing budgeting. As a first step, you can review some of the available free resources online at sba.gov and investopedia.com to gain a deeper understanding of the key elements of a sound financial budget and what is involved in developing it. From there, you can decide whether or not you have the resources and expertise to handle these activities internally. In either case, the most important resolution you can make is to commit to putting a financial plan in place because, whether you decide to go it alone or partner with an industry expert like Angus Energy, you owe it to yourself and your business to plot a course for success.

Data from the experts:

  • A recent survey by yougov.com concluded that only about half of business owners regularly follow and update a business plan.
  • According to businessknowhow.com, one of the top reasons that businesses fail is due to lack of planning, which entails budgeting and managing company growth and also cash flow analysis.
  • A study conducted by U.S. Bank, found that 82% of businesses failed due to poor cash flow management.
  • Fortune.com shared the top 20 reasons why startups fail; the number two reason is due to running out of cash.
  • Fifth Third Bank, which lends more than $2 billion to small businesses, determined in a recent survey that almost 40% of small businesses have insufficient capital reserves to meet their business objectives.
  • One of the other top 20 reasons that Fortune.com noted for business failure was a lack of using their network or other advisors for counsel. This sentiment was supported by the Fifth Third Bank survey, which found that nearly 4 out of 10 businesses need assistance with revenue and profit growth.

The graphic below represents the cyclical nature of our recommended approach to budgeting; it is a process of continuous improvement which is designed to increase financial performance over time.

MEANINGFUL METRICS

There was an article recently in one of the Bloomberg’s publications looking at the reasons that there were hardly any signs of inflation, despite strength in the equity markets and some parts of our economy. The article’s focus was on the Federal Reserve and their inability to increase interest rates to “stave off inflation” when, in fact, there was none. Without going into the details of why inflation might be important, I wanted to point out the part of the article that I was drawn towards.

The realization is that buyers are simply not willing to pay more. As the article put it, “the buyers, armed with sophisticated tools and in-depth knowledge of the competitive landscape, see no danger in refusing to pay up”. That really struck a chord for me, as I keep watching the purchasers of our goods and services become more and more knowledgeable (thanks Mr. Jobs, Mr. Gates and Mr. Brin), and with greater price transparency of EVERYTHING, suppliers and retailers are left with nothing to do but to try to differentiate themselves, and to “focus on cutting costs, not raising prices”. The best run companies are not raising their prices, but somehow managing to maintain and slightly increase their profits.

Operational efficiencies grow geometrically in importance when (a) consumers are being enabled to shop and compare, and (b) competing vendors are embracing the need to be more efficient. There are many ways for oil and propane dealers to operate more efficiently.   There are cost-effective ways to market (hint: sell more to existing customers, and focus less on win-back postcards), as well as ways to improve service departments and CSR training. However, the lowest of all hanging fruit is in addressing the single biggest operating expense that you have: deliveries.

The cost of deliveries, which does vary from company to company (both in consideration of the real costs, and what costs are actually allocated to “delivery expense”) is no longer something that can be ignored. If you can save one delivery per customer per year, what would that do to your bottom line? How about two deliveries per year? Yes, I know the excuses – customers don’t want big deliveries and big bills, or if we run a customer out of oil we will lose them. Those excuses might be quite valid in many cases, but are they valid enough to cost you your ability to compete?

We find that a properly managed delivery program, supported by management/ownership, can tie together data, staffing, and the customer experience. If you KNEW what was in someone’s tank, how would you behave differently (if the answer is “not at all”, sorry for having you wait till the 5th paragraph to suggest that you stop reading now)?

Remote tank monitors are changing our industry. To get this out of the way, a tank monitor program is not the simplest thing to pull off. There are costs – monitors, monitoring, training, integration, changing routing, etc. But if it were so simple, everyone would be doing it. At present, it is the fastest growing initiative in the retail heating oil and propane space. But, as with all new things, some will investigate and embrace, others will just wait around until they know more, and lastly, some will come along kicking and screaming (or simply fail to compete). We wanted to present to you some findings that we have from exhaustive studies of deliveries and the true impact of remote tank monitors.

It doesn’t take much to PROJECT more efficient deliveries – moving from an average of 145 gallons per delivery to 195 gallons per delivery (into a 275 gallon heating oil tank) – will have obvious benefits. No matter how secure you are in the belief that things will be fine without monitoring, it is hard to simply ignore the benefits of deliveries that are 35% more efficient! The challenge comes in the form of “change management”. Will you use the data to make more efficient deliveries? If your deliveries are higher, but you don’t save on delivery costs (I.e. Same drivers for the same hours, with the same number of trucks, etc.), all you have done is made larger deliveries and found a way to be LESS efficient. Some hours will have to be cut back on, and some trucks retired or not replaced.

A client of ours fully embraced the use of monitors, and the results were astounding. Their non-monitored deliveries were slightly below 150 gallons, while their monitored deliveries approached 200 gallons. Interestingly, there were still customers – on automatic delivery AND with a tank monitor – who felt the need to call in for oil deliveries, but most of those were spoken with by CSR’s convincing the customers that a runout was not imminent.

When we look at the value of monitors, we look at three things: Need, Plan and Proof.

For the need, we would look at the distribution of deliveries by the dealer. Not the planned deliveries or the average deliveries, but the actual deliveries that the dealer made. Without drilling down into the numbers and the math, it is often just a simple chart that gets us where we need. See below:

Chart A:

  1. This bar shows a very high number of very small deliveries. Reasons can include split deliveries (last volume from a truck), credit issue or equipment issue. However, it usually just means it was a delivery that should not have been made.
  2. These bars represent a higher percentage of these customers will have had a fixed amount (100-150 gallons) delivered to them.
  3. Lastly, the bar to the far right end indicates that there were some deliveries that exceeded the full tank size. This is most likely caused by incorrect tank information being put into the BOS and needs to be corrected by the dealer.

 

Chart B, above, shows that even with a small average delivery size, the number of deliveries at that number are few, with most deliveries being well away from the average. This can indicate deliveries that are simply too small to be economically beneficial to the dealer, or deliveries that are well larger than what the dealer would be comfortable with.

As to the Plan, that can go in several directions. Since the general consensus is “it sounds good, but how do I implement it”, we suggest a few possibilities. The first is to start with your best techs (for installs), your best dispatcher – the less “old school” the better – and a manager/owner who will champion the effort, push it through, and understand that new things don’t always happen without challenges. As to choosing which customers to start with, there are two camps. The first camp (given the good dispatchers and focus on efficiency from management) believes that the focus should be to totally saturate a route or two, to see immediate benefits on that route or two. The other camp suggests looking at the worst offenders, as defined by either problem accounts, accounts with very unpredictable K-Factors or highest value customers who would appreciate that they have a monitor and the benefits that the dealer is bringing to them.

As to proof, while it would be wonderful to expect that everything would simply and smoothly change overnight – all installs worked perfectly, every communication went off without a hitch, every dispatcher and driver looked to maximize the delivery size – it is not realistic to simply move from 145 gallons to 195 gallons overnight. Our suggested approach is to work towards both improving the delivery size in reality (larger deliveries), and proving to yourself (psychologically) that this is the right thing for your business. We have seen that it can take time for full buy-in from the organization, and the best way to is to PROVE that the monitors are reporting properly. We created a reporting “widget” to compare the K-factor deliveries versus the Monitored deliveries.

On the K-Factor deliveries, the comparison (as seen below) the analysis would show the average delivery size, the typical variance from that average delivery size (this shows how “tight” or “wide” the actual deliveries are – similar to the bell-shaped curve above), and the percentage of deliveries that are more than 20% from the average. The point here is to focus on how predictable deliveries are.

On the monitored deliveries, the analysis would show the difference between the average estimated room in the tank according to the monitor, and the actual delivery size to fill up the tank according to the delivery ticket as entered into the BOS. By running the same variances, you can tell how accurate the monitor is relative to reality, and from there make a determination as to your comfort level in “trusting” the monitors to allow you to maximize the delivery size.

In all, a carefully planned deployment, including analysis, training, communication, and tracking the economic benefits, can be the single biggest financial benefit that you can bring to your business over the next few years. Need, Plan, and PROOF!

TECHNICAL ENHANCEMENTS

Data Science Has Come To Angus!

  • This initiative involves “deep learning” via neural network technologies using historical data to predict future consumer behavior and to offer recommendations to improve upon.

 

BRITE:

  • Default dashboards are now available to BRITE users. This allows administrators to create a default widget configuration and deployment to all new users.
  • Logos for all BRITE subscribers have now been added
  • Daily ETL process performance was improved

 

 

 

GREMLIN™ Tank Monitors

  • Our new 643 Cellular Tank monitor system enables the remote installation of propane tank monitors utilizing a cellular network to alleviate the need for WiFi access.
  • A complete rebuild of our mobile apps was completed using the Progress IDE bringing version 2 of both Dealer Install app and the Consumer Tank Monitor app and include a completely new UX, install feedback loop, auto-detection of Gremlin 750 devices, scrolling oil/propane tank options selector, push notifications and faster performance.
  • Separation of our tank monitor endpoints from our web services backend onto redundant Ubuntu servers has allowed us to increase monitor capacity and reliability.

WHAT OUR CUSTOMERS
ARE SAYING

Eli Van Etten, Van Etten Oil, shared the following benefits BRITE® and GREMLIN™ Tank Monitors, products of Angus Energy, has brought to his company*:

“This winter the weather has not affected our bottom line, thanks to Angus Energy. We now have a well-planned budget in place,have access to real-time data through BRITE, our price programs increased customer retention and now with Gremlin tank monitors in the field, we know precisely who to deliver to and when. The combination of these Angus Solutions has generated results that have frankly taken me by surprise…”

Please share your feedback, questions, comments, suggestions by emailing us at solutions@angusenergy.com

CONTACT US

Phone: 800.440.0472
Email: solutions@angusenergy.com

Disclaimer: When applicable, advice from Angus Energy may include a discussion about risk mitigation via commodity and/or weather hedging. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or to authorize someone else to trade for you, you should be aware that you could lose all or substantially all of your investment and may be liable for amounts well above your initial investment.

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TESTIMONIALS


* Testimonials may not be representative of the experience of other clients, and they are not guarantees of future performance or success. The testimonials provided herein are unpaid.

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