Face the facts. Record high fuel prices combined with the current rocky economic climate means the petro business is more dangerous, difficult and turbulent than ever before. It doesn’t matter if you are a one county, two-truck rural marketer, a multi-region wholesaler with thousands of commercial customers, or 200+ dealer supply outfit, your prospects for a terrific 2008 are tightening up. Already you may be seeing:
Smaller volumes due to cost-conscious street level consumer mentality
Loyal ag and wholesale customers asking for split loads rather than full because they can’t pay for a full load with the new price
Receivables getting longer because customers are cash strapped
Suppliers tightening credit line requirements
Entire segments like construction taking a nose-dive
Your bank(s) rethinking their petroleum positions
Never before have I seen the cash flow pressures in the industry I’m seeing today. With every TV news worthy event there is a domino effect impacting you. If you think you can “wait this one out,” you could literally be out of business. So what can and should you do? Here are some strategies:
Volume drop-off – you can’t make your customers buy more fuel, but you can fill in the gaps left through other revenue sources. This revenue may come from petroleum, or from projects outside the petro industry. If you have fleets in your area, consider mobile fueling. No fleets? Then look for what are the growth trends in your area. This could be retail strips, hotels, other types of businesses. In a declining area? Then figure out what people are spending money on as they move out. Get your arms around the demographic trends in your area and capitalize on pockets of opportunity. You can use demographic specialist firms (IMST @ 800-231-4678 is a good one) or simply spend time with local business leaders, Chambers, economic development groups, etc. Many fortunes are made during recessions.
Requests for split loads – Kiss all your dispatch efficiency good-bye when this becomes prevalent. But, recoup any extra costs through pricing and split load fees. Offer your best pricing to full load only. Educate all your front line staff on pricing and fee procedures. Create a no-surprises communication plan for your customers, orchestrated with your sales professionals. You can empathize with your customers, but don’t allow yourself to be victimized.
Customers stretching out receivables – I won’t preach EFT to you – it’s too late for that. So let’s get proactive with other solutions. These include:
1) Ask suppliers for longer terms (yes, they do this – ask!)
2) Increase your bank line (offer up new collateral and lower your rate while you’re at it!)
3) Personally loan your company money
4) Find outside local investors who want more than pitiful CD returns
5) Sharpen up your staff’s credit and collections skills and take collateral on largest accounts. (Good resource is your local National Association of Credit Management chapter @ www.nacm.org)
6) If you have diesel or other unbranded fuel, consider buying a portion of your gallons from reputable fuel brokers who will typically provide longer terms (i.e. World Fuel Services @ (415) 925-1332).
In addition, consider receivables insurance (not factoring). Receivables insurance impacts your borrowing base freeing up more of your bank line. (One source we’ve had clients successfully use is Trade Risk Group, Jay Tenney @ (214) 496-9905).
Suppliers tightening credit lines – Your best offensive strategy is to fully understand how your suppliers set limits. Once you know their performance benchmarks, all the ratios that go into your credit score, you can assess whether you can play ball or if you need to find other suppliers. I’ve seen credit problems instantly “solved” once marketers knew how they were being scored. Current ratios, debt ratios, equity percentages are all benchmarks you can control once you know the targets. Ask for a bigger line now, not later.
Industry segment declines – Any time you are dependent upon the success of a single industry to keep your sales going, your fate is in their hands. The more gross profit you make from one type of business, the more you will feel the pain when they decline. Diversification is essential during recessionary times. Entering new business segments when your cash flow is poor is scary, but, believe me when I say there is more risk in sitting there with that huge dependence on a single industry. You may need to expand your geography or diversify beyond petroleum to fully mitigate your business risk. You may find coming to our May event just the jolt you need to get your brain moving beyond your self-imposed limits.
Bank(s) rethinking petroleum – Having access to low-cost capital is absolutely critical. Use a three-prong approach to mitigate this risk.
1)Be your current banker’s best friend. This means sharing more info than they require, taking your banker to lunch, really working at a great relationship with no surprises. Educate your banker about what is happening and your proactive actions you are taking.
2)Keep second and third banks waiting breathlessly in the wings. When you have a capital project, invite others to bid and let them know they weren’t the winner but keep them in the loop. Keep them eager for a chance at your business. If you primary lender falls out of love with petroleum, you’ll have number two and three already waiting for the chance.
3)Befriend a lending professional. At our event in May, I’ve invited one of the country’s best, Corey Henriksen, who has access to over 150 lenders who are still excited about petroleum, to come spill his secrets. (Corey Henriksen @ (949) 481-8500).
Let me also share with you some words of wisdom I received in a broadcast email from one of my mentors, Jay Abraham,
“For those people who are agile, attentive and keenly focused on market (and marketing) gaps – it’s probably actually easier to prosper, today, than ever before. I know, I know, that statement may sound preposterous. But it’s always been easy to take huge chunks of market share away from competitors when they are all scared, paralyzed and running for “reactive” cover, while you systematically “Zoom In” and penetrate (and exploit) all the market voids that they’ve left wide open.”
If you want to tackle your cash flow by the horns, I invite you to check out Meridian’s monthly cash flow coaching program, where marketers just like you are experiencing 10-15% gains in cash and profit improvements in the 6% to 8% range. Whether you are a great company just fine-tuning, or literally struggling and strangled from a cash perspective, this program can help. Without leaving the comfort of your office, you and your team can get fresh ideas and full cash and profit control. You know in sports that every winning team has a great coach. If you are “coachable” and serious about cash and profits, then call my office at 800-728-9005 today to explore whether our M-Power program is a good fit or not for you.