Editor’s Note: The following article is written specifically for company owners. If you are a controller or other non-owner professional, please be sure your owner reads this article!
As a petroleum company owner, have you ever looked at your P&L operating expenses and wondered, “Where is all that money going?” If so, vow that this is the month you’ll really find out!
Depending on the size of your company, you may have lost total contact with payables. You simply never see the checks that are written. Instead, you see some major categories of expenses on an income statement.
Unfortunately, for most petroleum companies, no one in the organization has at much at stake in those costs as you. No matter how good and conscientious your staff, you are the one that has the most to lose or gain when it comes to cost control.
So, for just one month, sign all the checks and see where your money is going. Impossible due to the volume of checks? O.K. Sign a percentage of those checks – 50%, 25%, 10% whatever. Seeing those checks will perform a very important function. You will know exactly how your company’s cash is being spent.
Now, you may not actually sign those checks. You may be looking at a list of checks that will be signed. The idea is for you to see the dollar amounts and vendors.
Why? So you find profit potential! You are looking for those things that jump out at you and you think to yourself, “Why are we paying this company for this?”
This can be a particularly eye-opening experience about your company’s capital expenditure habits. Do you know how much cash gets spent each month for certain purchases? Since fixed asset purchases don’t show up anywhere on an income statement, signing checks can help you identify each and every dollar being spent on assets.
This is also a good opportunity to see exactly who (vendors) your company is doing business with. You may have opportunity for cost savings by consolidating vendors. For instance, one company found that by bundling all their outside maintenance needs into a package for bid by local maintenance suppliers, they saved over $50,000 per year!
Also watch for vendors you shouldn’t be doing any business with due to reputation or lousy service. You are often in the best position to know what’s going on.
Finally, if you don’t like what you see, don’t blame your accounting people. Your costs are the direct results of your systems. If your payables system isn’t working, fix it. That may mean purchase orders, spending limits, or just general education about cost control, vendors and bidding.
Also, take a minute to read this month’s article about pay for performance. If your staff is paid based upon your company’s earnings, they’ll be more inclined to champion cost control at your company.