Six Ideas Energy Companies Can Take to Improve Cash Flow
Updated: Jul 1, 2020
The challenges of the COVID-19 pandemic are sending shockwaves through businesses across industries – and energy is not immune. Companies of various sectors and sizes are feeling the impact, and right now, cash flow is king. Your company cash flow could be the difference in the ability to move forward with confidence or with trepidation. Here are six ways that energy companies can free up or generate more cash during these times.
#1: Evaluate your current business model
Before making any changes, it's important to get a firm grasp of your starting point. To do so, spend some time with your leadership team. Revisit your current business model and examine the following:
Ways you currently generate revenue
Essential resources including talent, tech, materials and equipment
Your value proposition
Based on your current model, is there a need that you aren't currently focused on that you could ramp up quickly and market to customers? Could you diversify your business and offer customers a product or service outside of the energy market? Alternatively, could you offer a product or service that requires little work to a customer, such as a safe vertical market in an upstream or downstream segment?
As you run through the evaluation with your leadership team, keep these questions in mind, and look for ways to pivot and start generating more income quickly. During the last downturn, The Energy CFO went through the same process which led to the launch of our healthcare and medical device division, The Healthcare CFO. We have firsthand experience re-evaluating business models and pivoting into new markets.
#2: Reduce operating expenses
Reducing expenses increases cash flow. Examine your current operating services to see what you could outsource without compromising quality and customer service. Outsourcing saves, on average, one to three percent in gross margin. It can also improve cash flow and eliminate the headaches of your ongoing attention to certain aspects of the business.
The Energy CFO offers several outsourced services including monthly/quarterly financial planning and analysis, financial modeling and forecasting, and competitor analysis. Bottom line, we deliver a reliable higher quality and more cost effective service than our private clients can.
#3: Reengineer business processes
You can reduce your cost of goods sold, operating, general and administrative (G&A) expenses by targeting high volume, low-value work opportunities. Looking at these business processes and associated expenses, what can you automate, outsource, or optimize? Find ways to accomplish more with less manpower. Your business could benefit from reducing direct employee expenses and any hidden costs or potential bottlenecks that contribute to other problems. Don’t forget to factor in the cost of indirect and owner time and cost associated with these business process as well as the opportunity cost of higher value work not getting completed due to competition for time, attention, and resources
#4: Assess work from home options
At the onslaught of the COVID-19 pandemic, did your company, and particularly your admin and functional support departments (sales, marketing, engineering, credit, procurement, finance, accounting, payroll, collections, HR, etc) work from home? Assess how effective your back office was during this time and consider using this model moving forward. Would it make sense to have them continue working from home at least part of the week? If so, you could potentially reduce office space requirements to generate savings or rent the extra space out to a smaller company.
#5: Reevaluate employee compensation
If the work from home model works well for members of your team, discuss employee compensation with your Human Resources manager. What options do you have to reevaluate existing compensation? There is a value and benefit to employees who want to work from home. It's convenient, saves personal travel time, and reduces household costs in terms of transportation, meals, etc. The Energy CFO has employed a remote workforce for several years now (we actually won an award in 2019 for being so innovative), and we can also share some ideas on how to transition to this model effectively. Just give us a call.
#6: Apply for a Second Round of the Payroll Protection Program Loan
Additional PPP loan funds are available again, but this will not last long. Consider applying at your community SBA bank if you have an established relationship with them – but do so quickly.
Do you need someone to help facilitate freeing up your cash flow? At The Energy CFO, we help owners generate and manage financial momentum™. Call or email us today for an initial consultation. We can schedule a Zoom meeting with your team to brainstorm and challenge ideas.