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Navigating Businesses In A Downpour

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Navigating Your Business

Have you ever been driving in the middle of a nasty rainstorm and you just could not see out the front windshield? You are forced to basically rely on your other senses and instrumentation, and, if you are lucky, solicit assistance navigating the road from your passengers (trust me, once their hands are locked around the door grips and they are assuming the crash position, they are of no use). After it is all over, do you decide to start planning ahead and pay more attention to the forecast so you can avoid putting yourself in such a dangerous situation? If so, you are not alone!

There are times when navigating our businesses in this industry can feel like you are driving blindly in a torrential downpour. Do you find yourself wondering what tools your competitors are using to run their businesses? Are you curious about what types of information large energy companies’ strategic, operations and financial planning departments produce to assist executives in their decision-making? What key business drivers or key performance indicators (KPIs) do these companies track that are really useful in running their business (versus what we call “vanity metrics”)?

Having the benefit of 20 years’ experience designing, building and using planning tools for all sizes of companies across the energy value chain, here are a couple basic tools to start with:

Cash Report

The cash report forecasts how much money you expect to receive (cash receipts) and how much you expect to spend (cash disbursement). Cash reports are prepared on a daily, weekly or monthly basis. Basically, the time period depends on how tight cash is (if it is really uncomfortable, then daily or weekly is preferred). This tool promotes tactical cash planning and financial discipline, and is often used to facilitate cash discussions with owners, executives and trustees. The projections are best when they are realistic and achievable.

Flash Report

The flash (goes by various names, but this is the most common) is a tool used by management to gauge the weekly liquidity (working capital or accounts receivable, inventory and accounts payable), productivity (production, wells drilled and completed, services performed, products delivered, barrel oil equivalent or pounds of chemical sold) and estimated profitability or income of the company (meaning for every dollar of sales, how many cents on the dollar you put in your pocket). Flash is intended to enable owners, executives and managers to quickly understand the current financial picture. It’s an 80/20 estimate at best — the direction of the weekly trend gives you a feel for how the company is doing.

Cash Flow Forecast

This is a longer term cash forecast used to estimate cash receipts and disbursements (see Cash Report, left). For borrowers, most bankers want to see at minimum a 13-week cash forecast. Many companies use a more robust rolling forecast with 12 to 18 months of data. The forecast is updated frequently for new information, which is one of the major factors distinguishing it from the dreaded annual budget (a static forecast that in most companies is out-of-date by the time it is approved).

When we build these rolling forecasts, they will vary in sophistication and complexity depending on the needs of the client, project budgets and the systems they are using. In my experience, hands down some of the hardest forecasts are large midstream businesses with master limited partnership structures and end-to-end liquefied natural gas businesses (wellhead to the tailgate of the regasification plant). Building one of these more complicated forecasts is kind of like performing mind-bending mathematical gymnastics.

Monthly Operational and Financial Review

This review is used by owners, executives and leadership teams to review performance across the company. Depending on the size, structure and ownership of these companies, this type of review may actually be conducted in board meetings (more common for multinationals and foreign-owned subsidiaries). The standing agenda or order of topics will vary by company, sector and specific business:

ω Health, Safety, Environment and Community

ω Capital Expenditure Spending

ω Sales and Marketing

ω Business Development

ω Procurement or Supply and Logistics

ω Financials

ω Operations or Production

ω SWOT Analysis

ω Operating Costs

ω Human Resources

ω Project Execution and Current Schedule

ω Management Scorecard

Note: SWOT stands for strengths, weaknesses, opportunities and threats.

Keep in mind, the composition of the individuals making up the leadership team will vary by company. Actual composition depends on the size, ownership of the business and what the CEO or owner wants. In larger companies, that may include owners, executives, heads of functional areas or divisions, strategic/operational/financial planning teams supporting these folks, and sometimes guests or high potentials. In private family-owned companies, it is not uncommon to have the younger generations sit in to learn. Likewise, there are some private owners who prefer to limit the information and audience with whom that information is shared.

Highly successful cohesive teams check their egos and agendas at the door and use reviews as an opportunity to spot trends, brainstorm and/or debate whether they need to pivot

This review typically includes charts, graphs, calendars and other data comparing actuals, the latest estimate and the annual budget. Frequently, the business or functional owner of each section will provide commentary including:

» Explanations for major variances (rigorous questions are expected)

» Expected changes (brief the team if you expect to miss a target or hit roadblocks)

» Risks and threats (local and global)

» Signposts ahead (local indicators, disruptive technologies and applications, trends with competitors or emerging companies, direction of macroeconomic factors like currency and GDP, OPEC supply playbook, etc.)

» Any other uncertainties (When will the Federal Reserve raise interest rates? How much Iranian oil will hit the market? What is the overall health of Europe’s and China’s markets?)

Without fail, there are always lively debates and good conversations. Honestly, no one knows the answers to all the questions, and it is not uncommon for folks to circle back after meetings with additional analysis.

These sessions should not be used as a substitute for daily communication and coordination or “for show.” Rather, these reviews are used by the team to assess their past and present performance, and anticipate what the future holds. Highly successful cohesive teams check their egos and agendas at the door and use these reviews as an opportunity to spot trends, brainstorm and/or debate whether they need to pivot.

Remember, the men and women who keep us on our toes (our toughest competitors) are often successful because of their flawless execution of the fundamentals

They also show a high level of trust — participants maintain confidentiality, and disagreements are respectfully not shared with staff outside of these meetings. The planners and next in line are expected to observe, contribute, ask questions and learn. And their participation is twofold — holding them accountable and being the recipient of the leadership team’s commitment to mentoring and the transfer of the organization’s “brain trust.”

Now, there are many more tools in use. These are the basics. Likewise, there is a lot of variation in practice. If you are just starting out, keep it simple. Remember, the men and women who keep us on our toes (our toughest competitors) are often successful because of their flawless execution of the fundamentals — what we call “good blocking and tackling” at my firm. Be assured these competitors do this day after day and have developed a kind of “execution mojo” that we would argue is analogous to the muscle memory exhibited in great athletes.

Honestly, you do not have to be a billion-dollar titan of industry or have an army of planners to have these tools — what it does take is a commitment of time and resources, a culture of integrity and candor, great communication and coordination across the business, a willingness to experiment and tinker with data, and analyzing patterns and consistency.

About the author: Paula Waggoner-Aguilar is with The Energy CFO LLC,

a niche entrepreneurial energy finance firm providing CFO leadership to energy and

technology entrepreneurs and startups.

To learn more about services available at The Energy CFO, visit

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