Warm Winter Requires Adjustments

Joe Ciccarello, CPA
Jeff Foley, CPA
Gray, Gray & Gray, LLP
March 2012

This year’s edition of the Farmer’s Almanac called for a blizzard to hit New England at the end of January. Instead we got record high temperatures and an extension of one of the warmest winters in history. Nobody expected such a mild winter. Nobody in the oilheat industry wanted it. But now that we have sunshine and highs in the 60s, what can you do to adjust?

A quick survey of our clients shows that gallons sold are down by 20% across the board. The oil company that expected to be an 8 million gallon dealer this year? It is only going to be a 6.4 million gallon dealer, and must change the way it operates to adjust to the shortfall. That means cutting overhead and payroll costs, consolidating operations — all the things no one likes to do.  Unfortunately, during times like this, these changes are essential for survival.

One thing you cannot do is sit tight and attempt to wait out the weather. Even if we enter sudden deep freeze that lasts into April, it will be impossible to make up the lost gallons. The time to take action to salvage the season is right now. You can’t wait until May or June to talk to your banker, your suppliers and your accountant.

Talk to your banker. Bankers who were nervous about lending money before the season started are going to be totally agitated by your numbers. Don’t try to hide the truth, and don’t wait to surprise the bank at the end of the season. Make it a point to contact your banker, apprise him or her of the situation, explain the relationship between weather and sales, and describe the challenges you are facing. A rational banker will understand what you are going through and try to help you work through it.

Talk to your suppliers. They will not be surprised, as they are involved in the industry on a daily basis and are hearing the same story from each of their customers. The gallons you committed to last summer are simply not going to be purchased. Understand that there may be penalties to be paid. But the suppliers want you back next year and may be willing to work with you if you are willing to work with them.

Talk to your staff. Hours may need to be adjusted or cut. Seasonal workers may need to be let go, and positions consolidated. Don’t allow your people to let down on customer service, as now is the time when servicing customers can help solidify a good relationship. If you do keep staff on payroll and there is not enough work to do, consider allowing them to volunteer in the community while on the clock. Its great PR for your company.

Talk to your accountant and ask them to help you to readjust your budget for the remainder of 2012. If your accountant is only interested in doing your tax returns or auditing your books at the end of the year, find another one who can help you focus on managing your business profitably.

Find ways to replace lost sales and profits. Start to be more aggressive in marketing new installations, air conditioning systems, and equipment repairs. Diversify your product line. Is this the time to become a true energy company? Think about adding propane or electricity to the mix. You may even consider starting to provide service for gas customers!

In every crisis, of course, there is opportunity. A down year may push many oil dealers into retirement, or make them more willing to sell their companies. If your balance sheet can afford it and your banker is willing to work with you, you can take advantage of the dreadful winter and look for acquisition candidates in your neighborhood.  Insist on a retained gallons deal where you don’t have to come up with a lot of cash up front.
The long, warm winter is a challenge none of us counted on. How you react and the steps you make to adjust to the reality of the situation will dictate whether or not your oilheat business emerges from the crisis intact, or perhaps even stronger.

Joe Ciccarello and Jeff Foley are partners at Gray, Gray & Gray Certified Public Accountants, a Boston accounting firm (www.gggcpas.com). Gray, Gray & Gray has served the accounting, tax and business advisory needs of companies in the oilheat and energy industry for more than 66 years.

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