Cash Flow Management Strategies for Fuel Distributors

From planning routes and hiring employees to drumming up sales and keeping existing customers, administrative duties can fall by the wayside for any small business owner. But there’s one task that must be monitored and tracked daily: cash flow.

What is cash flow management?

At a basic level, cash flow is the movement of money in and out of a company in a given timeframe. If dollars coming in exceed dollars spent, your net cash flow is positive (and vice versa). While positive cash flow doesn’t necessarily mean you’re profitable, it does mean you have the dollars to maintain operations and potentially grow the business. 

Cash flow is considered the ‘lifeblood’ of any business – and this is especially true for small businesses. And for fuel distributors just starting out or working with a small customer base, keeping the lifeblood flowing can sometimes be a challenge.

Q&A with Tom Zubik, Western Global Finance – National Account Manager

We wanted to learn a little more about the importance of cash flow, and how to manage it. Our equipment financing partner, Tom Zubik, national account manager with Western Global Finance, answered some of our questions.

Q: Why is cash flow important to a business?

A: Cash flow really starts, at the most elementary level, with keeping the lights on from day to day and making payroll. Once you have those basics down, you can begin to think about growing your business in a sustainable, prudent manner. The more positive cash flow you have, the more you can invest back into the business, people and initiatives to grow. 

Q: What are some of the most common mistakes you see business owners making in the fuel distribution space?

A: Not keeping up with daily operations — and this applies to a lot of small and mid-sized business owners. You can get behind the curve pretty quickly if you’re not staying on top of your cash flow literally on a day-to-day basis. If you’re a small operation, it can be easy for those back-end office functions to fall off the radar because you’re busy bringing in more jobs and doing the work.

One thing that can really trip up a small business owner is not paying specific attention to your accounts receivable, instead of making sure you’re collecting the money that’s owed to you. 

Q: What other mistakes do you see in the industry?

A: One thing we often see is owners or companies using a revolving line of credit for capital expenditures, like equipment. The revolving line of credit is really to help you smooth out some of the cash flow inconsistencies, whether it be seasonal slowdowns, payments to vendors or meeting day-to-day operations. But a line of credit is not really meant for those larger capital expenditures and capital investments.

Q: How should they be paying for or financing those equipment purchases instead?

A: You can finance it separately through a term loan. That way you’re not eating up that availability on the line of credits. If you needed to make payroll or pay a supplier, the line of credit isn’t there because you’ve utilized it for a lump sum payment on equipment that could have been paid over five years or four years instead. Financing allows owners to budget their monthly payments and use the money they earn from utilizing their new equipment to make those payments. 

Q: As you mentioned, it’s really important that business owners keep track of their cash flow. How can they do that?

A: Maintaining an updated statement of cash flows is really helpful. It allows you to keep your arms around your debt schedule and your monthly payments. Keeping track of your accounts receivable and updating it as payments are made. 

Q: Is there any other advice you would give distributors about managing cash flow, or their finances in general?

A: As your business grows, don’t be afraid to bring someone in from the outside. It can be hard to let go of that control of the checkbook. But, as your business gets more complex, having outside help can help you grow — and take something off your plate.