Posted by Nicole Baron on Wed, May 09, 2012 @ 02:58 PM
Poor Billing Practices: Sin #4 of the 10 Deadliest Sins of Oilfield Service Companies
You perform the work, you bill for the work, you get paid for the work. Oilfield service companies typically do the first part very well. Even so, many companies find their cash flow under constant pressure. What’s the problem?
According to Jory Lamb, President and CEO of VistaVu Solutions, nothing crushes a company’s cash flow like the inability to get an accurate invoice out the door quickly.
“There are two variables and one constant here,” says Lamb. “The variables are how long it takes you to create an invoice and how long your client takes to pay it. The constant is the fact that your own employees must be paid on time. When cash flow is tight, companies will meet payroll out of their operating line, not out of revenue. That’s expensive, and in the long run, it can be fatal.”
While energy service companies are high-tech when it comes to performing the work, many are still old-school in terms of getting paid. Field tickets and third-party bills come to the office, are entered into the system and over the course of several weeks, an invoice is generated. The manual component of many companies’ billing systems leads to errors or omissions on invoices and causes delays in payment from the client.
“The biggest thing that holds up bills is mistakes,” says Lamb. “The second is the time between capturing the information in the field and getting it on your bill. To collapse the time between doing the job and getting paid for the job, you need a quicker invoice and a more accurate invoice.”
Lamb recalls an instance a few years ago, where VistaVu worked with a company experiencing cash flow problems related to poor billing practices. By tightening up its procedures, and using the right energy services software, this company went from taking 30 days to generate an invoice down to 7 days. Just as important, the new invoices were more accurate, so the company received payment from their clients sooner. Improved cash flow allowed the company to stay out of its operating line on paydays.
Says Lamb: “Between better cash flow and lower interest costs, being able to quickly generate accurate invoices paid for the new system. Poor billing practices can hurt your business, but with the right advice and the right system, improving how you invoice is straightforward.”
Posted by Nicole Baron on Thu, Apr 05, 2012 @ 04:23 PM
Item Mismanagement: Sin #3 of the 10 Deadliest Sins of Oilfield Service Companies
They say everything’s bigger in Texas. You might observe the same about the North American oilfield services industry. From its equipment to its production figures to its economic impact, the numbers in the industry tend to be huge.
According to Jory Lamb, President and CEO of VistaVu Solutions, the industry does a good job looking after its big-ticket items. In his experience, however, smaller items and miscellaneous materials don’t always get the same attention.
“When you’re dealing with multi-million-dollar pieces of equipment, it might not seem important to manage items like hand tools or compressors,” says Lamb. “Oilfield service companies make their revenue with the big equipment, but how they manage the smaller items directly impacts their profitability.”
Lamb tells the story of a welding company he worked with some years ago. This company went through tools, such as impact hammers and torque wrenches, like they were going out of style. In addition to the tools that broke or wore out, this company constantly lost tools or left them behind on job sites. Over a two-year period, this company wrote off $300,000 in tools.
Some companies may feel, that’s just how it is in the oilfield services industry. They might shrug-off such losses as simply a cost of doing business. Lamb urges companies to dig into their own numbers and challenge these assumptions.
“It’s a balancing act,” says Lamb. “For every dollar in inventory you carry, it costs you 29 cents per year in extra costs. On the other hand, when you don’t have the right tools on hand when they’re needed, it hurts efficiency and reflects badly on the company.”
Not all companies are fatalistic about their small-item write-offs. They make it a policy to keep track of everything and use software like SAP Business One and FieldVu to make it happen.
One of these companies is Industrial Battery Products (IBP) of St. Louis, Missouri, a VistaVu customer. Gene Klein, IBP’s Vice-President of Finance, recently joined Jory Lamb in one of VistaVu’s recent live webinars. They talked about how IBP manages its smaller items using SAP Business One, and how this attention to detail pays off in dollars and cents. To see the recorded webcast, click here.
Posted by Nicole Baron on Thu, Mar 01, 2012 @ 10:12 AM
Are you guilty of committing the second sin on our list of the 10 Deadliest Sins of Oilfield Service Companies?
Lack of Internal Financial Controls
In the North American oilfield services industry, sales don't grow on trees. Whether your business is construction, equipment, rentals or services, project bidding is competitive and a compelling price is always an issue.
Since capturing revenue is so challenging, Jory Lamb wonders why some companies don't make retaining that revenue more of a priority.
“As I meet with oilfield service companies, some do not have the rigorous internal controls that are needed to ensure a meaningful profit,” says Lamb, President and CEO of VistaVu Solutions. "In fact, insufficient financial controls are a serious issue for companies in many industries."
Lamb cites the example of one firm he met several years ago, that produced a mere $50,000 in profit on $15 million of yearly sales. This poor result came largely because internal financial controls were practically non-existent. Virtually anyone could issue a purchase order to anyone for any amount.
As Lamb discussed with the company's leadership, this puts a company at risk on several levels.
First
- Ownership won't receive the kind of profit they expect and deserve.
Second
- Poor profitability prevents the company from investing in talented staff, more productive equipment and innovative technology.
Third
- This sort of wild-west environment offers a tempting invitation to those who may seek to defraud the company.
Says Lamb: "My experience is, no matter how good your marketing and sales program, lack of internal financial controls can take every dollar you produce, and more."
Once this company’s leadership decided to change, Lamb worked with them to achieve it. The company set up policies for internal financial processes, and enforced these on a day-to-day basis with its SAP Business One software. Within three years, strictly from internally generated cash flow, the company had started several businesses and moved into a new headquarters.
"Once a company has decided on the process policies it wants, we can set up SAP Business One to make it happen," says Lamb. "We can create a system of authorizations, approvals and alerts that help you keep more of your hard-earned revenue where it belongs, in the company."
Posted by Nicole Baron on Fri, Jan 27, 2012 @ 12:12 PM
Oilfield service companies depend on people, tools and technology to get the job done. On another level, you might say that information is the lifeblood of the industry.
Having worked with oilfield service companies for years, VistaVu CEO Jory Lamb believes that the management of information is a major vulnerability for many firms.
“When we meet with companies, we often see several information systems doing different things, and multiple ways for information to enter the system,” says Lamb. “Typically, there’s manual entry of paper tickets, Excel spreadsheets, a desktop accounting package and maybe a database for parts and equipment.”
As Lamb explains, mismatched - or disparate systems can cost you in a variety of ways.
First, multiple points of data entry increase the chance for human error. Companies run the risk of overpaying suppliers and underbilling clients, damaging their profitability.
Second, without a single repository of information, management will find it harder to make evidence-based decisions and tell credible success stories to prospective clients.
Third, without complete documentation of the company’s activities, it’s ultimately more difficult for owners to execute an exit strategy. For larger companies subject to Sarbanes-Oxley compliance, mismatched systems can create nightmares in terms of auditability and financial controls.
It's for these three reasons that mismatched systems can be so dangerous to your growing Oilfield Services business, and why we've made it #1 of our list of the 10 Deadliest Sins of Oilfield Service Companies.
It’s easy to see why mismatched systems occur. Companies grow step by step, adding new software as business conditions demand, often without an overarching plan. At some point, however, mismatched systems stop saving you time, start costing you money, and even preventing your business from growing. The solution: one system for everything.
“Managers want to run their company by the numbers,” says Lamb, “and to me, the most important number is one. You need to have one point of entry and one repository for information, with information made available to each area of the company as needed. When you have this, billing is more accurate, profitability increases and it’s easier for investors to see the value of the business.”
Posted by Jory Lamb on Fri, Dec 23, 2011 @ 09:17 AM
As we close in on Christmas, I look forward to spending time with friends and family.
Like many of you I feel among the fortunate. I have my health, my loved ones and an ability to provide for my family. However there are too many families with children young and old who are forced to wonder where their next meal will come from.
No family, no child should go without, especially in communities as affluent as ours. Like many of your organizations charitableness is woven into the fabric of VistaVu Solutions. As so on Friday Dec 16th VistaVu held our annual Christmas Scavenger Hunt. Each year we give each staff member $150 and a list of items to buy in a set amount of time. Each item has a different weighting of points and the winner is the one who spends all the money and collects the most points within the time frame. In the end our winner of this year’s Scavenger hunt was Roy Garcia, followed by Austen Zhang.
This year was unique as it was the first time we spanned this annual event across three cities, three time zones and 4300 miles. All the items purchased went
Calgary - Inn From the Cold to the following charities that support homeless families.
- $1800 of items/gifts donated
Houston - Star of Hope Mission
- $500 cash donation
- $300 items/gifts donated
Atlanta - Shelter Genesis
- $500 cash donation
- $150 items/gifts donated
A note of interest: In some of the charities, a gift of $500 will feed a family for a month.
I want to personally thank all of our customers and the great staff at VistaVu for giving me a chance to help some of these families through this holiday season.
Merry Christmas to all of you.
God bless,
Jory Lamb
Posted by Nicole Baron on Wed, Dec 21, 2011 @ 11:48 AM
Over the past few weeks, we’ve covered six key sins that otherwise well run oilfield service companies commit again and again. We’ve discussed:
- Lack of sales process
- Asset underutilization
- Item mismanagement
- Poor billing practices
- Lack of internal financial controls
- Management by crisis
And now, just before the holiday break we’re going to cover the seventh and final sin – which in our experience has proven to be just as critical as the first six.
The 7th Deadly Sin: Disparate Systems
Some companies use multiple software systems that require multiple entry of the same information. Very often, these companies run on a combination of paper, Excel®, a desktop accounting system and potentially a homegrown database of parts and equipment. There is no central repository for information and no single point of data entry.
Almost every company VistaVu has worked with has a combination of paper, excel®, some desktop accounting system and potentially a home-grown database of parts and equipment. It’s a recipe for confusion and potential disaster.
In a company’s early years, it’s possible to manage reasonably well with disparate systems. Jory Lamb, President & CEO of Vistavu recalls working with a client to get their management system up and running. Lamb says "It wasn’t easy and the front-end staff didn’t embrace or enjoy the change. But the owner persevered and the system went live."
Jory remembers walking into that same client about three months later and on the administrator’s desk was plaque and it read “If it looks like I’m not doing anything, it’s because I did it right the first time.”
Why are disparate systems a sin?
#1: Because it causes extra effort and has the potential for errors.
#2: Because searching for information is a poor use of management time.
#3: No one wants a business that’s inside your head – no documentation is risky.
Having mix-and-match systems can cost Energy Services companies in a variety of ways. Companies with poor documentation and disparate systems lose bids because they can’t provide proper records of their success stories. They can’t fix problems and errors occur in billing and ordering. Finally, no documentation means no exit strategy for the owners.
“For larger companies subject to Sarbanes-Oxley compliance, there is also no control or auditability on the transfer of the information from one system to another,” says Lamb. “Spreadsheets get overwritten, paper gets lost and nothing talks to the accounting system.”
Posted by Nicole Baron on Mon, Dec 19, 2011 @ 12:43 PM
Happy Monday – we’re kicking it off with our 6th Deadly Sin of Oilfield Service Companies post. This week, it’s all about management by crisis.
The 6th Deadly Sin:
Management by Crisis
The Energy Services industry is one with a history of crisis management. The well is plugged with sand, the well fills with water, the compressor seizes up and stops working, etc. When crises occur, crews mobilize, time is of the essence and the financial implications are secondary.
VistaVu once had a client with a multi-million dollar drilling rig laying in the yard, unable to go out and work. Why? Because a window for the dog house hadn’t been ordered.
As President & CEO of VistaVu, Jory Lamb sees it - when you’re always in crisis mode, it’s hard to think about the future. Habitual management by crisis results in poor employee morale, reduced product or service quality, lack of consistency in delivery to the customer, and lower profitability.
Given this, it’s important to have a system that looks ahead and alerts you well before an issue becomes a crisis. Lamb recommends that companies pay particular attention to gross margin, deviation from budget, outstanding receivables, preventative maintenance and employee certifications.
Posted by Nicole Baron on Fri, Dec 16, 2011 @ 10:22 AM
As a continuation of our 7-part blog series on the Seven Deadly Sins of Oilfield Service companies, this week we’re diving into Sin #5: lack of internal financial controls.
The 5th Deadly Sin:
Lack of Internal Financial Controls
In our experience, we’ve seen that there’s a direct link between profitability and internal financial controls – likely for any business, but especially when you’re an oil & gas product and/or services company. When controls are absent, profitability cannot be taken for granted. A few years ago, in fact, one VistaVu client earned just $50,000 in profit on $15 million in revenue. Despite being a respected player in the market, this company had next-to-zero control over approvals, budgeting, authorizations and job costing.
“A company without sound internal financial controls will find it difficult to grow,” says Jory Lamb, President & CEO of VistaVu. “You won’t have the money to invest in new technology to make the workplace more efficient, safe and environmentally friendly. You won’t have the money to pay people more as they grow in their jobs. Your best people will leave and ultimately, so will your best customers. That’s how important internal financial controls are.”
Posted by Nicole Baron on Tue, Dec 06, 2011 @ 09:22 AM
"In this industry, it's not about how much you make, it's about how much you keep".
After many years of providing software solutions and working closely with oilfield product and service companies, Jory Lamb has seen it all. As President and CEO of VistaVu Solutions, he’s observed that many otherwise well-run companies make the same operational mistakes over and over again. He calls these the Seven Deadly Sins of Oilfield Service Companies.
In this 7-part blog series, we’re sharing Lamb's advice on how to keep more of what you make.
The 4th Deadly Sin: Poor Billing Practices
The sooner you can get an invoice to your customer, the sooner you are likely to be paid. Just as important, your invoice needs to fully account for every dollar you’re billing with appropriate and well-organized documentation – such as AFE numbers, well names or signed approvals from well site supervisors. Otherwise, the customer may toss your invoice into the ‘problem pile’, where it could sit for weeks or months.
As a recent example of this with one of VistaVu’s clients, by reducing their billing from 21 days out the door to 7 days – at a 6% interest rate, they projected they saved $45,000 just based on the cost of cash alone, which could possibly be doubled in banking service fees from using less of their operating line.
Says Lamb: “If it takes three weeks to get an invoice out the door, and three months to get paid because your documentation was poor, your business will suffer. A fully documented invoice in seven days is necessary and very achievable.”
Posted by Nicole Baron on Fri, Dec 02, 2011 @ 10:30 AM
Now that we've looked at our first 2 sins - Lack of Sales Process, and Asset Underutilzation, for our third post in our 7-part series on the Seven Deadly Sins of Oilfield Service Companies, we are going to explore item mismanagement.
The 3rd Deadly Sin: Item Mismanagement
Under-utilizing large assets is a sin, but so it mismanaging small tools, parts and other materials. Many companies write off tens of thousands of dollars each year in these smaller items, simply because they can’t keep track of them. This leads the companies to buy more and more of these items, so that what they need is always at hand.
“It’s a tricky balance,” says Jory Lamb, President & CEO of VistaVu Solutions. “When we don’t have the right tools on hand, it reflects badly on the company. If we have too much inventory, it costs money. In fact, for every dollar in inventory you carry, it costs you 10 to 30 cents per year in extra costs.”
Lamb continues “I know this welding company. In two years, they had written off $300,000 in tools. Impact hammers, torque wrenches, you name it. It was a perpetual yard sale. In fact, the manager joked that the competition would just follow behind them on each job to outfit their own trucks.”
Mismanaging small tools and parts like this can often be overlooked, but cost oilfield service companies in huge ways. For sure, inventory mismanagement is a cardinal sin in this industry.