Joe Ciccarello, CPA
Gray, Gray & Gray, LLP
August 2012
Have you seen the motion picture Moneyball? Or read the Michael Lewis book of the same name? If so, you know how general manager Billy Beane (portrayed in the movie by Brad Pitt) transformed the way the Oakland A’s baseball team managed the critical process of player selection and development. Beane, assisted by young computer whiz Peter Brand, replaced instinct and gut feeling with statistical analysis, facts and figures. He revolutionized the way baseball scouted and assessed players.
Let’s face it, you are no Brad Pitt. But many of the techniques and methods his character used on film to improve a baseball team can be adapted and applied to your oilheat business to make it more efficient and effective.
If you are still running your oilheat or propane company the way your father ran it, or even the way you ran it as little as five years ago, you are in danger of being overtaken by the shifting marketplace. Beane and his associates applied the adage, “Measure what you manage,” to the baseball field. You must do the same with your business.
To soundly manage your organization, it is essential to measure and benchmark key performance indicators. These can almost always be linked to financial performance: money coming in or money flowing out. Tracking, measuring and benchmarking these costs is the only way you’ll have a basis for making the right decisions for your business.
Like Billy Beane evaluating the merits of a shortstop, you must first determine which criteria are important to focus on. It may not be the easy, obvious ones. For an oilheat or propane dealer, a basic set of key performance indicators should include:
- Payroll costs: payroll, payroll taxes, health insurance, employee benefits, bonuses
- Product costs: oil (rack or program), propane, kerosene, storage, transportation
- Delivery costs: driver payroll, truck amortization, maintenance & repairs, insurance, dispatcher
- Service costs: service technician payroll, service trucks, insurance, maintenance & repairs, parts inventory
- Marketing costs: advertising, sales staff payroll, bonuses & commissions, website, direct mail, customer incentives, charitable contributions, sponsorships, association dues, printing
- Overhead costs: office equipment, rent, property taxes, excise taxes
- Financial costs: loan interest, hedging costs, past due accounts
- Revenues: service income, product income (oil, propane, etc.), equipment sales, parts sales, rental property, interest on past due invoices
What do you do once you start collecting data? Compare it with last month’s performance, then last quarters, and, eventually, last year’s. Where have you improved? How? Where are you falling short? Why
The information gathered should also be compared to industry statistics. Ask your accountant for to provide you with standards that can be used to benchmark your company. Your accountant can also help you calculate key indicators such as your break-even point.
Use the information to run your company. Share you findings with your managers so that they know what processes – and which employees – they need to work to improve. Look for trends in the data that may indicate a potential problem, or a possible opportunity. Consider performance data when making financial decisions such as the right time to invest in a new delivery truck, or whether your hedging program is working.
Even though it might be time consuming, developing criteria to accurately assess costs and revenues will benefit your company. Good metrics will help reduce costs and improve processes. If you have a justified and reasonable benchmark, people will aim for it, and leadership can target problem areas to reduce costs, while looking for other opportunities to improve efficiency.
Moneyball showed that Billy Beane was not just looking for the baseball player who hit the most home runs or had the highest batting average. He dug deeper to uncover assets and liabilities that were better indicators of future success. Put the lessons of Moneyball to work for your oilheat or propane business and you’ll have a much better chance of fielding a winning team.
Joe Ciccarello is the Managing Partner 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.