What Will Your Business Look Like in Five Years?

Joe Ciccarello, CPA
Gray, Gray & Gray, LLP
July 2012

Can you predict the winner of the Kentucky Derby in the year 2017? How about taking a guess at where the stock market will close on July 1, 2017? Or how much a barrel of crude oil will cost five years from today?
Nobody can predict these events with any accuracy. We have no control over the factors that affect each of them. Yet it is essential that you “predict” what your business will be like in five years. That’s because you need to start making plans and decisions today in order to craft an organization that will continue to exist as a viable business in five, ten or even fifty years.

Given the trends in the energy market and the economy, here are six ways in which your oilheat company might have to change over the next five years.

1. Service will become your primary profit center. Given the “double whammy” of high prices and the exodus of customers to gas, sales of heating oil will play a diminishing role for your business in the future. Instead of a product sales company that also offers service (often as a loss leader), you’ll become a service provider that also happens to sell oil. In effect, you’ll become a service company with a distribution division for oil, propane and electricity sales. That is a significant reversal that will require changes in operations and attitude. Your service vans will now be more important than your oil delivery trucks. Rather than giving away free service to attract oil customers, you may end up discounting oil to attract service business. And your service will extend beyond oil-fired equipment to encompass gas equipment, HVAC and air conditioning. That’s where future profits lay. One caution: make sure you survey a customer’s equipment before offering them a service contract, or you may be forced to provide many more hours of service than anticipated, eating up any profits.
2. You will have a more diverse offering of products and services. Many oilheat companies are already making moves to offer their customers more and different services. Air conditioning is a natural fit, providing an off-season source of income that is also directly related to home comfort. An increasing number of dealers are adding propane to their product mix. Other dealers are being more creative, adding plumbing, home security and servicing gas equipment. The more “legs you have on the stool,” the more balanced and predictable the income stream. However, adding a new product line such as propane can require a great deal of investment in equipment. One approach may be to acquire a competitor who is already set up and selling propane to avoid having to infuse a lot of capital in the start up.
3. No more bulk plant. Having a ready supply of oil was important in the past, and many dealers used their bulk plant as a selling point with customers. But, with the exception of remote rural areas, many dealers are finding the operational and environmental costs of a bulk plant do not justify the benefits. More and more dealers will rely on wholesalers for storage and “just in time” delivery of product.
4. Revenues will be lower, so budget accordingly. Shrinking revenues from dwindling oil sales may be a permanent situation, not a temporary blip. This will require you to reevaluate and revise the way you put together an annual budget, reallocating funds to support those areas of your company which offer the most potential for profit in a changing business climate.
5. You’ll invest more in marketing. Oilheat dealers are notoriously stingy when it comes to promoting their companies. But with customer loyalty eroding with every price increase, you’ll need to become efficient at replacing lost customers by attracting new ones. This means embracing Internet and social media marketing because that is where customers are looking first for information on products and services. A Yellow Pages listing and newspaper ad are no longer enough when studies show that 85% of consumers rely on the Internet for information. That percentage will only increase over the next five years.
6. The value of your business will no longer be in your customer list. We are already seeing the value of customer lists shrinking in a volatile market in which customer loyalty is being challenged every day. Instead of focusing on holding onto a group of core customers, you’ll be better served by creating a business that succeeds as a retailer, able to consistently attract new and repeat customers on a transactional basis. Building an organization with this proven capacity is what will create value in your business.

Will all of these predictions come true? Only time will tell. But if you are to remain competitive and continue to operate a profitable business, the time to start evolving your company is now. Developing a five-year strategic plan can provide a road map into the future for your organization.

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.