Marathon Oil: Cutting Costs and Raising Cash Flow

For the last five consecutive quarters Marathon Oil has reported losses. So why hasn’t the company lost investor confidence? Investors have renewed faith in the company because it has consistently weathered difficult periods more effectively than analysts predicted by focusing on their cash flow.

Marathon Oil may be a huge company, but their success still translates into many important lessons for small business owners.

Focus on Your Cash Flow

Improved oil prices have certainly helped boost Marathon’s revenue, but the fact is that this company has always focused on strong cash flow. Marathon’s cash flow was excellent before the increase in oil prices, which means the fluctuation in oil prices simply helped add to Marathon’s good practices.

Lesson for small businesses: Commodity prices and other factors will always go up and down. Focus on your cash flow and make contingency plans so that you will be able to weather any storm.

Investing in Assets

To stay afloat during difficult times Marathon cut costs and increased cash flow. Here’s how they did it:   

Marathon Oil worked with Meridium, a company that focuses on predicting and preventing asset failure, to better control the reliability of equipment at their refineries. This investment led to immediate and annual savings and also helped optimize the performance of Marathon’s refineries.  

Meridium gathered data on the failure history of equipment and their analysis of this data allowed Marathon to make decisions on how to proactively replace equipment. Having an objective system to make these decisions allowed Marathon to more effectively manage their equipment without taxing their cash flow, which lowered operating costs.

By investing in the right assets, Marathon saved over 14 million dollars. The company expects to realize comparable savings by continuing to use available cash flow to strategically invest in their assets.

Lesson for small businesses: Maintain a strong cash flow so that you are able to invest in key areas of your business. Smart investments into your company will pay off in the long-term.

Investing in Human Capital

Marathon has also invested in human assets – its work force. In a video on the company’s website they list “investing in our people” as one of their key strategies moving forward.

A commitment to dedicating resources to maintaining employee competence, as well as growing their abilities, means that Marathon can operate dynamically and with confidence to adapt and improve their performance.

Lesson for small businesses:  Don’t let cash flow worries prevent you from making an investment in the most valuable asset that your business has: you and your employees.

Investing in Core Assets

Marathon Oil divested over a billion dollars’ worth of assets so the company could reduce its exposure to risk. To achieve this Marathon shifted resources away from non-core assets. Much of the capital acquired through divesting was then put towards the development of the company’s core assets. Additionally the company also purchased new assets in the form of large reserves and immediately began ramping up production in these new resource rich areas.

While doing this, in 2016 Marathon also managed to reduce its exploration and production costs in North America by 28%, compared to the previous year.

Lesson for small businesses: Go back to basics, focus on your core business model and don’t spread your operating costs too thin.

Getting the Most Out of Existing Assets

By beginning to produce gas at their Alba oil field Marathon extended the life of that asset by 8 years. This crucial decision helped to compensate for decreased production in the United States during 2016. Now, as the company looks forward to 2017 they regard the Alba oil field as a “significant free cash flow generator” while they continue to invest in their North American assets.

Marathon made it through difficult periods by embracing new strategies and continually investing in their business with an aim to increase revenue and decrease operating costs. They successfully refocused their overall strategy and reworked their regular operations.

Lesson for small businesses: Always be on the lookout for new opportunities, strategies, and ways to utilize your existing assets – and make sure that you have the financial flexibility to act quickly.

Lessons

The lesson here is one that all businesses, of every size can adopt. With a strong cash flow you can maximize business efficiency and profits by:

·       Allowing you to make and execute contingency plans

·       Making the most of your existing assets

·       Investing in new and core assets

·       Investing in your people

When it comes to the benefits of strong cash flow, Marathon Oil is a great case in point. Is your SME looking to maximize your cash flow? Call the cash flow experts at J D Factors to get started.

Factoring - More than Math

Factoring is more than a math term. It’s a solution to one of business’s most common problems: cash flow. So whether your business needs working capital to expand or to cover operating costs, factoring can help your business reach its goals.

What Is Factoring?

Factoring is when your business sells its invoices to a third party for a discounted rate. The third party then assumes all liability of non-payment. This means that you’re not liable if you don’t get paid, the lender is responsible. Rather than wait for weeks, or even months for slow paying customers you can obtain working capital by selling your invoices to J D Factors at an agreed upon rate.

Factoring gives your business predictable income and a steady flow of working capital, making it easier to invest in growing your business.

J D Factors provides non-recourse factoring. That means that if an invoice is not paid for credit reasons then you are not liable. JD Factors assumes the risk.

How Does Factoring Work?

After you have set up your account with J D Factors the process is simple:

1.       Send us your invoices

2.       We verify the invoices and send them to your customers

3.       You receive cash in your account within twenty-four hours.

You can submit these invoices anytime through your online account. The ease and simplicity of an online system offers multiple benefits to entrepreneurs or other business owners who may keep irregular hours.

What Are the Benefits of Factoring?

Here are some of the ways that factoring can give your business an advantage:

1. Speed, Flexibility, and Control

Rather than depending on potentially slow paying customers your business can receive an immediate injection of cash. The main advantages this speed affords are control and flexibility.

Factoring puts you in control of your business by circumventing more unpredictable streams of working capital. Customers will not always pay promptly, and bank loans take time to process. In a worst-case scenario, if your customer goes bankrupt or has credit issues they may never be able to pay you the money they owe. With factoring, companies like J D Factors assume all the liability up front, so you don’t have to worry if your customer doesn’t come through with payment.

J D Factors can help bring certitude to your long-term strategy and get you the capital you need to seize opportunities that present themselves.

2. No Banks

By choosing factoring you can also avoid incurring debt. Loans can be an effective tool when growing your business, but they are not without risk. They can also prove expensive.

That is of course if you are approved for a loan. Many small or new businesses find qualifying for a loan difficult, but factoring is an effective alternative for growing businesses.

3. Outsource Your Collections

Businesses of all sizes, from Fortune 500 companies down to sole proprietors have used factoring. One reason is because collecting payment from customers can drain resources.

With factoring, your business will not have to sink time and personnel on collecting payment from a job you just completed. We collect on the invoices and assume all liability if the invoices aren’t paid so you can look ahead to your next project, to hiring new personnel, or to growing your business.

Build a partnership

Partnering with J D Factors gives you greater control over the future of your business by regulating your cash flow. Factoring simplifies the collections process so that you can look forward and focus your time, money, energy, and manpower, on the next task. Contact us and let’s talk about how factoring can work for you.

Knowing the Difference Between Profits and Cash Flow is Secret to Debt Recovery

What’s the difference between profits and cash flow? Think of a customer handing you an IOU instead of cash – it’s not quite the same thing. Making that big sale feels great, and looks great on paper, but until the client actually pays you it doesn’t mean much. Unfortunately, that is how business works, and one of the reasons why so many businesses have cash flow issues.

You can have a great product, stellar sales team, generate a ton of sales and still find your business in dire straits due to a negative cash flow. Getting clients to hand over the cash can be a long, expensive, and arduous process. Making matters worse, the older a debt is, the less likely it will be paid. Most debts have a limitation period, and even those that don’t often end up being renegotiated down.

Stop wasting your time on debt recovery, follow these basic steps:

Keep records

The first step of debt recovery begins before you even agree on a sale. Keep fastidious records about the clients, your products or services, billing information, and every step of the negotiation process. If a client tries to bilk you then you will need detailed records.

Offer incentives

It may seem counter intuitive, but if you have a client who owes you money then you may have to consider giving them a break, or risk never getting paid at all. Offering a discount to pay by a certain date will pique their attention. Be weary however, if you end up doing business with the same client again in the future then they may try to withhold payment in the hopes that you’ll lower the price again.

In some cases the client may be in a similar position as you – suffering from insufficient cash flow. Offering to negotiate to restructure the payment could be in the best interest of both you and your client. After all, if they go out of business then it will be one less source of cash in-flow for you.

Debt collection calls

There is a very fine legal line between a polite reminder and harassment. So even though it may be satisfying to let your client know how you really feel about their late payments, it may be a costly mistake. You catch more flies with honey than vinegar. Be stern but don’t cross any legal lines.

Call J D Factors for advice or to begin proceedings on your behalf.

Send a letter

Sending a formal letter to the client reminding them of the debt that they owe and advising (but not threatening) that you may have to take legal action is an important step. You need to ensure that the letter is received by them, and that all information in the letter is accurate. You may want to enlist a professional or legal counsel for this step.

Lawyer up

You always have the option of beginning legal proceedings yourself, but navigating the law can be difficult and downright dangerous if you don’t know what you’re doing. A much better option is to reach out to your lawyer as early as possible, hand them all pertinent records, and ask for their council. They may be able to advise you on legal means of encouraging the debtor to pay up, and prevent you from putting yourself at risk of legal action by straying from the law. When the time comes they will be able to fight your case in court.

Enlist help

Using a debt collection service may be the only way to get the money that you are owed, but it needn’t be your first choice. If a debtor is reluctant to pay you the funds that they owe then, regardless of what steps you take, it could be a while before you resolve the issue. That means that your business could come to a standstill unless you take action to increase your temporary cash inflow. If you find yourself in this situation, contact J D Factors. With our accounts receivable factoring services you have plenty of options to collect the money that’s owed to you before you find your own company facing cash flow problems. 

A Good Problem to Have? Managing Hypergrowth

Finding that your business has surpassed your expectations, and is growing faster than you ever anticipated is as exciting as it is terrifying. Hypergrowth is something that all companies dream of, but few achieve, and when they do achieve it most CEOs quickly realize that huge growth can have some serious consequences. Managing your cash flow during your period of hypergrowth is fundamental to any start up, or rapidly expanding business.

Learn from the experience

Hypergrowth can be a make or break period for businesses, and for the individuals involved. In order to expand your business quickly, you need to have the cash available to support the growth, including hiring more staff and expanding office space and equipment to house and support your staff.

Aditya Agarwal joined Facebook when the company was still only 15 people strong, and stayed there until he became Director of Product Engineering just six years later. Agarwal’s own startup, Cove, was then snapped up by Dropbox and Agarwal went from 30 engineers to more than 200. No wonder Agarwal says that “most of what I’ve learned in my career has been during a period of hyper growth and change.” Managing your company through a period of hypergrowth can be incredibly stressful and difficult, but as long as you have the cash to support your growth, and commit yourself to learning from your successes and failures, the experience you gain will be invaluable.

Expect the unexpected

When Jiliene Helman, the CEO of Realty Mogul, raised $9 million of funding, the company went from 6 to 30 people in about three months. Helman knew that there would be some growing pains, but there was one issue that no one saw coming, “we didn’t anticipate how badly crippled our organization would be when the need for parking spots quintupled in just one week. Nobody could get into the office on time and our employees suffered numerous parking tickets.”

Don’t get so focussed on expanding that you miss the little things. Of course for Helman, the real issue wasn’t parking spaces, but integrating so many new people and new ideas into a company.

Find the right staff

From his time at Facebook and Dropbox, Agarwal says that during a period of hypergrowth you need people who are:

1)      Fast learners

2)      Comfortable with rapid change

3)      Able to improvise and handle ambiguity.

Hiring the right people to add to a growing business requires a budget that will allow you to hire from the top of the talent pool. According to Helman, “it’s not about just training an employee to do their job, but training the employee on how we expect our team to make decisions and the core values at the company.”

Be a CEO and a leader

Many companies that start small and then undergo a period of hypergrowth undergo a massive change of responsibilities for the CEO. In a small business a CEO might be expected to do everything, from sales, to coding, to marketing. A CEO’s job isn’t to work on the small details, in fact it is just the opposite. Focussing on the small details means that you aren’t leading your people or carving out a future path for your company – important jobs for a CEO.

Instead of doing every single task yourself you need to build a team, and internal processes that allow other people to do the work for you, to the standard that you would expect from yourself. This is a costly but critical venture for any company experiencing hypergrowth. According to Helman, “Once you’ve hired a team for all the roles you used to run yourself ragged trying to fill, you can focus on being a CEO.”

Agarwal advises that, to be a leader, you need to:

·       Scale outside of your own skillset

·       Accept that there will be setbacks and failures

·       Take opportunities to learn, don’t be afraid of new challenges

·       Don’t get emotional.

Enjoy it!

If your company is lucky enough to experience hypergrowth then remember, no matter how overwhelming it may seem at times, you are in a position that most companies can only dream of. Enjoy it and make the most of it!

At J D Factors we specialize in helping companies find the financial solutions needed to survive periods of hypergrowth. Contact me today for more information.

Staying Afloat - 3 Tips to Better Manage Your Cash Flow

Managing cash flow is vital to keeping your business running, but for businesses looking to grow, cash flow is an absolute necessity. For many business owners, managing cash flow can feel like treading water in the ocean with crashing waves and undercurrents trying to pull your down. Even if you stay afloat (and statistically many companies don’t) it can be a tiring process that requires constant work and concentration.

For start-ups, SMEs and growing businesses the battle is even tougher. Failing to get a handle on your cash flow is a sure-fire way to seeing your business go under.

There are two crucial elements to cash flow:

1) Accounts receivable (i.e. the money that is owed to you)
2) Accounts payable (i.e. the money that you owe)

It is entirely possible to run a brilliant, profitable company with a negative cash flow. A big sale might be a profit on paper, but until you actually get paid that sale isn’t worth the paper it is written on.

There have been many brilliant people with fantastic products or services that have gone under simply because of poor cash flow management. Want to ensure that your business doesn’t fall victim to cash flow problems? Here’s how:

1. Track your cash flow

Ensure that your company is tracking weekly cash flows closely, know how much cash you have on hand, your break-even point, and create cash flow projections.
These projections should help you identify and counteract rough patches ahead. Pay equal attention to both projected expenses (everything from salaries and inventory to the gas bill) and sources of revenue (including sales, interest earnings, fees, collections, and incoming loans or investments).
Build projections for next month, next quarter, and next year, but remember projections are just projections - keep an eye on the balance sheet at all times.

2. Keep some cash reserves

Even the best run business will run into cash shortfalls here and there. Be prepared. Don’t let a lack of liquidity prevent your business from doing what it does best. Keep some cash reserves aside to help your business run smoothly during dry patches.

3. Prepare for shortfalls

Even businesses with extra cash on hand are bound to run into shortfalls. Sometimes shortfalls are unavoidable, even with stellar cash flow projections and a healthy cash reserve. When this happens you don’t necessarily need to go into debt. In fact, may banks won’t fund small businesses with cash flow problems. Instead, call J D Factors. We help businesses with:

• Factoring (sales of accounts receivable)
• Debt recovery
• Invoice discounting
• Non revenue – assumes risk of receivables

As cash flow management specialists, J D Factors can help you recover during periods of cash flow crisis without having to take on debt or negotiate with suppliers, customers or employees. With our help none of the people you do business with needs to know you’re having cash flow problems. Call us today to learn more about how we can help you better manage your cash flow.

Studies Show Cash Flow a Leading Cause of Business Failure

According to the Canada Business Network, businesses enter and exit the marketplace each year. For example, Statistics Canada’s Entrepreneurship Indicators Database showed that the “total number of SME births was 78,430, compared with 83,240 deaths, which resulted in a net decrease of 4,810 businesses.”

Mismanagement, a subpar location, poor timing, bad products or services, lack of experience or just plain old bad luck can all contribute to a business closing down, but perhaps the most common reason is insufficient capital as a result of negative cash flow. The Canada Business Network provides a number of survival tips, suggesting that owners of SMEs “understand your business finances, such as cash flow and handling credit” to remain afloat.

What is cash flow?

Cash flow refers to the movement of funds into your business (in the form of revenue, investment or other sources), and the movement of funds out of your business (in the form of payments, bills, salary and other expenses). Cash flow is the lifeblood of your business and is necessary in order to keep everything moving smoothly and working properly. Without cash flow your business will not be able to support itself.

Positive and negative cash flow

When you have more money going into your business than going out of your business you have positive cash flow, when the reverse is true (i.e. that you have more money going out than coming in) you have negative cash flow.

Know your flow

Cash flow seems like a simple concept, yet it is one of the most common factors behind failed businesses. Even the best product, location, knowledge base, and sales team can’t save your business if your negative cash flow leads to insufficient capital.

Cash flow is more complex than just money in minus money out. You need to have a grasp of exactly where that money is coming from, where it is being spent, and just as importantly when.  Your company can have a net profit but a net negative cash flow for a given time period. For example, if you bought $100,000 of inventory, sold that inventory for $200,000 but have not yet received the payment you may have a $100,000 profit on paper, but a net negative cash flow of $100,000.

Even though your sales team may have done a tremendous job to sell $100,000 of inventory for $200,000 you might not be able buy more inventory for them to sell (or even pay them their salary) until you actually get paid!

Simple tips to help you get a handle on your cash flow

Getting to grips with your cash flow is vital to operating and growing your business. If you want to keep your business running smoothly and well poised for the future, follow these simple cash flow tips:

• Profits are not cash: You can’t pay suppliers or employees with profits, you need cold hard cash.

• Growth requires cash: Growing your business uses cash, which reduces your cash flow. If you want to grow you need to increase your cash flow.

• Don’t do it yourself: Making sense of your cash flow isn’t as simple as adding up cash in versus cash out. You need to ensure you know where and when that cash is going.  Don’t be afraid to call in professional help.

• Working capital is key: Working capital is the cash you have available to bridge the gap between making a sale and actually getting paid. Depending on your business this gap can be days, weeks or months.

At J D Factors our team specializes in helping small to medium sized businesses meet their ever-increasing cash flow demands so they can run their businesses successfully. Factoring, the process of turning your accounts receivable into cash, gives your company immediate access to working capital for things such as payroll, marketing, paying vendors, and purchasing equipment and inventory, without incurring debt. Contact me today for more information.

Are you paying enough attention to your cash flow?

Cash flow is the amount of money coming into a business minus the amount of money going out. It is a deceptively simple concept that is far too often overlooked by small to medium sized businesses.

Cash flow is the blood that circulates throughout your company, it delivers oxygen to the extremities and keeps the heart pumping. Money comes in from investors, sales, and other sources and flows out when buying inventory, paying staff, and taking care of other business expenses. Without a consistent cash inflow, the cash outflow inevitably drains the company over time.

Cash flow is integral to determining the net present value of a company. Calculating weekly cash flow can be used to predict future cash flow from which the overall value of the company can be extrapolated. Using this model, businesses can make long term strategic decisions, as well as short term corrections.

Cash flow determines value

When cash outflow is greater than cash inflow, then the value of the company decreases. When cash inflow is high relative to outflow, then the business is worth more. Increasing future cash flow is integral to building the value of any business long term, but there are also important short term applications including:

• Servicing creditors
• Paying shareholders
• Informing bonus structures
• Reinvesting into the business itself.

Perils of ignoring cash flow

Despite the uses and benefits of a net positive cash flow, the concept is not applied across the board. In the late 1990s, many tech companies eschewed the net positive cash flow model, relying instead on investors who were all too happy to jump on the tech bandwagon. When the bubble burst the companies went under and pulled their investors with them. Webvan, a food delivery company is endemic of the tech industry’s problematic cash-adverse philosophy. According to Bloomberg “in 2001, Webvan drove off a cliff into Chapter 11 only 18 months after its IPO, due to rapidly disappearing cash reserves.”

Optimal cash flow

A low or negative cash flow current ratio is bad, but so too can be a very high cash flow. Money flowing into a business in large quantities with minimal expenditure means that there may be a lack of investment in the company itself. Exactly how much of your cash flow you should reinvest in your business is up for debate. According to Entrepreneur, some experts suggest that small businesses reinvest as much as 50% of their positive cash flow.

Underinvestment is as dangerous as over expenditure because it means that the company is stagnating. Increasing cash inflow allows businesses to make crucial investments which grow their business overtime, increasing future cash inflow. 

For small to medium enterprises (SMEs), maintaining optimal cash flow is critical to success. According to financial technology experts Daily Fintech “A survey of 1000 British SMEs, conducted by invoice finance provider Hitachi Capital, found that improving cash flow was key to unlocking growth.” In fact, the survey showed that cash flow was so important to these SMEs that “each quarter it was included as a top three consideration for business owners, alongside reducing overheads and market expansion.”

When cash flow is overlooked

Cash flow is one of the most important, and undervalued aspects of a business. It determines current and future value, and dictates reinvestment back into the company. Striking the right cash flow ratio is vital to success now, and in the future.

Steps to take to optimize working cash flow:

• Asses your current cash flow by calculating expense versus cash inflow. You will have to make some judgement calls, but remember it is better to be more conservative and underestimate cash inflow, than to find yourself short of working capital later on due to a faulty model. Different businesses calculate their cash inflow in different ways. The Wall Street Journal reports that Procter & Gamble refer to cash flow as “free cash flows”, and PespiCo calculates “management operating cash flows”
• Focus on cash inflow and reducing long term debt during challenging times
• Reinvest your net positive cash flow into expanding your business or making it more competitive
• Create internal processes for striking the right balance between net positive cash inflow and reinvestment. Many businesses set aside a certain percentage of revenue to pursue future initiatives. This may mean prioritizing growth over profits, bonuses, or other non-core expenditures.

At JD Factors we specialize in helping businesses get a handle on their cash flow. Contact me today for help solving your cash flow issues and for financially viable options to reinvest in your business.