The oil industry is one of the biggest in the world. Globally, it pulls in $1.7 trillion worth of revenue every year.
And the US contributes a lot to this industry. There are nearly 1 million oil or gas well across the country. As well as some huge corporations, there are roughly 9,000 independent American oil companies.
But this doesn’t automatically mean that working in the oil industry will bring in the big bucks. In fact, oil companies can experience some serious cash flow problems. And failing to get on top of these issues could result in your company going under.
So how can you fix these problems?
Rather than looking for capital within the industry, your best bet may actually come from outside help. Want to know how this could help your company? Well, you’re in the right place – read on to find out more!
Finding the Source of Your Cash Flow Problems
When it comes to cash flow problems for your oil company, the most important thing to do is identify where they’re coming from. After all, until you fix this you’ll keep losing money quicker than you’re making it.
Cash flow problems can occur at any time for a company. They occur when you are spending capital quicker than you’re accruing it. This is fine if you have a financial buffer to dip into but if you don’t you might find your company falling into debt.
Some internal factors can affect your cash flow. This includes:
- Having expensive overhead costs.
- Not budgeting properly for your overheads (this is more likely to happen when you’re setting up your company.)
- Failing to follow up invoices.
- Keeping company capital tied up in excess inventory or stock.
- Not staying on top of previous debt.
- Having insufficient gross margins on your products.
You should also ensure that all staff in your company understand the importance of staying on top of cash flow. But if you’ve addressed all of these problems then you might not be able to fix your problems internally. If this is the case then you need to look for outside help with your cash flow problems.
What Are Your Options for Outside Help?
When it comes to finding an investor for your company, you have a few options.
Before looking for financial support you should sit down to consider how much you really need. When it comes to this you have to be realistic.
It might be tempting to ask for less but if this isn’t enough to fix all your problems, in the long run, you may just end up in more debt than before. Sometimes you have to invest more money to make real progress with your business.
Once you know how much you need, it’s time to look at some of your options.
You could take out of a loan from a financial institution. Banking loans allow you to take out of lump sum, which could provide the cash injection you need.
But often a bank or loan company will have strict rules on how much they can lend. And they might ask you to stump up a guarantee against the loan. The last thing you want to do is to tie more of your company’s value up in this loan.
Fortunately, getting a loan from a bank isn’t your only option. Outside investment companies can also offer you capital to resolve your business’ cash flow problems. So how do they work?
How Does an Outside Investor Work?
Outside investors can help you to overcome funding challenges in the oil industry. These are specialized companies who lend within the industry.
They offer large sums of capital to independent companies who need a cash injection. But unlike a bank, they invest in your company rather than simply loaning you capital. Like with other investors, you start paying back on the investment once the company is making a profit.
This means that getting capital from an outside investor is a better long-term solution for your company’s cash flow problems. You will only start paying it back when you are financially stable enough to. So you won’t be plunged back into debt by having to re-pay a loan.
Let’s take a look at some of the other benefits of using an outside investor to secure capital for your company.
An Outside Investor Offers Specialized Lending
Outside investors working within the oil industry have detailed knowledge of how the industry works. So they’ll be able to provide the kind of capital you need to really get your business off the ground.
Because this is a trillion-dollar industry, there may be times when you need a lot of capital. Most regular banks won’t be happy loaning this kind of cash. But investors who have a better understanding of the market feel more comfortable lending big amounts.
This is because they don’t just have to take your word that they’ll get it back. They know exactly what to look at in a company to decide if it’s worth the investment. And they’re familiar with current market trends.
As a result, an outside investor could lend anything between one and twenty million dollars. Now that’s a cash injection!
They Are Happy to Help Independent Businesses
Unlike big banks, a private investment company is more likely to support independent businesses.
In order to get a loan from a bank, an independent company will often have to stump up a lot of background financial information. And if you can’t provide this, or are a newer independent business, then getting a loan can be extremely difficult.
As public funding for this industry is limited and big loans will often go to huge companies. But outside investors offer an alternative for independent companies.
They Offer Better Terms than Banks
Unlike banks, outside investors will also offer you good terms on their investment.
They may offer you longer windows in which to produce a return on their investment. And some investors won’t ask you to stump up a guarantee against the investment.
This means that an investment from an outside company is less of a risk for your company. In effect, it leaves you with a new business partner, rather than leaving you with more debt on your hands.
You May Be Able to Get More Investment From a Private Company
If you’re looking for investors there are two approaches you can take.
You could approach one investor and ask for everything you need. Or you could approach multiple investors. This second option opens up the possibility of you actually bringing in more capital for your company.
But if you approach a bank this leaves you with multiple loans to manage. And most banks are unlikely to lend you money if you already have multiple loans.
However, if you have several investors, it can actually make your company seem like a better bet. After all, people wouldn’t invest their money in a company that’s likely to fail, would they?
This means that by getting capital from outside investors you can actually pull more capital into your business. And having multiple investors also means that you don’t have all of your investment tied up in one company. This makes things such as buying investors out further down the line much more manageable.
What to Look For In an Outside Investor
As you can already see, getting help from an outside investor is a great option for any independent company looking to boost its cash flow. If you’re looking for a great outside investor for your company then you need to know which qualities to look out for.
First of all, you should look for an investor with experience in the field. This means that they already know loads about the industry and can make sound judgments when investing their money.
Companies with more experience have also had longer to build up their capital as well. So they’ll be able to bring more to the table than other investors.
You should also take a look at their terms. Some companies will set deadlines by which they want to see a return on their investment. If this is the case then you must be certain that you’ll have something to show by then otherwise you’ll need to negotiate a longer period.
Investors who don’t ask for a guarantee are lower risk for any company. A guarantee means that you offer something of value within your business against the capital loan.
If you don’t provide a return on their investment then they are entitled to claim a portion or all of the guaranteed property. As you can see, this actually ties up more of your capital in the deal and undermines the investment itself.
Finally, you should always work with a company that has a great reputation. Where you get your capital from reflects on your business. You don’t want a partner who is involved in dodgy dealings so do your research before approaching any investors.
The Bottom Line
Approaching a private investor could be the answer to all of your company’s cash flow problems. Get in touch today to find out more. Or check out our website for more tips on securing financing for your oil company.