Are you confident in the accuracy of the accounting in your oil and gas company? Have you ever received a letter from a regulatory agency like the IRS? Are you planning on expanding your oil and gas company with new capital raises? The oil and gas industry is complex and capital-intensive.
Without the proper oversight and controls in your accounting function, you could find yourself low on capital and high on the IRS’ watch list. Even if your accounting system is compliant, the challenge of maximizing efficiency comes into play. How can you streamline operations to unlock financial efficiency?
In this article, we’ll explore how finance outsourcing for oil and gas companies leads to streamlined accounting and ultimate efficiency without compromising on the quality and accuracy of your data.
What is Financial Efficiency?
Financial efficiency measures how well your company converts expenses into revenue. It can also be used to describe the effectiveness of your internal procedures and policies regarding streamlining operations. Financial efficiency is important to generate profit, sustain growth over the long term, minimize waste, and optimize processes.
Although financial efficiency can be difficult to measure, there are ratios and calculations that give insight into the efficiency of your company. Common examples include accounts payable turnover, accounts receivable turnover, asset turnover ratio, and present net value. The more efficient your company is, the greater chance you have of reaching your growth and profit goals.
Why is Financial Efficiency Important for Oil and Gas Companies?
Before we get into how you can unlock financial efficiency with outsourced accountants, let’s cover why companies work toward efficiency.
Leverage Growth Opportunities
When operations are efficient, you can easily identify new opportunities for growth. Let’s say your capital-raise function is optimized to target new investors. If you find a new parcel of land that shows promising results, you can easily jump on the opportunity. You don’t have to wait and raise funds. Instead, you already have investors lined up.
Remain Competitive in the Oil and Gas Industry
There are high barriers to entering the industry, it's highly competitive, and there are stiff environmental regulations that need to be followed. Not to mention that the Federal Trade Commission closely regulates the industry. These factors combined make it difficult to stay relevant in the industry. One misstep and regulators can seriously hinder your operations. With financial efficiency, you don’t have to worry about issuing inaccurate reports or data to regulators. You can feel confident in your submissions and maximize compliance efforts.
Higher Profit Margins
What business wouldn’t want to improve profitability? On one end, your company can attract more investors with high profit margins. On the other end, you have more free cash flow to invest in your business to continue growing. Higher profit margins are attainable when you have the proper cost controls in place and streamlined processes.
Align Actions with Goals
Oil and gas companies have a direct impact on the environment. From air and water pollution to land and marine ecosystem damage, your company might be impacting the environment. A hidden benefit of financial efficiency is upholding your mission statement and strategic goals.
When you have complete control over your operations, you can align your actions with your goals. For example, if you notice that the trucks you use to move products have high emission ratings, you might elect to purchase an environmentally friendly alternative when it comes time to upgrade. These insights wouldn’t be available without transparency in your operations.
How to Unlock Financial Efficiency with Outsourced Accountants
Financial efficiency gives you the ability to sustainably grow your business with higher profit margins. One of the best ways you can start working toward financial efficiency is to use an outsourced accountant. Let’s go through how outsourced accountants help you reach financial efficiency.
Payroll Processing
As a leader in your oil and gas company, you are tasked with making high-level decisions. This means that you shouldn’t have to complete tasks that can easily be outsourced, one of which is payroll. Outsourced accountants have a strong background in payroll processing, ensuring accuracy in pre-tax and post-tax deductions, withholdings, and gross pay.
By removing this item from your to-do list, you infuse independence and accuracy into your payroll function. Additionally, your outsourced accountant can streamline the employee onboarding process and the payroll processing function itself. Employees will always be paid on time and for the correct amount.
Cash Flow Management
It’s not uncommon for an oil and gas project to take five to ten years to generate revenue. Where does this leave your cash flow? While you are incurring tens of thousands of dollars in expenses, your cash stock is slowly depleting. An outsourced accountant aids in your cash flow management, letting you know when it’s time to raise more funding.
With an expert overseeing your bank account levels and managing your finances, your company is more likely to have the proper cost controls in place. For example, if your accountant notices that your cash levels are depleting, but there is an upcoming raise, they might suggest deferring a large expenditure for a week or two. This simple suggestion can prevent your business from overdrafting its bank account and landing you in a tough position with vendors and employees.
Navigating Tax Compliance in the Oil and Gas Industry
Accountants specialize in tax, from tax planning to tax return preparation. The oil and gas industry is in a unique position, especially during projects that haven’t generated any revenue yet. For example, if you just started drilling on a site but haven’t extracted anything, you are limited in the expenses you can claim.
An outsourced tax accountant understands these intricacies, guiding you on how to properly apply revenue recognition procedures. If you don’t have any formal training in accounting and tax reporting, it can be difficult to generate accurate financial statements and tax returns. Streamlined accounting and tax reporting can be done with the expertise of an outsourced accountant.
Deal Analysis
Finance outsourcing for oil and gas companies often includes deal analysis. After all, your outsourced finance professional has extensive knowledge in financial modeling and analysis, meaning you should leverage their talents!
By putting together a detailed analysis of a potential deal or a current investment, you gain insights that guide your decisions. For example, if a deal is only showing a 5% return on investment, but your company requires 10%, it might be time to sell or pass on the investment. Your outsourced finance professional prepares these schedules on your behalf, giving you the ability to make an independent and informed decision.
Selecting the Right Partner: Key Considerations for Oil and Gas Accounting Outsourcing
Outsourced accountants can be a great addition to your team. Not only can they offer streamlined accounting and greater financial efficiency, but they can also help you make high-level decisions to guide your business toward its financial and operational goals. When searching for the right outsourced accountant, there are a few factors you want to consider.
Services Offered
The goal of outsourcing your accounting is to unlock financial efficiency and take a few tasks off your plate. This makes it important to evaluate the services offered by the accountant. Do they offer tax planning and consulting? Do they have the ability to analyze deals and build a budget for your business? First, figure out what services your oil and gas company needs to outsource. Then, find an accountant that provides those offerings.
Credentials
Many oil and gas companies are subject to stringent financial reporting regulations. Some of these requirements can only be completed and submitted by an accountant who holds a Certified Public Accountant (CPA) license. If your business needs to file reports with the SEC, lenders, or investors, look for an outsourced accountant who is credentialed. Although credentials might not be necessary for general bookkeeping tasks, like payroll and cash flow management, they will be important if assurance services are needed.
Learn how an energy company achieved 50% annual cost savings: Explore the case study.
Industry Experience
The oil and gas industry isn’t like the local mom-and-pop coffee shop down the road. Instead, your business must follow complex regulations. This makes it important to find an accountant who has experience working with businesses in the oil and gas industry. Inquire about the background of the accountant or the accounting firm. What types of businesses have they worked with in the past?
Getting Started
Drilling down on financial efficiency can seem like a far-fetched goal, especially if your to-do list is never-ending. This is where accounting and finance outsourcing for oil and gas companies comes into play, helping you unlock streamlined accounting. By streamlining your backend finance and accounting functions, you can reach oil and gas finance transformation and set your business up for success.
If you’re ready to leverage the power outsourced accounting and finance management brings to the table, reach out today to schedule your free consultation.
