As a finance leader in the energy sector, identifying revenue leaks is as important as identifying energy leaks in your operations. You could be losing money due to outdated infrastructure, high overhead costs, or inefficient administrative processes. However, leveraging business intelligence (BI) tools such as Microsoft Power BI can help streamline this process and turn raw data into actionable insights.
Our downloadable resource, "The business insights every CFO needs to become a chief value officer," discusses the insights that can help drive any business forward.
Some of these business insights are specifically relevant to an energy company's success. In this article, we'll discuss essential business insights that can power growth and performance for your energy company.
1. Total revenue insights for energy companies
Understanding total revenue for energy companies
For energy providers, total revenue goes beyond just calculating kilowatt hours of electricity or thousand cubic feet of natural gas sold. Effective revenue monitoring involves:
- Month-to-month fluctuations: Energy consumption fluctuates seasonally, making it vital to manage capital to bridge lean months.
- Separate entities: Companies with multiple legal entities need to monitor revenue at a granular level, ensuring that stronger entities aren't masking the underperformance of others.
- Identifying valuable customers: By analyzing customer lifetime value, energy companies can better allocate resources and target profitable expansion efforts.
How BI tools help:
Business intelligence tools like Power BI allow energy companies to track and predict fluctuations, helping improve financial planning and performance. You can instantly assess total revenue across multiple entities and identify key revenue drivers.
2. Operating expenses: tracking your costs effectively
Categorizing operating expenses
Energy companies must understand their operational expenditures, including wages, marketing costs, and equipment maintenance. However, a common mistake is misclassifying expenses such as:
- Capital expenditures: One-time expenses like machinery or infrastructure investments should not be categorized as operating expenses.
- Cost of Goods Sold (COGS): Cost of goods sold refers to the expenses directly tied to the items or services your company sells. It’s a separate line item on income statements. For an energy provider, COGS might include power plant employee wages or fossil fuels for burning.
Other non-operating expenses:
Other non-operating expenses include costs such as interest charges on loans or one-time payments such as legal settlements. These costs don’t pertain to the company’s day-to-day operations and should be categorized separately.
Importance of granular breakdown:
The more detailed your expense tracking, the easier it becomes to identify potential cost-saving areas. BI tools can break down expenses into categories like employee wages, office supplies, or administrative overhead, providing visibility and opportunities for optimization.
3. Monitoring operating income and operating margin
What is operating income?
Operating income refers to the revenue from generating or distributing energy minus the operating expenses (wages, utilities, etc.) and cost of goods sold (COGS). This metric doesn't include non-operating income, such as investments or one-time sales.
What is operating margin?
Operating margin is calculated by dividing operating income by total revenue. This percentage indicates the profitability of your energy company, showcasing the profit from every dollar in sales after operational expenses and COGS are subtracted.
Why is it so important to monitor operating margin?
Why is it so important to monitor operating margin – and the factors that comprise it – as opposed to other indicators such as non-operating expenses? The answer is that operating margin is, to a certain extent, at least, within your company's control and affects it on an ongoing basis.
You can't go back in time and negotiate a more favorable interest rate on the loan you took out five years ago, but you can potentially negotiate better health insurance premiums for your employees. The sale of a piece of land may boost your bottom line temporarily, but investing in new marketing initiatives to increase revenue is more likely to give you an ongoing boost.
4. Gross profit margin: A vital indicator for energy companies
Calculating gross profit margin
Gross profit margin only takes into account the direct costs of generating and distributing energy (COGS), unlike operating margin, which includes all business expenses. Monitoring this metric will tell you whether the cost to produce energy is increasing faster than revenue growth.
Why it matters for energy providers:
A decrease in gross profit margin might indicate rising fuel or labor costs. Energy companies should regularly analyze this figure to determine whether they can absorb rising costs or if passing them onto consumers is necessary.
5. Working capital: Optimizing cash flow for growth
What is working capital?
Working capital is calculated by subtracting current liabilities from current assets. Having too much working capital could mean that cash is not being utilized effectively to grow the business. Conversely, too little working capital may cause liquidity issues.
"If a company has too much working capital, cash may not be properly deployed to grow the business. If it has too little, creditors may question whether it can meet its obligations," Deloitte's Kirk Blair and Wanya du Preez stated in a recent report.
How to manage working capital:
Finding the right balance in working capital can be challenging, but BI tools can help companies analyze cash flow in real-time. This ensures that you have the appropriate level of assets available to meet your obligations while keeping enough cash on hand for expansion or unforeseen costs.
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Real-world example:
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Discover how Gravity Software helps energy companies streamline operations and improve financial efficiency. Read the full case study.
6. The role of Business Intelligence in energy company growth
Leveraging Business Intelligence tools
For energy companies managing multiple entities, BI solutions like Microsoft Power BI are invaluable. These tools allow you to:
- Monitor real-time financial performance across all entities.
- Track key metrics like customer acquisition costs (CAC), customer lifetime value (CLV), and working capital efficiency.
- Evaluate regional performance, helping you pinpoint areas needing capital investment or marketing adjustments.
How Business Intelligence helps your energy company thrive:
With Power BI for energy companies, you can create custom reports that break down data into actionable insights. This enables your finance team to make data-driven decisions quickly and accurately, ensuring your company is always prepared for growth.
How Gravity can help your energy company leverage Business Intelligence
For energy companies looking to unlock these business insights, Gravity Software, built on the Microsoft Power Platform, integrates seamlessly with Power BI to provide real-time visibility. By using Gravity’s multi-entity accounting software, you can automate financial reporting, streamline approvals, and gain deeper insights into your company's financial health.
Key benefits of using Gravity Software for energy companies:
- Real-time financial performance tracking across all entities.
- Granular insights into revenue, expenses, and working capital.
- Integration with Power BI for advanced reporting and forecasting.
- Multi-currency accounting and easy cross-entity management.
Gravity’s cloud-based accounting software ensures that your company has the flexibility and scalability to grow, with no need for expensive, complicated software solutions.
Get more business insights with Gravity Software
Want to take your energy company’s financial management to the next level? Schedule a demo with Gravity Software today and discover how our powerful business intelligence tools can help you grow faster, smarter, and more sustainably.
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