Five Operational Red Flags That Signal It’s Time to Rethink Your Back Office

When you are in the weeds and head down with all of the work it takes to keep your energy business going, it can be hard to tell when you actually need a hand to manage it all.

In this blog, we’ve gone over some of the biggest red flags that small and mid-size E&Ps should be wary of in their operations. If your business is suffering from one or more of the issues described below, now is the time to consider hiring an outside partner to help keep your business on track.

1: YOU DON’T HAVE ENOUGH TIME TO RUN YOUR BUSINESS

This is the easiest flag to identify and one of the main reasons small E&P companies seek outside help with accounting and regulatory functions. If you are spending a significant part of your day-to-day operations managing your revenue accounting, producing lease operating statements or well profitability reports, managing line items, creating manual journal entries, or preparing for an audit, you are losing valuable time that you could be spending on production.

Tax laws are constantly changing, and keeping up with the tides of shifting regulatory trends is practically a full-time job. Small owners and operators don’t have time to adjust to these changes all on their own without sacrificing their own duties.

2: YOU WERE FORCED TO PASS THE BUCK TO UNQUALIFIED TEAM MEMBERS

A common response to the first red flag, a business owner who loses too much time managing his or her own functions may decide to pass those responsibilities to employees, even if they have no experience in the matter.

Pulling your employees away from the duties they were hired to do and having them perform two different roles will reduce company productivity, increase the risk of errors in your bookkeeping, lead to poor reporting and decision-making due to backlog, and potentially cause mistakes in your SEC filings and IRS tax returns – and that’s just a few of the things that could go wrong.

3: YOU’RE Ready To Ditch YOUR LEGACY SOFTWARE

Do your daily drilling reports take hours to complete? Are you concerned about your data security being compromised? Is your business spending more money maintaining legacy software than it’s worth?

If you answered “yes” to any of these questions, switching to a cloud-based ERP software is a good next step for your business. Modern ERP software solutions make managing well data, generating reports, and tracking field expenses take minutes to complete, compared to the hours spent with manual processes and legacy software. These software platforms offer an easy to operate, user-friendly interface, top-of-the-line internal security controls, streamlined processes for complex functions (such as JIB, AFE, and revenue distribution), automatic audit trails, and so much more— all at a lower cost than maintaining legacy software over time.

4: YOU’RE EXPERIENCING RAPID BUSINESS GROWTH

Your business is really starting to take off: that’s great news! But if you aren’t prepared to accommodate for that growth, then scaling your business might do more harm than good. Growing pains are only going to slow you down if you develop too fast to keep up with your finances. Your first impulse might be to add new faces to your accounting team, but with that comes some steep costs. You would have to cover the wages and benefits of every new accountant you hire, and a large, in-house bookkeeping team is very expensive to maintain.

When you partner with PetroLedger, you pay for the services you need from a team that knows the ins-and-outs of Oil & Gas accounting, without the costs of hiring new employees. And we won’t simply replace your existing staff. We’ll integrate alongside your team and ensure that you have streamlined and efficient internal controls.  

5: YOU’RE STUCK WITH A BACKLOG

Accounting backlogs are a common reality for small E&P companies, especially if they have only one or two in-house accountants. Several negative consequences can appear because of an accounting backlog:

• Delayed paychecks
• Late SEC filings and tax returns
• Lower production efficiency
• No clear vision for revenue growth or profit/loss

When you leave your accounting to a single accountant, you can’t expect your books to be constantly maintained.

To keep your financial records up to date at all times, you need to plan for the unpredictable. When you outsource, you have an entire team of accountants to rely on, making backlogs a thing of the past.

If you’re struggling with any one of these five red flags, contact one of our experts! We can discuss setting up a customized, competitively-priced solution for you and your team.

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