Many experienced oilfield hands have the dream of running their own company. Starting a new oilfield business is an exciting venture, but can be very difficult. There are many challenges that come with starting a new company that preparation and planning can overcome. Here are some useful tips for starting an oilfield service company.
Building strong, solid relationships starts long before you hang the open sign for your new company. Relationships are built through performance and trust. If you have intentions of opening your own company, it’s important to remember the work you do and results you deliver at your current job are how prospective customers will view your new company.
Another aspect of building customer relationships is paperwork. Make sure you completely read and understand the Master Service Agreement (MSA) your new customer presents to you. The MSA will spell out not only the terms and conditions of the work, but also list all insurance requirements, billing processes, and payment terms. Owners of new companies who do not read and follow the requirements in an MSA often find themselves in an office trying to clean up a bookkeeping mess, when they should be out in the field.
In today’s oilfield service arena, buying brand-new equipment is not always the best route to go. When starting an oilfield service company, initial costs can be significant. When it comes to equipment, there is plenty of used machinery and gear available at low prices. A good starting point in the search for equipment is Oiltizer. Oiltizer is an online resource offering a wide variety of equipment for sale and at auction.
When purchasing general business supplies, the warehouse clubs like Sams Club or Costco are good sources of office machines and material. Beyond the big box stores, Amazon and other online retailers are a good source. Shipping can be costly with online purchases, so check for coupons or the availability of memberships to offset the shipping cost.
The old real estate adage about location, location, location is true in the oilfield. Many oilfield service companies are expanding their service areas to work with new customers. This can be advantageous for new companies as it is a way of proving you are willing to do the work. The challenge of doing this is you must have a workforce that is willing to be away from home for periods of time.
Knowing where the work is at does take a bit of research. Sources should as the Energy Information Agency’s Drilling Productivity Report, and services like Rigdata provide a wealth of information on drilling activity across the country. Using these resources is a good starting point towards looking for new opportunities in different areas of the country.
It’s no secret that starting an oilfield service company takes money. New companies need a source of financing and cash flow to keep their operations running, meet payroll, and pay the bills. It’s tough to manage finances when you’re working for customers that have 30 day, 60 day, or longer payment terms. Having a source of financing makes managing the business easier and allows the business owner to focus on the work.
Most business owners go to a bank for financing. This can be a daunting proposition for many people as a bank will often require a written business plan, financial projections, good credit, and valuable collateral in order to approve a business loan or line of credit. The application and approval process can be lengthy, so if this the route you go, prepare yourself for a process that may take weeks or months before you have an answer.
An alternative to bank financing is invoice factoring. Businesses that use invoice factoring sell their open invoices to a factoring company for an immediate cash advance. The cash is then used to meet any financial needs of the company. Once the customer pay the invoice to the factoring company, the business gets the remaining balance, less a small fee. Factoring provides cash businesses can access right away, and it doesn’t create debt.
Scale Funding is an invoice factoring company serving oilfield service businesses throughout the United States. Companies such as roustabouts, site-preparation, water haulers, well servicing, and many others use factoring to manage cash flow and build financial strength.
In addition to consistent cash flow, Scale Funding has many value-added services owners can use when starting an oilfield services company. These services include credit and risk assessment on new customers, treasury services, online reporting, and a/r management.
Scale Funding is a leading invoice factoring company with a proven record of service. For more information on how factoring can improve cash flow and foster growth, call (800) 707-4845, or fill out the contact form on this page.