How TGG Helped an Energy Services Company Plan for a Five-Year Contract
A major contract win came with a financial complication.
For a family-owned energy-services company operating in Colorado and Wyoming, securing a five-year contract was a significant opportunity, particularly as the company pursued geographic expansion. The agreement promised years of work, but a change in payment terms created a potential cash-flow problem that needed attention before the new arrangement took effect.
Starting in January, the customer’s payment terms were shifting to 60 days. With uncertainty surrounding the second half of the contract award, the company’s leadership needed to understand how delayed payments could affect its ability to meet financial obligations and make future investments.
TGG Accounting Consulting CFO Charles Cecil recommended a closer look at the company’s financial position and a two-year cash flow forecast to assess the potential impact.
A Five-Year Contract Raised Cash Flow Concerns
Long-term contracts can provide valuable revenue opportunities for energy-services companies, but securing years of work doesn’t necessarily mean having the cash available to support it.
Under the new payment arrangement, the company would face a longer period between performing services and receiving payment. Meanwhile, it would still need to cover ongoing operating expenses.
Uncertainty around the second half of the contract award added another consideration. Leadership needed to account for both the payment delays and the possibility that anticipated contract revenue might not materialize as expected.
Forecasting the Financial Impact
TGG recommended developing a two-year forecast once the company had confidence in its current balance sheet.
The forecast would model the full impact of 60-day payment terms rather than relying on optimistic collection assumptions. It would also account for uncertainty surrounding the remaining contract award, helping leadership anticipate potential cash shortages before they became immediate problems.
This approach would give this Mountain West company a stronger basis for evaluating its financing requirements and making informed decisions about future spending.
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Planning Ahead Instead of Reacting to Cash Shortages
With a clearer understanding of projected cash flow, leadership could assess whether its existing line of credit would be sufficient to support operations under the new payment terms.
The forecast could also help the company determine when to make planned investments and whether negotiating a phased transition to the new payment schedule might reduce financial pressure.
TGG’s guidance shows the importance of looking beyond a major contract’s revenue potential. For energy-services companies, proactive cash flow planning can turn a promising business opportunity into a more manageable financial commitment.
What TGG’s Consulting CFO Said
“The shift to 60-day payment terms in January on the new five-year contract, layered with uncertainty on the second half of that award — once we have confidence in the current balance sheet, we’d want to forecast this over the next two years and see the impact on overall cash flow if we move to 60-day terms for this customer.”
— Charles Cecil, Consulting CFO, TGG Accounting
