Small-business owners will see that higher energy costs will hit way beyond gasoline
Place orders for maintenance items now. Buy as much as you can in bulk. Limit travel and lower energy costs. These are some ideas to escape the coming price spirals stemming from rising oil costs.
Because of the skyrocketing price of oil — from about $21 a barrel in April 2020 to $110 a barrel today — consumers and small-business owners in the Philadelphia region are spending significantly more to fill up their tanks at the gas station. But it’s not just gas prices that are impacted by higher energy costs. According to the Department of Energy, petroleum-based materials are included in hundreds of consumer products from aspirin to toothbrushes.
Small manufacturers are also discovering that many of the products they use are also — directly or indirectly — petroleum-based, and those costs are rapidly rising too. Unfortunately, as supply chain issues persist and war continues to rage in Ukraine, it’s likely that this inflationary period will continue. So if you’re a small-business owner, how can you get ahead of these increasing energy costs and protect your bottom line?
Your first actions should be to target both travel and commuting. As gas prices rise, so will the cost to operate your vehicles. To keep these costs under control, you should continue to encourage employees who can work more hours remotely or from home to save on their commute. Airlines will be increasing their ticket prices soon to compensate for their higher fuel costs, so book your travel now or hold off on any unnecessary trips. That may mean missing this year’s industry conference or holding more sales calls on Zoom.
Higher prices at the pump will also impact your cost to ship products, as freight and logistics firms will surely be increasing their fees. Be prepared to shop around for alternatives and consider sharing shipping costs with customers, even if you have to add a temporary surcharge.
Your utilities will likely be going up. Before that happens, consider hiring an external firm to audit your past invoices to uncover any prior billing mistakes or overcharges. You can find these firms by searching “utility audit” online. You’ll have to send prior months’ invoices and will likely share in any cost savings that they find. But then you’ll be certain to avoid those overages going forward. Local utility companies such as Peco also offer energy assessments both for homeowners and businesses.
You should also take additional steps to reduce your office’s energy consumption, such as installing timed thermostats, turning the temperature down a few degrees, replacing your lighting with more energy efficient LED bulbs, and re-insulating drafty spots. More people working from home and another look at your production scheduling may also help lower the cost of heating in some areas of your building.
If you’re a manufacturer, then you’ll know that petroleum is a core component of many of the materials you probably use to make your own products. Significant amounts are included in solvents, lubricants, bearing grease, rubber, wax, plastics, inks and dyes. If you use any of these products in your operations, you’re certain to experience price increases. If you’re growing plants or in an agriculture-related business, you’ll also see the cost of fertilizer rise.
The best way to protect yourself is to buy as much as you can in bulk. That way, you can not only try to negotiate a volume discount but to also procure as much of these materials as possible at a price that will surely be lower than what you’ll likely see a few months from now.
Of course, this is easier said than done. You’ll need space and you may need financing. Which is why you should be talking to your banker now about a potential increase to your working capital line or even applying for a Section 7a or 504 loan from a Small Business Administration lender to finance these purchases. If you structure this correctly, you’ll be able to pay off the loan within the year with the profits earned from selling these materials.
If you’re thinking of construction projects this year, be careful. Paint, brushes, rollers and other materials are often petroleum-based so you may want to consider a change in what you’re building or defer these projects. If you’re planning on buying laptops and desktop computers, you’ll see those prices — as well as the prices for printers, ink, paper and other office-related products — rise too, so you may want to hold off on those purchases this year. If your business relies on refrigerators or similar machinery, know that besides the costs of oils and lubricants, fan belts also include petroleum-based materials, so check on these now, buy bulk and do proactive maintenance to avoid replacing these items.
If you’re a small-business owner, know that the spike in energy prices will impact many of the core materials you use to run your businesses. Taking a few proactive steps to mitigate these increases will help your navigate your way through this, one hopes, short inflationary period.
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.