Sign up for our Business Buyer's newsletter!
Receive tips on buying and selling businesses from the BizQuest experts.
Enter Email Address:
We respect your privacy.
Read our Privacy Policy.



Home > Tools and Resources > Running a Business > Fuel to the Fire

Fuel to the Fire
Rising energy prices are pinching small businesses - how can you protect yourself?

By The BizQuest Staff
Contact The BizQuest Staff

Print Print   Email Email  

True to their nature, politicians from both parties are using the ongoing surge in fuel prices as evidence that the other party is wrong. President George W. Bush has blamed the rising costs on the Democrats' blocking of his attempt three years ago to open up new oil fields in Alaska. Democrats are blaming the rise on President Bush's failure to support research into alternative energy sources. John Kerry says that, if elected president, he would pour billions of dollars into a massive research effort to break America's "addiction to Middle East oil."

Both of these may well be great ideas. If history is any guide, however, there is precious little chance that either side will come around to the other's way of thinking. And there is even less chance that the two sides will manage to hammer out a coherent strategy in time to help you and your small business. In times such as these, small business owners have no choice but to solve their problems on their own.

Analysts say part of the trouble is that the oil sector is simply one of the most difficult to forecast. As prices hit $40 a barrel this month, OPEC was announcing supply increases that will raise output to a near-maximum level by June. Oil markets, which had been clamoring for just such a move, reacted to the news with a yawn and another price hike. Increasingly, blame is being shifted to limited refining capacity Stateside, not slow output overseas.

Either way, rising awareness of this near-chronic uncertainty in the oil sector is driving many small businesses to take action to protect themselves from current and future price fluctuations.

For the time being, small businesses are being hit hard; and obviously, those involved in delivery, shipping, landscaping or any other activity that involves fuel-guzzling machinery are being hit hardest. A secondary effect is also being felt by any businesses that contract courier or delivery services (which includes almost everyone else), as some of these businesses are forced to pass on rising costs to their customers.

However, passing on costs is not always a viable option. Say you run a small business that delivers industrial supplies to other businesses around your city. Your monthly fuel costs may have risen by $2,500 in the last quarter - nothing to sneeze at for most small businesses - but you are naturally hesitant to raise rates for your customers. The particular dilemma for small business owners is that they are often less able to simply absorb the costs on their own. While larger businesses may simply ride out the rough spell, smaller firms tend to have thinner margins and less room for maneuver.

There are no easy answers. In the short term, if your business is particularly affected by fuel costs, the chances are high that you may have to put a freeze on hiring for a short time and you and your existing team may end up spending more hours at work. If you do find yourself forced to raise prices, you will obviously want to raise them carefully and with due consideration for what the market will bear. Where possible, any price hikes should be explained to your customers, with the promise that they will be reduced again when the necessity passes.

If there is a silver lining here, it is that many small businesses are being forced to become more efficient. Firms are minimizing waste, running smaller machines and vehicles wherever possible, and organizing activities to reduce the amount of fuel burned. While one would expect small businesses with substantial fuel costs to be efficiency-minded anyway, the current price spike will doubtless add urgency to these concerns.

We would encourage all businesses to evaluate their energy expenditures and look for ways to increase efficiency. The first step is to perform an energy audit - which simply involves tracking and recording the use of fuel and energy over a set period of time. This audit will make it clear which vehicles or equipment are costing you the most, and allow you to look for ways to get the same work done with your most efficient equipment. For more information on energy efficiency, a good place to start is the Department of Energy's web site (www.doe.gov).

The resulting improved business practices could continue to bear dividends for you and your small business long after prices have returned to the realm of sanity. And happily, you will be better insulated against future price fluctuations - no matter who the politicians are blaming the next time around.

Print Print   Email Email  

Recent Running a Business Articles | View All