How to minimise the impact of energy price hikes on your business
Rising energy prices are having a rippling impact on every small merchantry in the UK.
Depending on factors such as type of merchantry and geographic location, many are seeing their bills balloon, plane with government support and wholesale price caps.
This brings a tough period for merchantry owners to navigate, one that will test your perseverance, adaptability, and decision-making. Your deportment as a merchantry owner will be the difference between whether your visitor survives or not, or plane thrives.
So, what can you do to protect the merchantry you’ve worked so nonflexible to build?
In this article, we share fundamental tips from several merchantry experts. We cover:
- How could the price hike stupefy your business?
- How to tideway the energy crisis
- 5 resilience strategies
- Final thoughts
How could the price hike stupefy your business?
The increase in pricing on your new energy contract will stupefy increasingly than just your overheads. It’ll likely impact your worthiness to maintain both profitability and growth.
Whether you serve other businesses or consumers, ballooning bills will momentum changes wideness several areas:
- Operating costs: The obvious one. Pretty much everything is going to forfeit more. Keeping the lights on and equipment running, purchasing stock, and distributing products.
- Employee security and confidence: Whenever businesses come under pressure, so do jobs. And with people facing their own increased energy bills at home, there will understandably be increasingly uneasiness among employees.
- Supply uniting disruption: Higher energy financing will lead to increased prices of products and services provided to other businesses. This includes those that you rely on for supply. From raw materials and office supplies, to transport and professional services, it’s through the supply uniting that energy price hikes will make a big impact.
- Lower sales: Both consumers and businesses will tighten up their spending. This ways no matter who you serve, you could see a waif in income as clients/customers cut when to the yellowish necessities. Pair this with increased overheads, and there will be a pincer effect on your profit margins.
Keeping a tropical eye on these areas of your merchantry will help you make adjustments as conditions change. It’ll take a bit of plate spinning, but as long as you don’t significantly neglect any one area, you’ll at least be worldly-wise to mitigate the strain.
The extent to which these four areas are unauthentic will depend on your individual circumstances.
So, what can you do now to alimony the price hikes at bay?
How to tideway the energy crisis
In times like these, forecasting seems unsure impossible. Or stuff fully well-judged does, at least. The financing and sales ends of mazuma spritz will be affected, but the stratum of this will depend on the nature of your business.
Those in energy-intensive sectors such as transport, manufacturing, and heavy industry will see the steepest rises in costs, while those in offline retail and hospitality will see the greatest fall in sales.
Whatever your position, you need to prepare for any eventuality.
Since there’s still so much uncertainty, it’s largest to stress test potential financial scenarios, rather than trying to make specific and well-judged predictions.
This lets you come up with multiple plans that imbricate how you’d respond to variegated conditions, and helps you gauge at which point (if at all) your merchantry might be in serious trouble.
It moreover gives you a starting point in figuring out how much mazuma you should aim to reserve based on possible mazuma spritz positions and can moreover be used to set target thresholds for energy usage.
To run stress tests, there are at least two possible routes you can take; one that looks at financing and the other at sales.
In each, the idea is to set up some potential financial scenarios that grow in severity and map out how you’d respond to each. Here are some examples:
The figures we’ve used here are just hypothetical. You’ll want to do some research and talk to others in your industry to come up with numbers that are towardly for your circumstances.
If you think it’d be valuable, you could go plane deeper and combine scenarios wideness the two routes, such as a 300% rise in energy financing and a 20% fall in sales.
Remember, this is just a way to consider what tough but plausible conditions you might face. From here, you can start thinking well-nigh some resilience strategies.
5 resilience strategies
When it comes to creating the strategies that will see your merchantry through the energy crisis, there isn’t a one-size-fits-all option.
Your plans will need to be as unique as your merchantry and the scenarios it will potentially face.
That stuff said, we’ve reached out to several key experts from the energy industry and vastitude to pull together these five resilience strategies that serve as strong starting points.
Strategy 1: Be tactful in contract negotiations
Perfect for: Scenarios where energy financing will have a greater financial impact than a waif in sales.
One of the biggest challenges of the energy slipperiness will be negotiating a new energy contract. Many are due to do this very soon, and the uncertainty virtually financing rises adds gravity and complexity to the process.
Ben Price, co-founder of boiler installation company Heatable, advises to do some homework and manage your expectations surpassing speaking to suppliers.
He says: “Before starting the negotiation process, try to get a benchmark price. If you go in from the start stuff completely unrealistic, you’re likely to be disappointed and get a unprepossessed response from suppliers.
“Once you know roughly how much you’re likely to have to pay, get as many quotes as possible and be willing to transpiration from your current supplier to get the weightier deal.”
When it comes to contract length there are several approaches you could take, but the right one will depend on your individual circumstances.
Long contracts offer security versus future rises, but moreover risk you stuff locked to a specific supplier. Shorter ones will offer you increasingly flexibility, yet you might pay increasingly if there are future spikes.
Some businesses are taking a hybrid approach, placing half of their properties on long-term contracts, and the other on a short term contracts.
Timing moreover matters when you’re negotiating.
Start discussions at least a month surpassing the termination stage of your current contract to stave any looming deadlines forcing you to rush a decision. If possible, it’s moreover largest to stave negotiating at rented times of year, such as winter.
Ben moreover says: “Don’t get warlike when communicating with suppliers. Although the current situation is stressful and frustrating, it won’t get you anywhere if you’re looking for a good deal.
“If you finger you aren’t in the right frame of mind, lack confidence, or just don’t have the time, it may be worth using a merchantry energy usurer to negotiate on your behalf.”
Strategy 2: Review your offering surpassing making cuts
Perfect for: Scenarios where significant cuts wideness your merchantry seem unavoidable.
For businesses that squatter the greatest increase in energy costs, making cutbacks in other areas of the merchantry will be unavoidable. From shuffling budgets to freezing recruitment, and the dreaded scenarios of letting some staff go.
But if the survival of your merchantry depends on such actions, you may have little choice.
Rick Smith, Managing Director at merchantry recovery specialists Forbes Burton, urges businesses to make sure all options are considered surpassing making these types of decisions.
He says: “Another way you can protect your future is to review products and services with a view to dropping unprofitable options and focusing on those with the weightier margins.
“The efficiency of the machine is really important here. Make it lean and don’t squint too far superiority considering the UK is heading for very uncertain times and things can transpiration quickly.”
This is a unconfined example of thinking outside the box and looking to adapting other areas of merchantry surpassing making cuts that you may regret later.
Strategy 3: Consider switching to renewable energy sources
Perfect for: Scenarios where you have the financial wiggle room to invest in long-term resilience.
When exploring potential energy suppliers for a new contract, consider those that provide electricity generated by renewable sources.
At the moment, energy from solar and wind is cheaper than that produced by oil and gas, so there is potential money to be saved.
The problem is, the current model in the UK ways that prices of renewable energy are not calculated entirely separately from fossil fuel energy, which ways the forfeit will still fluctuate in parallel.
The platonic scenario is to generate your own renewable energy. This can be washed-up by installing solar panels, hydro, or wind generators.
All these options would midpoint a significant up-front investment.
However, rhadamanthine self-sustaining is likely to pay off in the long term, expressly as batteries for energy storage wilt increasingly affordable and efficient. Those generating and storing their own power could sooner wilt immune to future spikes in wholesale oil and gas prices.
In terms of the firsthand crisis, this strategy may not be your most viable option, but it’s worth considering if you moreover have sustainability goals and are urgently working towards reaching net zero emissions.
Strategy 4: Prioritise energy efficiency
Perfect for: Scenarios where energy financing are once a significant overhead in your business.
Regardless of whether investing in new sources of energy is a viable option, exploring how to reduce and streamline your current energy usage will be essential.
This might seem obvious, but not everyone is enlightened of just how many ways this can be done, or how much of a difference it can make.
First, focus on adjusting behaviours virtually how your premises and the equipment within it are used. Turning off everything from lights and heating to machinery and signage during latter hours is a good place to start.
Some things, such as refrigerators, will have to be on 24/7. If possible, replace these with new models that have largest energy performance.
Next, think well-nigh how you can reduce energy waste.
The biggest freelancer to this is likely heat loss, which can be minimised by replacing insulation and typhoon proofing throughout your buildings. This will help the energy you do use go much further.
Strategy 5: Alimony a positive mindset
Perfect for: All scenarios.
Staying positive is admittedly easier said than done. But we learnt from the pandemic that those with true resolution were the ones who survived and thrived.
Whether it was stuff unvigilant unbearable to reopen doors, take a merchantry online, or prefer new technologies, unflinching and decisive deportment and a rejection of negativity saw many businesses through.
Chartered purser and Sage Partner Martin Tregonning has been asked well-nigh the energy slipperiness by several of his small merchantry clients in recent months. In the squatter of uncertainty, he advises a cautious but proactive approach.
He says: “Yes, some businesses will goof during this crisis. But it’s not a foregone conclusion that one of those businesses will be yours.
“You must stay positive, considering if you let negativity in you are increasingly likely to embody it.”
It could be the toughest part of making it through the crisis, but keeping a proactive, positive mindset will be essential. If you can maintain this plane at tough decision-making moments, you’ll maximise your endangerment of success.
Final thoughts
A lack of clarity virtually how much energy price hikes will truly impact your business, and how much government support will be misogynist over the long term, ways you’ll need to prepare for as many scenarios as possible.
By considering some of the resilience strategies we’ve laid out here, you’ll proceeds a largest endangerment to protect your merchantry as the energy slipperiness rumbles on.
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