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The consumer price index (CPI) inflation soared to 9% in April, figures released today by the ONS show. This is the CPI’s highest level for more than 40 years, and comes as a result of soaring gas and electricity bills.
The small businesses we’ve spoken to are already taking steps to combat the cost of living crisis, such as raising prices and scaling back growth plans.
However, the new data indicates that SMEs will need to introduce other, more strategic budgeting methods as we head towards a difficult winter period.
Below, we’ll discuss the rise in energy costs to identify the areas where small businesses can reduce spending and improve fuel efficiency.
Why are fuel and energy costs rising?
Inflationary pressure tends to go hand-in-hand with a surge in fuel and energy bills. This is because of the importance of oil in global supply chains.
Manufacturers rely on oil and gas to produce goods, impacting the businesses who service these goods and, in-turn, the consumers who want to buy them.
Because of this knock-on effect, high oil prices have historically been linked to economic recessions.
While the UK has been working to reduce its dependency on oil over the past few decades, we’re still reliant upon big suppliers like Russia.
The war in Ukraine is the main reason for the crisis. Sanctions placed on Russian imports by the UK have had a dramatic impact on wholesale prices, putting pressure on energy companies.
How can I save on energy costs?
Invest in energy-saving equipment
Outdated models of computers, fridges and even boilers tend to be far less energy efficient. Updating your office equipment with energy efficient products now will lead to long-term savings.
Using greener bulbs will cut energy usage and save money – they use up to 80% less energy than standard lamps and they don’t need to be replaced as often either.
Similarly, motion sensitive lighting will turn off automatically when rooms are not in use. Make the most of natural lighting this summer by opening window blinds in daylight hours to cut back on business energy costs.
Encourage company behavioural changes
Simple steps like asking your staff to turn off their computers at the end of the day can produce long-term savings. Something as easy as turning a single monitor off when it’s not in use could save your organisation up to £35 a year on business electricity bills.
Similarly, educating the workforce on water use can be a good way to reduce costs. Even filling the kettle up more than necessary can add up over time.
Weekly email reminders, or intranet headlines, are a good way to get this guidance across.
Conduct an energy audit
7 in 10 small businesses said energy bills were a barrier to growth last year, according to a survey carried out by Tyl. 54% of respondents said they were currently spending £3,000 or more on annual energy bills.
Take regular meter readings around your premises to keep track of your energy consumption. That way you will know what processes use the most energy and will be able to identify areas where savings could be made.
Consider installing a smart meter as a self-reading gas and electricity meters that shows how much energy you’re using in pounds and pence.
Use an energy broker
The gas and electricity market is hugely complicated at the moment. Given the current strain on the industry, the common advice is to stick with the energy price cap tariff (£1,971) as it offers the cheapest deal.
However, this cap is going to increase in October 2022. Current predictions are that it will go up by 30%.
That means there is a benefit to shopping around for a deal that’s less than 30% higher than the current price cap now, as you’ll be in a better position when October rolls around.
We recommend investing in an energy switching service to locate the best selection of tariffs and rates to choose from.
Small business energy brokers act as an intermediary between you and electricity suppliers. They can sometimes have exclusive deals with providers. Many also offer a free consultation of your current energy usage and requirements.
Making good use of their instruction will put you in a strong position for when the new energy price cap is introduced.
How can I save on fuel costs?
You’ll be most-affected by rising fuel costs if you are involved in delivery and transportation, as diesel and petrol will be your biggest expense.
Purchase fuel cards
One of the simplest ways to minimise fuel costs is to purchase a fuel card. These are essentially like a business credit card that gives users access to discounted fuel from specific providers.
Fuel cards can be allocated either to every driver in your company or every vehicle in your fleet.
Your drivers can then load up with discounted fuel at stations in the fuel card’s network. They’ll pay for their fuel using a chip and PIN card.
Depending on the fuel card, you can get discounted fuel at anywhere from 1,300+ to over 7,700 UK fuel stations, including supermarkets.
To get started with a fuel card you need to request a quote from providers. You can do this easily with our free, Startups’-exclusive simple cost comparison tool.
Once you’ve received a quote, it takes around four to seven days to receive a card, so it’s a good idea to start comparing costs as soon as possible.
How else can I minimise fuel costs?
Other techniques we recommend to SMEs wanted to reduce petrol costs are:
- Adopting conscious driving habits by educating your employees on the bad driving habits that can increase fuel consumption, such as fast acceleration, driving in low gears, heavy braking, speeding, and revving.
- Avoid travelling where possible by holding digital meetings instead of in-person.
- Examine your current travel requirements and routes to locate the opportunities where you might be able to cut back. Are you drivers crossing over at all during routes, for example?
- Invest in green vehicles. While energy costs have impacted EV vehicles (recharging at home is now 43% more expensive than a year ago) they are still much cheaper to run than petrol and diesel cars. Electric vehicles should also have greater longevity as the government phases out petrol/diesel counterparts.
I’m not involved in delivery or transportation: am I safe from fuel increases?
Even if you don’t own and operate company vehicles directly, you’ll still likely be hit by higher pricing thanks to its effect on the supply chain.
Vendors or suppliers that transport goods for your service will have to offset the increased costs in some form – usually by passing the cost onto buyers.
We recommend that you get ahead of this outcome by staying knowledgeable about your finances.
Speak to a financial advisor, or make use of free small business accounting software, to carry out a revenue forecast and be aware of what increases you could afford.
Depending on your relationship with your suppliers, now is also a good time to reach out and check whether they are planning any cost changes in the coming months. This will help you to prepare for any potential price hikes.
What help is available?
Government support
During its recent spring budget, the government announced certain measures to combat the cost of living crisis including a 12-month cut in the main rates of fuel duty for petrol and diesel of 5 pence per litre.
In terms of specific business support, current action has been thin. The chancellor increased the Employment Allowance from £4,000 to £5,000 as a way to absorb fuel and energy costs.
The change means that smaller firms will be able to claim up to £5,000 off their employer National Insurance Contributions (NICs) bills, which increased by 1.25 percentage points on April 6.
Green vehicle grant
The government offers a grant for those buying electric vehicles. This gives users a discount on the price of brand new low-emission vehicles.
Currently, the maximum grant available for cars is £1,500. You can see the full list of eligible vehicles on the government website.
Tax deductions
Small businesses can claim a tax deduction for all business-related vehicles you use for work (personal vehicles are classed as anything you use for travelling to and from work).
This covers not just cars, but also motorcycles, vans and even bicycles.
Government support can’t be claimed directly for fuel costs, but is a great way to allay the impact of higher petrol prices.
Our full guide on how to minimise petrol costs has more information on the scheme.
Next steps
The current onslaught of surging prices across the supply chain can feel overwhelming for SMEs to understand, let alone withstand.
Still, amongst the chaos are steps that businesses can take to absorb any leaps in operational costs, such as using fuel cards to save on petrol costs.
It might feel inconsequential. But as the new energy price cap tariff looms, building up these small wins will go a long way to strengthening your firm’s financial position.
Use our cost comparison tool to get quotes from relevant providers
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May 18, 2022 at 09:50AM by Helena Young, Khareem Sudlow
