These ideas are a subset expansion of the blog post, US Small Business: Cash Flow Strategies for 2011, originally posted 4/14/2011, to elaborate on Energy Management strategies
Small Businesses need to extract every penny from their operating costs in order to compete in 2011. There are uncertainties to say the least about Health Care and the state of the economy in general, and that makes small business owners nervous. One thing you can bank on—the price you pay for your plant and office energy will be on the rise.
Does anyone believe that energy prices are going to drop? When gas prices went up to $3.50/gal at the pump during the Bush administration, the Secret Service had to be beefed up to take the bullets. Now it’s happened again with hardly any notice at all from the media, and perhaps the public. Why do you think that is? Well, without casting any political aspersions or statements about the media, the public has become de-sensitized to the bad news. It’s the same reason adults don’t like the youth of the nation playing violent, gun and bomb video games. We’ve begun to accept it and become callous to it. The question is, small business owners don’t know how dramatic their energy prices for plant electricity and natural gas will change. They just know we don’t like what they see, and proposed environmental legislation like Cap and Trade will not bode well for their price per kilowatt.
Combating Rising Industrial Energy Prices
Many sources say businesses need to raise prices due to rising costs of raw materials and energy. Sounds great, but this is a recessionary environment. Your customers will price shop you to death and place downward pressure on your prices despite your rising costs. It sucks to be you, say the flippant customers who hold the cards, it seems, stacked against small business.
There are many things to focus on, but with regard to energy, start with these:
Comparison Shop Your Energy Consumption
Energy is a variable cost due to usage, but for many companies, it is a variable squared. How? Because they are on a variable rate with the power company, absorbing all the risk of rising energy prices. So not only are they paying for what they use, in today’s climate they are paying more for what they use.
If you’re not on a fixed rate based upon your billing history, call your electric company as soon as you finish reading this and get prices. Even better, if you are in a deregulated state in the US and you haven’t shopped your energy supply through a licensed energy broker, what are you waiting for, Chapter 11? Energy companies all want to bid your power if you have any significant usage at all. If you bills run 5 figures every month, that is significant, and the difference between a few cents per kWH paid on your bill can result in tens of thousands of found money for your cash position. Find out how much you can save in an Energy Choice program now.
Curtail Consumption with Flexibility
Call your local power company or just Google the Demand Response programs in your area. This is a device put in place by energy companies collectively in a given geographic power grid to basically buy back your energy during peak times of the year. This translates to the summer cooling season, when commercial and household air conditioners are on consistently.
It works like this. Your company signs a contract that says you will be flexible up to X times per year (in my grid it was 6) and curtail a promised amount of usage for up to Y hours (usually a half day or so). By being a part of the program, your company gets massive energy discounts annually, much more than you are paying on your fixed rate (see section above) for the power. They are effectively re-purchasing your electricity when it is needed the most and paying your company a premium for it. Depending upon your usage, savings can run five to six figures. The best part is, this is calculated in advance, and in most cases, you’re paid the rebate whether a shortage event happens or not. You can almost always see any potential events coming just by looking at the weather forecasts for your area to see if a heat wave is on the way, giving your small business time to plan a response (like working 2nd shift or on Saturday).
Invest in Energy Improvements
We all know we can do this at any time, but until forced most of us as individuals and businesses will not spend money to become energy efficient. Just what size lever is needed to make you look at this? Getting a better price per kWH on what you are using is one thing, but the larger savings come from using less to begin with. It is perfectly reasonable for a manufacturing company, for instance, to be able to trim consumption by 7-20% by upgrading old facilities for efficiency. You can run the numbers.
Many communities have grant programs to help defer conservation of industrial energy because, compared to residences, the numbers are so much larger per company. You can once again Google this, but you’re going to want to get bids to competitively shop any improvements you can make. Energy management consultants and equipment providers are usually familiar with the local sources that essentially help you afford their services.
By the way, if you are in the industrial space, the quick places to look are your industrial lighting, compressed air systems, and motors on machinery and equipment. These are notorious thieves of resources and your money. Upgrading to more efficient models or automating with intermittent usage controls can make a dramatic impact for your business.
Sure, it costs you some out of pocket, money that you can write off and otherwise lessen the bite of. You can also engage another cash flow tactic for business and finance the equipment required for the upgrade, deducting lease payments as operational expenses each year of the term. This allows you to get the equipment in use and saving money for very low up-front cash. Every day energy costs go up is a day you decided to spend more than you could have. Your call.
Improving Your Small Business Outlook
Look, the jury is still out on the economy. I don’t want it to crash your business while worrying about it. You still want to move ahead, and, if you’re reading this article, grow your business even in uncertain times.
Work to take care of variable expenses like energy by getting every red cent you can by leveraging the competitive marketplace. This gets you feeling good about what you use. Then look to curtail your business consumption via flexibility and efficiency to round out your energy strategy.
Post your Energy Management strategies below that you’ve used to cut energy expenses for your small business below. You may be spotlighted in a future post.