Since July 2006, gas prices have hovered around the $3 per gallon level, and natural gas is up 36 percent. With unrest continuing in the Middle East, many business owners are concluding that higher energy costs are here to stay. Most also have noticed that the increases are having a domino effect on the economy, and also causing increases in other costs of doing business.
"You don't hear too many people saying this is a temporary blip anymore," says Stuart Hoffmann, chief economist of the PNC Financial Services Group. In a survey by the National Federation of Independent Business (NFIB), 17 percent of the companies polled reported weaker earnings and attributed the weakness to rising energy costs.
The NFIB survey indicated that 31 percent of small companies that responded planned to raise prices. This compares with 25 percent of companies in a survey the previous year.
Raising prices represents one way to alleviate the pressure of increased costs. While that may bring the quickest pay off in the short term, it carries its own risk, especially in retailers' increasingly competitive environment.
Conservation strategies may take longer to pay off, but there is some help in taking this tack. As part of the 2005 energy bill, the federal Energy Department, Small Business Administration, and Environmental Protection Agency have launched a joint program to help small companies become more energy efficient and find financing to upgrade their facilities.
In addition, utilities and state agencies in 10 states offer free or low cost energy audits for small companies. They are under the auspices of Energy Star, a joint Environmental Protection Agency and Department of Energy program. The number of participating utilities and states is expected to expand this year.
Pennsylvania is one of three states that offer free evaluations of energy use through the SBA's small business development centers. Demand for the audit has risen 44 percent in the past several months. A handful of New England utility companies offer no interest financing to small businesses for upgrading cooling and lighting systems.
In addition, companies that purchase solar and fuel cell systems by the end of this year qualify for a 30 percent federal income tax credit. Twenty states add their own tax breaks for renewable power, according to the Renewable Energy Council. Furthermore, some local utilities offer additional rebates.
Enlisting staff to follow strict "lights out" practices, according to specified timeframes, can also help. Enlist the support of everyone in the organization to shut down machinery that is not in use, and look for the best prices when filling the tank of the company vehicle.
Information in this article was edited from a story in BusinessWeek Small Biz.
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