How to dodge the energy cost crunch
The carbon tax may be an unresolved political hot potato for the Gillard government, but the pain of rising energy prices, and growing overheads in general, is one that is already being felt by small businesses.
The trend is clear. According to research by the Australian Industry Group, energy prices have risen steady over the past five years, with prices set to double in the period between 2008 and 2015. This year alone, electricity costs are set to leap by $1.2 billion.
Energy companies face the costly prospect of replacing decrepit infrastructure, which will impact businesses’ bills regardless of the carbon tax, while the price of oil recently hit a two-and-a-half year high.
Increasing SME pain
Peter Strong, executive director of COSBOA, says: “Overheads in general are going up. A lot of it is around red tape – superannuation is so complicated, there’s the Paid Parental Leave Scheme to administer and also workplace relations.
“For some reason, it’s getting worse and worse and most small businesses have no idea what’s going on. It affects the bottom line but also their health.
“Rising energy prices just re-enforces the two-speed economy. Big business will be able to wear the cost of rising prices and households will be reimbursed. The ones that will suffer are small businesses. Around 96% of businesses are small but the government focuses on just the 4%.
“We are seeing classic behaviour from small businesses on energy prices. They deal with what’s in front of them, not will happen in the long run. That’s why we have to fight for their interests now.”
This reluctance to take measures to trim mushrooming overheads is underlined in AIG’s research, which found that more than half of surveyed businesses had no plans to tackle energy efficiency in the next two years.
But some smart entrepreneurs are getting on the front foot.
Richard Nicol, founder of sustainability consultancy Building Green Business, says that he’s seen a recent spike in concern about energy prices among his SME clients.
“People are talking about it more and looking at products such as LED lighting, which was previously seen as too expensive,” he says.
“Small businesses are concerned about this, but the main problem is still the lack of long-term thinking."
“A lot of businesses struggle when it comes to investing in the long term. It’s a bit like the carbon tax itself. People don’t want to spend now to save in the long term."
“This thinking isn’t helped by the government, which offers free home energy assessments and subsidised solar. People have come to expect sustainability to cost nothing. They need to realise they need to spend to save.”
So what can be done to prevent the march of ever-increasing energy costs?
Energy efficiency measures play a part, but start-ups also need to make sure that they are getting the best deal for what they pay for electricity, rent and equipment.
Making the switch
Several price comparison sites have sprung up, such as Energy Watch, GoSwitch and SwitchWise, in an attempt to cash in on SMEs’ need to slash bills.
Tim Wolfenden, CEO of another comparison site, Make It Cheaper, previously worked on a similar site in the UK, uSwitch.com. He says that there needs to be a culture change among Australian businesses when it comes to their overheads.
“Rent is a huge cost and businesses will go to a number of different leasing agencies before signing up,” he says.
“You know what the increase on office space will be year-on-year. But when it comes to electricity, you just call the first company that comes to mind and say ‘connect me please.’
“Australian businesses need to embrace the concept of an annual review of all costs. You aren’t rewarded for loyalty – you are done over.
“Look at all your fixed costs and ask yourself ‘what can I change today?’ Obviously, water and rent can’t be changed overnight, but your electricity, telecommunications and insurance can be switched fairly easily.
“Yes, it may take you half a day to call up each energy company, but if your fixed costs are $50,000 a year and you save yourself 10%, that’s a $5,000 saving a year, which is more than a half-day’s work.
“It’s not hard. Actually it’s quite simple. You can go to your existing supplier to ask for a better deal, but don’t be afraid to shop around.”
While energy prices are on the rise, the news isn’t all doom and gloom. The changing way that start-up’s operate naturally helps to cut down on the overheads that can crush many businesses.
The ability to outsource functions such as IT and marketing, as well as the ability to work “in the cloud”, lessens the reliance on costly infrastructure for small businesses.
“The trend is moving towards a more variable usage basic rather than a fixed cost,” says Marc Peskett, partner at business advisory firm MPR Group.
“You can lease your hardware, use Skype for telephony and outsource non-core elements such as accountancy and IT. This means that you can get by on fewer people, which means that your rental costs are lower.
“Look at what you can outsource and look at people costs. You can bring down the amount of money tied up in these things.”
Invariably, the rewards of running a leaner, more agile business benefits some sectors more than others.
“Rising energy costs are an issue for heavy industry, no question about it,” says Peskett.
“If you use a lot of energy and employ a lot of people, it will have an impact. You’ve either got to cop it or pass it on, and you end up doing the latter.
“This just points to a further nail in the coffin of manufacturing in Australia. There is a trade-off for other businesses, particularly tech companies. Employment is quite strong, you don’t need to hire too many people and start-up costs are very minimal – you could start two businesses in a day if you want.
“If you get going in the cloud and strip out the costs elsewhere, energy prices shouldn’t hurt you too much.”
Five top tips
1. Get on the efficiency bandwagon
LED lighting may seem like an unnecessary expense, but even at $30 a pop as a minimum, the investment should pay off. The LED industry claims to cut 95% of lighting costs over a 10 year period.
Don’t forget more obvious common sense measures. Don’t leave lights and equipment on when they don’t need to be and make small changes such as the shades on your windows to avoid the over-use of appliances such as air conditioners.
2. Get an energy assessment
The federal government’s Green Loans Program, which was plagued by budget blowouts, closed in February this year, ending the free energy assessments aimed primarily at households.
However, there are several organisations that can help your business ascertain its energy use or counsel you on how to reduce costs, such as Planet Ark and Building Green Business.
If you don’t want to pay for outside help, start thinking about every energy cost that is a drain on your business. For example, how often do you use your air conditioner or heating? If you are using just two litres of heated water a day in your office, can you really afford to heat a 150-litre water tank every time?
3. Shop around
The plethora of price comparison sites mean that there’s little excuse for you to be lumbered with unnecessarily high bills. Rather than just sign up to the next electricity company representative that knocks on your door, take matters in your own hands. Take your pick - Energy Watch, GoSwitch, SwitchPower, Make It Cheaper and SwitchWise are all worth a look.
4. Shift into the cloud
Technology isn’t just a greater leveller between small business and their larger rivals, it can also help you take an axe to your overheads.
Moving your business to the cloud can help by cutting down on the amount of expensive hardware you need and, therefore, the amount of space your start-up needs to inhabit.
Web-delivered applications such as accountancy tool Xero and file sharing service Dropbox should be considered by just about every new business that wants to stay lean. To learn more on living in the cloud, click here.
5. Collaborate with other businesses
Other businesses can help you reduce your overheads in several ways. In the most obvious sense, shared office space, such as the new Fishburners project in Sydney or Hub Melbourne, can provide you with a reduced rent, lower utilities bills and combined buying power for services such as accountancy and IT support.
But other entrepreneurs can help you in more informal ways too. Simply sitting down for a cup of coffee (or something stronger) with a fellow business builder can help you glean handy tips on cutting your overheads and running a tighter ship.