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How can small businesses survive the threat of rising energy bills?
- 18 Jan 2023
As wholesale energy prices hits record levels, the trading climate for the self-employed remains bleak under the shadow of the cost of living crisis. The undeniable truth is that as energy bill estimates reach record levels, businesses must make cutbacks in preparation for a testing future ahead with financial hurdles in view.
The latest Freelancer Confidence Index quarterly report paints an image of the current state of the freelancer market. Freelancers’ confidence in the UK economy shows a 30 percent drop, the highest decline since the coronavirus pandemic.
Mitigating factors behind the drop in freelancer confidence include an increase in input costs and a rise in inflation brought on by the energy crisis. While these challenges increase exposure to the risk of debt, energy bills on the rise pose a true threat to the survival of the self-employed community.
With no option but to absorb higher operating costs, the self-employed and freelance workforce must do all in their power to maintain financial health and prepare for a turbulent future.
Fight for survival
While the independence and freedom of operating as a freelancer or self-employed reaps rewards, it’s a herculean task to run a business amid the cost of living crisis, while the Ukraine war is underway and the economy recovers from the coronavirus pandemic. Without essential funds to counteract the increase in overheads from rising energy costs, small businesses must explore what support is available to them.
Know your entitlements
As disruption from the coronavirus pandemic including global supply chain problems and labour shortages has led to the price of raw materials such as timber to increase, businesses may need more time to pay their energy bills while they wait for cash flow to free up.
Energy providers are at the frontline of the energy crisis, alongside domestic and business energy consumers that must absorb higher energy costs. As such, energy providers are on hand to extend support throughout the energy crisis.
- Energy supplier support
From energy support funds, grants and usage caps, to energy efficiency reviews, help is available to those in need. Payment plans are also an option to help clear the build-up of energy debts and provide breathing space to those who can’t pay business gas and electricity bills. - Government support
As part of the Energy Bills Support Scheme, the government will provide a £400 discount to households to support them with their energy bills over the winter months. Under the Energy Bill Relief Scheme for businesses, the government will provide a discount on gas and electricity unit prices to establish a ‘government supported price’ that is lower than the wholesale price.
Energy efficiency
Monitor energy usage to pinpoint where you can reduce energy use and maximise efficiency to help cushion the blow from increasing energy bills. Whether your work takes you on-site or off-site, check how you can change your habits to save energy, such as switching off your monitor while on a break, upgrading insulation in poorly insulated areas or reducing your dependence on artificial light.
- Energy saving habits
Encourage behavioural changes to reduce power usage, such as mitigating technology settings to eliminate the unnecessary and inefficient use of energy. From switching off equipment to strategically heating spaces by targeting only those in use and taking advantage of natural light, educate yourself and your employees on how small changes can make notable differences.
Review business energy tariffs
Although the variety of business energy tariffs currently available is limited due to the global uplift in the price of wholesale energy, keep an eye on the market for new tariffs that may be cheaper for your business. Third-party support from a reputable energy broker or comparison site can provide access to competitive energy deals that could save you money.
- Business brokers
Business energy brokers are often the first to access exclusive commercial energy tariffs as they work directly with leading business energy suppliers, and those that are lesser known. - Comparison sites
Online-exclusive tariffs are often advertised through comparison sites that can work out to be cheaper than automatic renewals.
Restructure operations
Restructure business operations to improve efficiency and profitability. From streamlining outgoings to simplifying the corporate structure, company restructuring can boost cash flow.
- Corporate simplification
If company operations comprise multiple layers, peeling these back and simplifying the structure of the business can help stimulate growth and free up cash. - Refinance
If a business requires a cash injection to support recovery, refinancing can help it get back on track in light of the coronavirus pandemic and the energy crisis. The decision to seek additional finance must be considered alongside current company debts and repayments. - Debt recovery
If there is a high risk of bad debt, upgrade your debt recovery strategy to collect money owed to the business, faster. An accumulation of bad debts can push the health of a business into decline amid the current climate as energy prices soar.
Reduce outgoings
From software licenses and rented equipment to outsourced support, what luxuries can you forego to drive down costs and futureproof the financial health of your business?
- Review recurring monthly costs
From subscriptions and licenses to entertainment and smaller luxuries, what monthly outgoings can afford to be cut? Can you switch to a basic subscription that is cheaper and reduce the number of active subscriptions? From client entertainment and property improvements, scale down the grandiosity of these plans and seek a cheaper way to achieve the same outcome.
- Downsize
If you operate out of a commercial property, is it practical to downsize to reduce energy usage? Can implementing hybrid working further reduce these costs?
It’s vital to maximise cash in the business as the energy crisis increases overheads.
Contributions towards savings and pensions are also essential for the self-employed workforce as they provide an emergency cash cushion and a lifeline upon retirement, so they should be protected and treated as a last resort option when cost cutting.
If energy bills are likely to bear a burden on the company purse, the prime time to build a shelter for your business ahead and the cost of living storm that is underway - is now.
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