5 Ways Small Businesses Can Offset High Gas Prices
Gas inflation has been breaking records at a dizzying pace: In June 2022, the national average gas price peaked at more than $5 a gallon, according to data from the US Energy Information Administration. At the same time, the consumer price index, which measures the change in the cost of consumer goods and services over time, saw its largest 12-month increase in 40 years.
By the end of the summer, these prices had started to decline, according to AAA data, but there is no guarantee that the trend will continue.
Here are five ways small businesses can offset high gas prices saving money at the pump and elsewhere.
1. Get cash back at the pump
Small businesses that spend a considerable amount of money on fuel costs might consider requesting business credit cards for gasoline that offer up to 3% cash back on fuel purchases. These cards can be used with gas applications — that help consumers find the cheapest gas in their area — and station-specific membership accounts that award points or discounts to consumers.
2. Monitor your cost of goods sold
A company cost of goods sold, or COGS, includes all expenses directly related to the sale of products or services. This strongly influences a company’s bottom line; a company’s sales must exceed the cost of goods sold to generate a profit.
Julie Oldham, a chartered accountant and consultant at the Michigan Small Business Development Center, says small business owners can’t continue operating as they are when the cost of goods sold increases. Money spent on gasoline is often included in the cost of goods sold for service and product businesses.
“It goes back to the grindstone,” she says. “Really just be on top of your numbers.” As your cost of goods sold increases, your prices to the consumer should increase to ensure that you are still making a profit.
3. Know when to raise your prices
If small businesses don’t raise prices when hit by inflation, Oldham warns, they risk going bankrupt. In service businesses, this price increase should be clearly indicated on invoices so that customers understand why they are paying more. Specifically, Oldham says, business owners should create a sub-account under expenses for gas costs to isolate and monitor the exact amount spent on fuel.
Oldham also suggests companies review customer contracts to ensure they include the right to raise prices.
4. Invest time in financial forecasting
“Even if you’re trying to cut expenses…you have competition,” says Oldham. One of his customers, for example, recently tried to buy an electric van to save money on fuel, but the competition had beaten him to it and none were available. Financial forecasts can put small businesses in a position to make those decisions before prices skyrocket by helping them set goals and estimate their future profits.
If your accounting software doesn’t include forecasting capabilities, the small business coaching organization SCORE offers free templates on its website.
5. Improve your business efficiency
Switch to one electric vehicle is one way to combat high gas prices, but small businesses can also offset the cost of fuel by making changes to other parts of their operations. For example, Oldham suggests reviewing packaging and shipping processes. “Do you have lighter packing materials? ” she asks. “How about smaller containers?
On a different note, small business owners could explore ways to make their buildings more efficient in the long run, says Joni Krolczyk, senior business consultant at the Michigan Small Business Development Center.
“There are a lot of entities and programs emerging now, encouraging companies to explore these options and incentivizing them to do so,” Krolczyk says. “So they might not reap those benefits immediately, but over five, 10, 15 years, it will affect their bottom line.”
The State Renewable Energy and Efficiency Incentives Database can help small business owners find energy-related tax deductions, tax credits, grant programs, and rebates in their business. State. Some local utility companies also have small business energy efficiency programs that provide entrepreneurs with additional incentives.