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Higher Gas Prices Ahead: How Can Your Small Business Cope?

General Business News

March 2012

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Higher Gas Prices Ahead: How Can Your Small Business Cope?

Higher fuel costs are bad news for consumers and small businesses. According to the U.S. Energy Information Administration (http://www.eia.gov), gasoline and diesel prices in 2012 are trending steadily upward, and nearing a 9 percent increase since January. Many experts are predicting that the average cost per gallon of gasoline will jump the $4 mark by Memorial Day due to the rollout of the more expensive seasonal gasoline blends, possibly breaking the all-time record of $4.16 per gallon by summer. The potential for $5 per gallon gasoline by year’s end cannot be ruled out, as continued tensions in the Middle East and $100-plus per barrel crude oil prices provide upward pressure that is starting out higher than usual in advance of the summer driving season.

For small business owners, higher fuel costs can present a challenging situation, forcing companies to either absorb the additional expenses, pass cost increases on to customers or both.

The good news is that if you are a small business owner who is willing to plan ahead and make adjustments, there are ways to help minimize the impact of fuel cost increases and maximize customer retention. Even if you are not in the transportation or delivery business, fuel can still be a big expense, so increasing efficiency in every area can help offset its costs.

If your business transports or delivers goods or services to your clients, the first step to consider might be adding a small delivery surcharge to help offset the additional fuel cost. Along the same lines, you can either increase your minimum delivery costs or implement a graduated delivery pricing tier: the farther your customer is from your location, the more you charge for delivery. Keeping price increases to a minimum and ensuring that you communicate clearly and honestly with your customers about the reasons for the increases – emphasizing that the measures are temporary – will help you retain customers.

Consider limiting your on-site projects to a specified distance from your location (for example, a 50-mile radius). While this might not always be practical, it can be combined with the use of web-based meeting and collaboration tools to interact with customers or clients outside your limited travel range.

Keep accurate records of your travel expenses. Legitimate business travel costs are tax deductible. Keeping driving, fuel purchase and vehicle maintenance records will ensure that you make the most of your mileage or vehicle maintenance cost deductions – and put money in your company’s pocket at tax time.

Carpool to client sites. Make efficient use of fuel by requiring that employees, supervisors and other company personnel travel in a minimum number of vehicles to work locations.
Buy locally, if possible. If your company buys raw materials, products, supplies or other goods for the business, compare the cost of buying locally with the extra cost of paying shipping and surcharges when buying elsewhere. If you need materials delivered to a work location, such as a building site, buying locally means you’ll pay lower delivery charges.

Plan ahead. Whether driving or traveling on a commercial flight, planning your trip in advance means you save money by getting the best deals on gasoline, diesel or airfare. Remember, when fuel costs rise, so do airline tickets, and buying in advance can mean big discounts. Planning ahead can apply to all aspects of your business, including ordering supplies. Savings realized through more efficient operations will help offset fuel price increases.

Encourage your customers to buy your products online. They will save on fuel costs by not driving, and they will appreciate the convenience. Additionally, if you can have some of your products drop-shipped by your supplier directly to your customers, you can save on shipping or transportation costs between the supplier and you.

Optimize travel or transportation routes. Use GPS, Google Maps and other tools to plan the best, most fuel efficient route, whether you are traveling to a client’s office, delivering goods to your customer or hauling materials to a construction site.

Look at alternative fuels. With all the bad news about high gas and diesel prices, natural gas costs have been coming down. Converting your company vehicles to natural gas might be an option worth considering.

Consider upgrading your company vehicles. When it’s time to trade in your car or truck (even if you only use one vehicle), take a look at hybrids or other more fuel-efficient models.
Maintain your vehicles. Even if you can’t afford to convert your vehicles to natural gas or buy more fuel-efficient vehicles, regular maintenance can pay for itself through better gas mileage.

Get the best rates for fuel by using rebate or discount cards and/or by leveraging online resources to check fuel prices near your location. Walmart, for example, offers fuel price discounts when purchases are made using one of their reloadable gift cards at their Murphy USA locations. To ensure the best price, you can compare fuel costs nationwide at a number of websites that offer real-time comparisons based on ZIP code.

High gas prices are painful to the pocketbook, but through careful planning and more efficient operations, your business can adapt, thrive and retain valued customers. In the long run, streamlining your business to cope with higher fuel costs now will help ensure higher profits even after the crisis has passed.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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