How to Navigate the Rising Cost of Oil

Transcript

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Gene (00:03):

Hey everybody. And welcome to the Small Biz Ahead podcast. My name is Gene Marks and thanks for joining me this week. Let’s talk about the high cost of oil. We all know about the war going on and other supply chain issues and other government regulations. There’s been a lot of restrictions on the production of oil around the world and the movement of oil. And because of that, that has really had a big impact on the price of oil. I don’t know if you know this or not, but like back at the beginning of the pandemic back in April of 2020, the price of a barrel of oil was 21 bucks. And as I’m talking, it’s about a hundred bucks a barrel. It’s gone up five times in just the past…

Gene (00:44):

Two years. You can tell it’s a very volatile commodity. Some people expect the price to continue to rise. I mean, to as high as $130 or $150 a barrel. Other people are expecting it to actually decrease to more normal levels, which is between about $50 to $80 a barrel. The bottom line is, is that we’re still spending, you know, if you’re running a small business and even in your personal life, you’re definitely spending significantly more to fill up your tank at the gas station. We know that, but look, it’s not just gas prices that are impacted by higher energy costs. I mean, according to The Department of Energy, petroleum based materials are included in hundreds of consumer products from Aspirin to toothbrushes even. So the rising cost of oil, isn’t just a thing on our gas tanks.

Gene (01:30):

It has a sweeping impact on so many products that we buy. Now, if you’re a small manufacturer, you’re probably already discovering that many of the products that you use are also directly or indirectly petroleum based and those costs are rapidly rising too. I mean, unfortunately as the supply chain issues persist, and if this war continues to rage in Ukraine, it’s likely this inflationary period, it’s gonna continue for the foreseeable future. So the question is, if you’re a small business owner, how can you get ahead of these increasing energy costs and how do you protect your bottom line? So let me give you some thoughts. Your first actions should be to target both travel and commuting. Like as gas prices rise, so will the cost to operate our vehicles. So to keep these costs under control, you should continue to encourage your employees who are able to work more hours remotely or from home in order to save on their commute. Airlines, they’re gonna be increasing their ticket prices soon to compensate for their higher fueled costs.

Gene (02:29):

So either book your travel now, or hold off on any unnecessary travel, at least for the time being and that may mean missing this year’s industry conference or holding more sales calls via zoom. I know that’s like ugh, it might be something we need to be doing to keep our energy costs down. Now, higher prices at the pump will also impact your cost to ship products as freight and logistics firms are surely gonna be increasing their fees. So be prepared to shop around for alternatives and consider sharing shipping costs with customers. Even if you have to add a temporary surcharge, your utilities are likely to gonna go up, right? So before that happens, consider hiring an external firm to audit your past invoices in order to uncover any prior billing mistakes or overcharges. You can find these firms by searching utility audit, Google that, you’ll have to send prior months invoices.

Gene (03:22):

And you’ll likely have to share in any cost savings that they potentially find, but then you’ll be insured to avoid those potential overages going forward. It’s a pretty good deal. These people work, you don’t have to pay them anything. They’ll just get a cut of the savings, but they’ll also position you to save more going forward. Local utility companies in your area, most of them also offer like energy assessment programs, both for homeowners and businesses. So take advantage of those as well. Again, with energy costs, you should be taking additional steps to reduce your office energy consumption such as like installing time thermostats or turning the temperature down a few degrees or replacing all of your lighting with more energy, L.E.D lights and reinstalling drafty spots where it needed during the summer, maybe turn up the air conditioner and get some fans in the office just to save on your air

Gene (04:13):

Conditioning costs. More people working from home and another look at your production scheduling may also help lower the cost of heating in some areas of your building. If you’re a manufacturer, you probably know that petroleum is a core component of many of the materials you use to make in your own products. So significant amounts, believe it or not are included in solvents and lubricants and bearing grease and rubber and wax and plastics and inks and dyes. If you use any of these products in your operations, you’re certain to experience price increases. If you’re growing plants or you’re in an agriculture related business, know that you’ll also see the cost of fertilizer increase as well. So the best way to protect yourself from these cost increases is to just buy as much as you can in bulk. That way you can not only try and negotiate a volume discount, but also to procure as much of these materials as possible at a price point that will surely be lower than what you’ll likely be seeing a few months from now.

Gene (05:10):

You know, of course, it’s easier said than done you’ll need space. You may need financing, which is why you should be talking to a banker by getting financing to increase your working capital line or even applying for maybe a small business administration loan. If you structure all of this correctly, you’ll be able to pay off the loan within the year with the profits earned from selling these materials, think ahead, buy in bulk, get the financing, pay it off. If you’re thinking of construction projects this year, just be careful. Paint, brushes, rollers and other construction materials are oftentimes petroleum based. So you may want to consider a change in what you’re building or defer these products, at least for the time being, sorry, not products but projects for these time being. I talk so fast. If you’re planning on buying laptops and desktop computers this year, you’re gonna see those prices as well as the prices for printers and ink and paper and other office related products.

Gene (06:00):

They’re gonna go up too, because they use petroleum in some way or another. So you may wanna hold off on those kinds of purchases this year. If your business relies on refrigeration or similar machinery, know that besides the cost of oils and lubricants there’s fan belts and other petroleum based materials that go into these machines. So check on ’em now, buy bulk if you can. Do a little proactive maintenance to avoid replacing these items, when costs are gonna be higher. If you’re a small business owner, you have to know that the spike in energy prices is not just gonna affect your gas tank. It’s gonna impact many of the core materials you use to run your business. So take a few proactive steps now. That will help you mitigate these increases and will help you and me both navigate our way through this hopefully short-term inflationary period. And I hope that this information helps. These energy costs are gonna be high. We’re gonna have to deal with them, but we will at least if you follow some of this advice. My name is Gene Marks. You’ve been listening to Small Biz Ahead. I hope this information helps you run your business. I’m gonna be back next week with something else to tell you that also I’m hoping will help you run your business. You take care.

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