How to develop a strong energy budget for your business4 July 2023
For most businesses, energy costs comprise a significant portion of their budget. Yet too many business leaders fail to create an energy budget. Why? For some, this oversight occurs because they feel overwhelmed by the task. Energy markets are complex, and the learning curve may seem insurmountable. Others may simply have resigned themselves to paying whatever the energy provider charges. After all, what other choice is there?
However, your energy budget can help you predict and plan for expenses, making it a crucial part of your business operations. It may even present you with information that allows you to save on your utility costs. Without a budget, you can’t ensure you have the funds to pay future bills or the necessary information to make better decisions when renewing your contracts. In this article, we’re going to look at four steps you need to take to develop an energy budget.
1. Understand and monitor your local energy market
To evaluate your local energy market, you can start by answering the following questions:
- Have the energy rates in your area of operations changed?
- Are prices trending up or down?
- If you are in a deregulated market, are there any new providers for your location?
If you hope to decrease your carbon footprint, explore the available green options and how prices compare to less environmentally focused programs.
During this process, also note the different types of contracts each provider offers.
If you need help understanding the rates or what you will likely spend in the next year, an energy consultant can provide insights and explain the pros and cons of each provider’s plan.
2. Analyze your consumption
Now that you understand the local market, you should tackle your consumption. That means understanding how your company uses energy and what you spend.
Suppose much of your use happens during the afternoon, and you are currently on a time-variant pricing contract. In that case, you should consider changing your operating hours to use more energy during less-expensive times. You could also explore switching to a contract that doesn’t charge more for energy used in high-demand times. Evaluating your current use patterns will let you know which changes will be most beneficial to your business.
You also need to know how your future use will differ from historical consumption. Start with these questions:
- What changes do you plan for your operations compared to previous years? These changes might include new hours of operation or opening or closing facilities.
- Have you upgraded or added additional equipment? More equipment will require more energy use, but upgrades could mean that the same processes use less energy, thanks to more efficient machinery.
- Has your energy contract changed? That will affect estimates of future costs even if your consumption stays the same.
- Will your energy procurement contract renew during the period for which you are budgeting? If so, you have an excellent opportunity to use the data you gather to help you determine what plan structure will be best for you in terms of both costs and predictability.
- Have you installed solar panels or other sustainable energy generation equipment? These additions will bring down your energy budget. If you are planning this kind of upgrade for the budget period, you’ll need to include the purchase and installation costs, meaning your budget for the year will increase for this one-time expense. Future years’ budgets will see the rewards of decreased energy expenses.
3. Audit past bills
Gather at least one year’s worth of energy bills and review them. Look for errors and usage patterns. Note any ancillary charges, as you will need to account for those in your budget. These cover the utility company’s costs for services required for energy distribution and transmission. In other words, they are outside the usage-based charges on your bill but still need to be accounted for when predicting your expenses.
Your bills will tell you what you are paying for. Comparing that to the information you gathered on available energy plans can help you determine whether there may be a less expensive option for you.
4. Finalize your budget
Now that you are armed with information on available options, your consumption, and what charges make up your energy bills, you should be able to predict future expenses. You can consider fixed-rate contracts if your company’s cash flow requires predictable costs. But if you can withstand lumpier energy spending, you may opt for something with more fluctuations. Or you can choose a hybrid of those options and go with a hedged strategy.
Budgeting is also another opportunity to evaluate whether you need to prioritize cutting back on use, increasing energy efficiency, or investing in an on-site generation like solar or wind power.
And a bonus: partner with experts.
As a business leader, you likely outsource some of your company’s vital operations. That could mean hiring a tax professional, working with a marketing agency, or hiring a delivery service. You know that you can benefit from these professionals’ industry knowledge and resources.
Your business can benefit from outsourcing energy evaluation and procurement strategies to professionals whose full-time occupation is understanding energy markets, building relationships with energy providers, and helping companies understand how to save money, increase reliability, and stabilize spending. Commercial energy management companies can help you predict future costs as you generate your budget and help you spend less, use less, and waste less today and in the future.
By carefully examining your energy needs and patterns, you can develop a budget that accurately predicts your business’s future expenses. But it doesn’t stop there. Understanding your use also helps you see where you can generate savings and assists you in choosing the energy procurement contracts best tailored to the needs of your business. Take the time to develop an accurate energy budget; your bottom line will thank you.
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