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How rising gas prices affect small business owners

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Learn how to reduce the impact of gas prices on your bottom line.

Small business owners often suffer greatly, and in many ways, during the periods of skyrocketing gas prices and inflation that we are experiencing right now. Some in places where gasoline prices are at record highs, such as Los Angeles, California, and the New York metro area, are facing unprecedented economic pressures.

Although they cannot control the rising cost of gasoline, small business owners must make smart decisions that will allow them to limit the impact of rising energy costs on their operations and bottom line.

  • Take the right steps and you can successfully ride the wave of skyrocketing fuel prices and inflation.
  • Get it wrong and it could cost you the business you’ve worked so hard to build.

This article will explain what small business owners need to know in order to survive and thrive in this time when the price per gallon of gasoline is on the rise and will likely continue to rise for the foreseeable future.

Why are gas prices rising and how is this related to inflation

In accordance with US Energy Information Administration (EIA), The price of gasoline is based on four things:

  • The price of crude oil
  • Oil refining costs and oil company profits
  • Gas and diesel marketing and distribution costs
  • Taxes and other fuel charges

Recently, another factor has entered this equation. To counter Russia’s invasion of Ukraine, President Biden introduced a ban on the import of Russian oil to the United States. The price of oil and the average cost of fuel rose last year, even before Biden made the move, for the usual reasons, such as increased demand for fuel due to the economic recovery, financial difficulties for oil companies, disruptions in the supply chain and the lack of of new drilling. The Russian oil embargo made the situation worse.

As of December 2021, energy accounted for more than seven percent of the US Consumer Price Index (CPI), the standard measure of inflation, meaning that energy itself is a significant contributor to inflation.

Add to that the fact that most products and services require some form of transportation that uses fuel. As gas prices continue to rise, they will contribute to further increases in the cost of goods and services that need to be transported. This will affect consumers and small businesses financially and further fuel inflation. In short, energy prices do not only directly affect inflation. They also increase the prices of many other things, increasing their impact on the economy.

How rising fuel prices are affecting small businesses and what they can do about it

Here are some of the main ways that rising gas prices are affecting small businesses and what owners can do to prevent damage to their operations.

Decrease in consumer spending

Higher gas prices have a significant impact on consumer spending. When most of people’s income is spent filling up their tanks at the gas station, they cut back on spending in other areas, including what they buy from small businesses. The best way for their owners to combat this is to focus on promoting the core products and services that their consumers can’t live without, even if they don’t have the money.

Another option is to more aggressively market less essential goods and services to create greater desire and demand for them or to expand your reach to new target customers. However, as inflation continues, this can lead to people having money to spend only on must-haves rather than what they “want to have”, making them less likely to want to buy — or even be able to think about buying — unnecessary things.

People drive less

When gas prices are high, many struggle with this route drive less. This can have a significant impact on brick-and-mortar businesses that depend on getting consumers in their doors. These types of companies have two ways to deal with high fuel costs:

  1. Focus your marketing efforts on the people in their immediate vicinity.
  2. Move more of your operations online.

As more and more people feel comfortable doing all kinds of business online during the pandemic, the second option may make more sense for most operations.

Shipping and overhead cost more

Prolonged periods of rising fuel prices add to the daily costs of doing business. This is especially true if the company has suppliers that regularly deliver goods or supplies to them (retailers, grocery stores, contractors), make deliveries (retailers, bakeries, restaurants), or provide services (home health aides, painters , food delivery services) that are central to daily work.

Consider a horse farm, a type of business you wouldn’t expect to be affected by high gas prices. Here are some of the many ways this can be:

  • Hay and feed suppliers on the farm charge them more to deliver these items. This increases the cost of keeping horses.
  • Transportation costs limit the farm’s ability to travel to show its horses, which limits exposure to potential customers.
  • Transporting horses for breeding is also more expensive, reducing breeding profits.

This example proves that rising fuel prices can have an unexpected impact on a seemingly unlikely small business.

Some things that small businesses that depend on transportation can do to control fuel costs:

  • Keep your vehicles in top condition to increase your miles per gallon (MPG) of fuel while reducing the need for refueling.
  • Keep your tires properly inflated according to the manufacturer’s recommendations to reduce fuel consumption. The tires will also last longer, saving you money in the long run.
  • Avoid aggressive driving, including braking too fast, accelerating too fast and turning too hard. These things are not only dangerous, but also increase fuel consumption.
  • Combine multiple trips into one. Many businesses became inefficient when it came to driving when fuel was cheap. Now is the time to change that. Fewer trips reduce fuel costs simply because driving less to do more increases efficiency.
  • Avoid driving in heavy traffic. Stop-and-go traffic wastes fuel. Plan your journeys to avoid peak traffic periods and use less congested routes.
  • Drive at the speed limit. Most vehicles reach their maximum fuel efficiency around 55 mph. Anything more is just wasting gas.
  • Reduce the load. Remove any cargo, seats and clutter that unnecessarily weighs your vehicle down. Heavier cars and trucks use more fuel than lighter ones.

Reduced service area

The price of gas has a significant impact on companies that depend on delivery and transportation. If they want to reduce the impact of fuel costs on their bottom line, they need to limit the geographic areas they serve and find ways to consolidate supplies.

Some examples of how this can happen are:

  • The food service no longer provides delivery seven days a week to all areas it serves. Instead, he now makes more deliveries to each area just two days a week.
  • The food truck operates in one area near its base, rather than traveling all over the city.
  • A senior care company is shrinking its regional footprint to help more patients in a smaller geographic (and traffic) area.

Businesses that depend on driving – and fuel – are among those hardest hit by today’s rising fuel prices.

Job cuts

If fuel prices make it difficult for a small business to make ends meet, and other cost-cutting measures don’t work, the company may be forced to cut back hours or lay off people.

Unfortunately, this is often a more common practice for small businesses to deal with inflated prices compared to larger companies. Larger businesses are usually better able to cover higher fuel and supply costs before resorting to cutting hours or laying off valued workers.

Increased need for loans

A small business owner can decide borrow money to help cope with rising fuel prices and inflation. While this can be a great way to survive a short period of inflation, it can put your business at risk if gas prices rise even more in the future, cutting into your income and making you unable to repay the loan. If you decide to take out a loan, make sure it is low interest and fair terms that you can afford to pay back.

Higher prices

If fuel costs continue to rise long enough, and a small business has done everything it can to control costs and made every effort to become more efficient, it will eventually be forced to pass on the increased costs to its customers.

Whether a company can do this without losing customers depends on the industry and competition. For example, a small business that sells expensive luxury goods with limited competition can gradually raise prices and likely won’t take a big hit to sales. However, a small grocery store with a lot of competition may not be able to raise prices significantly without too many customers.

Get control over rising gas prices

While there is nothing small business owners can do to prevent gas prices from rising, there are many things they can do to gain control over them. Follow the guidelines in this article to avoid price increases for your products and services or other actions that could negatively impact your small business.

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