Effects of Energy Prices on Small Business

July 22, 2005 - 10:23

The Energy Department announced last week that the average nationwide price of gasoline jumped 10 cents the previous week to $2.33 a gallon, a record high for this year. As energy prices continue to rise, small business owners are faced with tough choices about how to handle these unexpected costs.

The National Federation of Independent Business (NFIB) conducted a small-business poll to determine how small businesses adjust to increases in energy prices. The research found that the primary concern for small-business owners focuses on three types of energy: gasoline, electricity and natural gas. More small businesses identified cost increases for gasoline as impacting their businesses (33 percent) than any other form of energy.

The single most important step taken to offset these increasing energy costs was reduced earnings. Seventy-six percent of small business owners claimed that the first step they took to compensate for their energy increases was to lower earnings or profits. Conservation actions were taken with the next greatest frequency (34 percent).

Here are some facts from the NFIB on how small businesses react to energy cost increases:

  • Sixty-four percent of small-business owners surveyed report that they took more than one action to adjust to energy price increases; 31 percent took only one action.
  • Specific actions taken to adjust for cost increases are strongly influenced by the size of the price increase, the amount of time the increase is known prior to its implementation, and the good/service whose cost increases.

  • Between one in four and one in five small-business owners report that it is “highly likely” or “likely” that cost increases with no notice will force them to borrow or draw down on a line of credit to ease adjustment to a new cost structure.

As small businesses continue to deal with high-energy prices, NFIB experts are available to discuss the data from the NFIB poll. A copy of the Small-Business Poll on Adjusting to Cost Increases is available at: http://www.nfib.com/object/sbPolls.

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