Wednesday, May 25, 2011

How Are Gas Prices Impacting Small Businesses?


By: Tess Taylor

Gas prices have consumers hurting and small businesses alike feeling the hurt. How long will it be until gas prices begin to fall?

Around the nation, oil and gas prices are edging up and small businesses are increasingly feeling it. The cost of oil has gone up over 700% over the last ten years, due to supply and demand challenges. According to AAA, gas prices are averaging between $3.00 to $4.00 per gallon, particularly in remote areas of the US. For small businesses who rely on transportation to conduct business, and those who have employees trying to get to work, the impact is significant. For other businesses that provide consumer goods and services, the impact is also being felt as more consumers are cutting back to pay for fuel.

The price of gas has changed the way many small business owners are making decisions. In an economic environment that is already stressed due to high unemployment, stagnant wages, property value declines and rising inflation, small business owners are often the first to experience declines in revenue. This makes it tough for small businesses to stay afloat without suffering losses of sales and being forced to let go of employees – an action that has a disparaging affect on the economy as a whole. When small businesses cannot make it, larger businesses begin to fail, and things spiral out of control much like a domino effect.

From the point of view of a small business owner struggling to provide services and goods at affordable prices, when the cost of doing business increases, typically some of these costs are passed onto consumers. In today’s climate, however, this is impossible because consumers are refusing to make unnecessary trips and purchases. Small business owners have no choice but to absorb these costs and cut back wherever they can. Small businesses that heavily rely on fossil fuels to get the job done have no place to turn and many just cease operations because they can no longer be profitable.

There is light at the end of the tunnel, however. According to CNN News analysts, the cost of oil has reached it’s peak and has now dropped almost 30% in recent weeks. Experts are saying this is a sign that gas prices will begin to fall over the summer months in most regions. In some major cities like Atlanta, Georgia and Los Angeles, gas prices have already begun to drop over the past few weeks and the word is that gas will be at a national average of about $3.50 USD by the end of the summer. This is good news for small business owners who are trying their best to tread water while the economy starts to rebalance itself following the gas crisis.

If you are a small business owner struggling because of gas prices, there are some things you can do to keep your business alive and well. Start by cutting back to the absolute necessities in your business and focus on what needs to stay in place to maintain production and quality. For solo-entrepreneurs, this can mean combining business travel into one or two days a week instead of five, or cutting back on expensive client meetings and lunches. For larger companies, this can mean cancelling corporate events and focusing on increasing employee productivity through smart incentive plans. Remember, our grandparents survived the Great Depression by being frugal, smart and waiting things out.

There are also some other creative ways to cut back on gas costs as a small business owner. Consider allowing staff to work part time from home offices to complete some routine tasks. Since the beginning of the recession, there has been a dramatic shift in small businesses attitudes about working from home offices. In March of 2011, the Telework Exchange put out a report that indicated that some 39,694 federal employees who were allowed to work from their homes just two days a week, saved an astounding $2.7 million in commuting costs alone. In addition, those who work from home claim to save 148,000 hours by not spending them on the roads. Can you imagine the impact this could have on your business if you implemented telecommuting as part of your business strategy?

During this challenging time in the US economy, take heart that there has actually been an increase in the numbers of new small businesses in many regions. Small businesses account for over 65% of all business activity in the world, so you are part of a movement of strong souls who will get through this brief hiccup in gas prices. For the best chance of surviving, maintain quality and a commitment to your customers, whatever it takes. 

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