How the Energy Crisis is Impacting Businesses
The ongoing energy crisis has resulted in an unprecedented increase in the price of gas and electricity. While the energy market is a complex one, understanding how it is impacting businesses is not. You only have to talk to business owners to understand how the current crisis is affecting them, their businesses, and their staff.
The direct and most obvious impact of the energy crisis on businesses is an increase in business overheads. These are the expenses companies incur as part of doing business. An increase in electricity costs has led to an overhead increase in the cost of heating offices and maintaining the right work environments for employees.
Impact on Fleets
Increasing overheads caused by the energy crisis is a particular problem for businesses that rely on fleets of any type of vehicle or equipment. An increase in the cost of fuel can take money away from other important parts of maintaining a fleet, such as regular maintenance and service.
This puts business operations as well as fleet drivers at risk. The inability to transport goods due to the higher costs of doing so can lead to poor profitability, further propelling the domino effect caused by the energy crisis in the first place. The inability to service and maintain delivery and other business vehicles also puts drivers at risk due to an increased risk of accidents.
Increased Risk of Insolvency
We have already seen some energy suppliers go under due to the inability to handle increased business overhead. Low demand for fuel caused by increased fuel costs is another reason why some of these businesses have dissolved.
Then, you have regular businesses that are unable to generate profits due to the high cost of energy and fuel. The typical reaction is to lay off some employees to save money that goes into the business, but this is a short-term solution, especially when you consider no one knows how long this crisis will go on.
Inability to Invest
Many businesses thrive on being able to invest in new areas. That could be investing in new equipment, new staff, new locations, or new products. With little money to go around, many businesses are having to rethink their investment strategies.
Even those that have access to loans and other liquidity facilities are rethinking doing so because what they are seeing on their books is not promising at all. Taking out a business loan in light of soaring operational costs and low liquidity levels is a risk many business owners do not want to take.
Decreasing Rent Yields
The high cost of energy is making ineffective buildings very expensive to maintain. As corporate tenants look to reduce their overheads, buildings with high energy costs will become attractive to these businesses and therefore harder to lease.
Any real estate or commercial property management business is staring at the potential risk of lease agreements not getting renewed. This will directly lead to lower rent yields, putting further strain on them.
A small change in the cost of an essential commodity like energy or fuel can have an amplified effect on other areas. Businesses facing higher overhead costs are having to find ways to cut costs, even if that means reducing investment and innovation or laying off employees.