Does your invoice ever take you by surprise? With utility bills, especially those where you pay per usage, there is always a chance that the fluctuation in your usage habits or the company’s rates will result in a bill higher than you anticipated.
For businesses, it’s harder to plan around peak utility rates like you can do in your home. However, that doesn’t mean you can’t budget better, and be more prepared for your monthly invoice. In this article, we look at some of the steps you can take to budget more accurately for your business utility bills.
Part Two of Schooley Mitchell’s four-part blog series.
In our last issue, we looked at the common utility billing errors that can potentially hurt a business’ bottom line. This week, in part two, we are helping you better budget for a bill that is hopefully error free.
Managing expenses is the key to running a successful business, and utilities are one expense that almost every business must pay in some capacity.
Take inventory of your utility expenses.
According to provider Constellation, the average cost of energy consumption for a commercial building is $2.14 per square foot, with lighting and HVAC systems being the most expensive consumers. Your expense will largely depend on your specific facility, industry, and location.
In order to figure out an average of what you can expect to be paying, you will have to take an inventory of your utility expenses. If you’ve been operating for less than a year, this may be a bit less accurate, as you haven’t had time to account for all seasons and rates.
No matter how long you’ve been operating, here are some steps you can follow to get a good estimate:
- Gather all your utility bills – ideally a year’s worth if you can.
- Add all your utility expenses together to find a total cost. You can calculate this on a per year, per month, or per quarter basis – depending on how you like to budget.
- Look for patterns in a given time period to notice when you should be expecting to pay more or less. The easiest example to think of is planning to budget more for heating in the winter or cooling in the summer.
- Compare these expenses to your total operational expenses, to come up with a percentage of your spend you can expect to put aside for utilities at different points during the year.
What if your business hasn’t launched yet?
If you’re being proactive and trying to budget for your utilities before launching your business, you’re not going to have any data to build from quite yet. You do have some options though:
- Make use of publicly available averages from your region or utility provider.
- Contact, if possible, the real estate agent or former owners/renters of your facility to ask for data from them.
Luckily, many utilities will be able to provide you with an estimate based on your property size and industry. Contacting them for help is a great place to start.
Keep tracking your costs.
This isn’t an exercise to do just once. Keeping up-to-date and consistent records of your utilities spend not only helps you budget better but will allow for you to identify potential billing errors that may arise or rate hikes, as well as areas for savings.
This is especially important if you ever decide to make an operational change that could impact your energy bill. Especially if you’re employing measures to reduce energy consumption, and therefore your overall bill.
As a business owner or operator, you might not have the time to be as on top of your utility bills as you’d like to be. In this case, working with a professional like a bookkeeper might be worthwhile.
Mind your variable versus fixed expenses.
Your utilities invoices may contain both fixed and variable expenses. The best way to describe the difference is that fixed expenses are costs that stay the same from month to month, whereas variable expenses are ever-changing and harder to predict.
Some utilities will charge a flat rate on top of per usage invoicing. For example, some water utilities’ services are combined to include sewage, and a flat rate will be charged for sewage while the rest of the water bill is per use. Understanding which parts of your expenses are fixed, versus which parts you have control over can help you save money.
Having a good handle on your business expenses can make a big difference for your bottom line. Utilities might seem like a mysterious invoice you receive every payment period, but budgeting for them properly is not only possible, but can help lead to other savings as well.
In the next issue of our series on understanding your utility bills, we look at your business water bill. How are you charged for water, and how can you reduce that expense? We will answer these questions and more.