A Beginner’s Guide to Business Energy Buying
Traditionally one of the biggest costs of any small business, it's essential you're able to get the best deal to power your company
Whether you’re a business owner just starting out, or an already-established small business considering switching energy suppliers, getting to grips with energy buying if you haven’t done so before can be a difficult and time consuming process. For example, data from Utilitywise found that one in five business owners struggle to understand their energy bills. The survey revealed that 23% of business owners don’t double check the accuracy of their bill due to time constraints and a further 23% simply trust that it’s accurate even without multiple checks. Many small business owners simply don’t know where to begin.
There are four key areas that small businesses should consider as a starting point to better energy buying and these are: comparing prices and charges; evaluating service levels; contract considerations; and understanding your bill.
Comparing prices might be the business owner’s first port of call when considering energy suppliers, but this is perhaps the most straightforward factor. By comparing one rate per kilowatt hour with another over one, two or three years, you can establish the cheapest price and given the fact more energy suppliers are developing online quote tools, you can do so fairly quickly.
But remember to consider standing charges too, as they can vary significantly between different suppliers. Certain suppliers may be a few pence cheaper per kilowatt hour, but if they have a high daily standing charge then their total cost could be higher. It’s important to ensure you account for both of these factors.
While reducing the cost of energy might be a goal for some business owners, they shouldn’t consider it in isolation. Energy suppliers aren’t just selling you a product; you’re buying a service that requires ongoing maintenance and support, and so finding a supplier that you can work well with is critical.
Some energy providers might be offering cheaper rates, but without good service to boot they may not be giving the best value for money. It’s important to understand the additional support services that you can access through your supplier and the level of service that you can expect from them. Even with an energy provider’s promise of excellent service, you can only really be confident that this is the case if you look at customer reviews, and establish what their actual record of responsiveness is like. So, it’s important to look at what others are saying about a provider or seek referrals from other business owners.
Choosing your contract
When choosing an energy provider business owners are also faced with the dilemma of what type of contract to go for. A fixed contract, popular with small businesses, offers the assurance of a fixed rate for both the energy price and all associated charges, which they will pay over a set period of time, often one or two years.
However, with some suppliers you can enter a fixed rate contract for as long as five years, which may be worthwhile if you’re a cash light business and want long term price security. Fixed contracts definitely provide budget certainty but there are variances to consider. Some products fix all elements of the bill, while others include variable third party costs such as transportation and metering charges.
Understanding your bill
The data from Utilitywise mentioned earlier also shows that small business owners could benefit from understanding the following key terms and factors of their energy bill, so they can better judge whether it’s accurate:
- ‘A’ vs. ‘E’: These letters will appear on your energy bills in relation to your meter reading, and according to Utilitywise 60% of business aren’t aware of their meaning. The ‘A’ stands for ‘actual’ and denotes that the given meter reading figure has been confirmed by a person or an automated meter reading device. The ‘E’ stands for ‘estimated’ and means that the figure is an estimated meter reading based on previous consumption patterns. To ensure you are only paying for what you consume and you don’t end up with a catch up bill, you need to ensure that ‘actual’ meter readings are used to calculate your bill each month, which you can do by proactively providing correct readings to your suppler.
- Unit rate: This is simply the amount you pay per energy used, and you’re billed with this figure multiplied by the amount of kilowatts used or estimated. A business’ unit rate is largely determined by the location and the length of their contract. But remember that unit rate alone doesn’t determine your costs, and that you should budget for standing charges too and consider this when choosing a supplier.
- VAT: Unit prices don’t account for VAT charges. Usually a standard VAT rate of 20% is payable on business energy bills, but smaller businesses whose average daily consumption of energy is lower than what’s known as the ‘de minimis’ threshold are eligible for 5% VAT. ‘De minimis’ means average daily usage must be no more than 33kWh (1000 kWh per month) of business electricity or 5 therms or 145 kWh (150 therms/4397 kWh per month) of business gas. It’s important to consider what VAT rate you’ll need to pay.
Equally importantly, small businesses should ensure that they’re being billed on the dates their contract specifies. As a functioning business, there’s no escaping paying for energy, and so it requires careful budgeting. Not being billed on time could add to cash flow problems.
Finding a transparent energy provider is key to putting your energy supply in the right hands, and a good measure of this is the clarity of the bill, as this can differ greatly from one to the next.
By following these simple steps and working with a supplier that cuts out the jargon and makes it simple you can be more confident that there are no nasty surprises further down the line.
Now it’s down to you
Effectively managing energy supply might not be the crux of a successful business, but becoming savvier with your energy bills and the service your provider gives is one way to keep on top of your overheads. Putting your business’ energy supply in the hands of a provider that gives reliable customer service means having one less thing standing in your way towards business success, and by improving your understanding of energy bills you can be more confident that you’re getting the service you pay for.
Stephen Beard is head of small business at Gazprom Energy