The Effects of the Energy Market

PF Nexus Image credit: Mr. Kosal via Shutterstock

As the weather gets colder and the days shorter it is likely that most SME businesses and Technology businesses will be using more energy.  Business’s energy costs have not been capped at the same level as households and many businesses are struggling with the extra costs. The government has brought in a discount scheme to help. That being said, realistically, energy intensive industries such as hospitality are particularly feeling the pinch.

With the pinch in mind, many are having to look at alternatives to see how they can make up those costs. Part of this is passing the cost onto customers. A poll was run by KSA Group Limited via their website Company Rescue and they discovered the following question to 108 people.

Will you be passing on the increased costs of energy to your customers?

The results of the poll were as follows from 108 responses:

  • Yes right now – 6%
  • Expect to in the next few months 16.7%
  • I can’t put up my prices 25.9%
  • I will have to close soon 27.8%

Obviously, the visitors to the site are worried about their financial situation but the fact that as many as almost a third of those polled have said they will have to close their business due to the high energy prices is a big worry.

Those businesses that are unable to put up their prices are concerned that they will lose business as their customers are already struggling.  Alternatively, they are contractually unable to increase prices as the price of their goods or services have been fixed when the sudden uplift in energy costs was not forseen.  Either way this will have a detrimental effect on the profitablility of the business and hence the overall economic performance of the country.

Businesses that are able to increase their prices will be able to weather the difficulties but they will need to be able to bring them down as soon as they can if they are to remain competitive.

Those that are planning to increase prices are taking the issue seriously and forwarned is forearmed.

It should be remembered that many businesses may have fixed their energy costs in advance for extended periods to ensure they have certainty of costs but they will need to carefully plan for when these fixed rates expire.

So, what can businesses do if they are experiencing difficulties with energy bills?.  If your business is unable to pay its bills, then it is in effect insolvent.  When a company is insolvent then the duties of the directors’ changes from a duty to the shareholders to a duty to the creditors and the company must take action to either improve the position of its creditors or not make them any worse off.

There are options

Time to pay negotiation

You can negotiate with the energy company to get extra time to pay.  They understand that many businesses are struggling and may well allow extra time.  Generally, this is over a 6-month period.

A Company Voluntary Arrangement

If the company has other debts, then provided that 75% of the unsecured creditors agree, it is possible that the debts can be paid back over 3-5 years with a proportion also written off.  This process has to be overseen by an insolvency practitioner, but the directors remain in control.

Liquidation or administration

If the company is simply unable to pay a reasonable proportion of the debts over time, or the creditors have lost patience, then a liquidation or administration is the best option.  This is to ensure that the position of the creditors does not get worse.

Most importantly

If your business is struggling, then the most important thing to do is to get advice. In the technology space, this could be in the form of consultants that can come onboard for a small fee as opposed to being long term investments that are costly.