The Rising Cost Of Fuel And Its Effect On Your Business - Part 1

This is the first of a two post series on the effects of rising fuel costs and what small businesses can do to minimize the fall-over effects to their cash flow.

Unless you´re living in a cave or are in grade school, we´re all too familiar with the rising cost of gasoline. My local station is currently charging $3.24 a gallon and it´s expected to go higher.

There are a lot of reasons for rising gasoline prices. And every reason is more confusing than the next. But this post isn´t about the reasons for rising fuel costs, that´s a heady subject and debate for another site.

Rising fuel prices mean higher cost of shipping, delivery, and in many markets, support. It costs more to drive the trucks that deliver raw materials, it costs more to ship finished products to customers, and it costs more to drive or fly to a customer location. I know these costs well. As part owner of a small manufacturing company, our raw material delivery cost increased 30% and our shipping cost to customers increased 50% from September — December 2005. In some cases, our customer shipping cost became as high as 25% of the total purchase price. Ouch!

In a few sales opportunities, our increased delivery cost resulted in purchases from nearer competitors. And we did the same. We switched a couple of our suppliers just to reduce shipping costs - the savings was that meaningful to our bottom-line.

But that´s not all. Energy costs and employee commuting expenses can take a toll on a business. Doubling your winter heating bill can put a dent in your profit and having a workforce focused on the cost of getting to and from work can be a distraction and cause for some to switch jobs.

In the end, all things balance and markets adjust, but effects to your business while prices rapidly rise can be a challenge to manage.

The point of this short post is fuel costs have an effect on business. Vendor relationships, manufacturing, raw material storage, shipping, marketing, customer support, sales, and billing can all be affected by rising fuel costs. With prices expected to rise even more, now is the time to prepare for these increased costs.

In my next post I´ll share some ideas and practical experience on how to manage these increases in your cost of doing business.

Have rising fuel costs changed your business or market? What are some of the business challenges you´ve faced? How have you dealt with them?