7 in 10 SMEs see energy bills as a growth barrier

At a time of record gas prices, and the energy price cap rising, energy costs and the potential savings around them are more important than ever for small firms.

Wanting to explore just how much small businesses were spending on their energy bills, payment provider Tyl by NatWest recently surveyed 500 UK SME owners to find out more about their energy spending habits.

The report, entitled ‘No Time to Waste’, found that energy costs are a huge spending area for UK SMEs – with 70% stating they believe the cost of their energy bill has a negative effect on the growth of their business. The new data also reveals that SMEs are currently adopting energy efficiency measures to achieve significant cost reductions, while also saving the environment.

In the article below, we’ll deep dive the report and its findings, to examine what the future looks like for UK SME energy costs, and the alternative solutions that are available. The full campaign can be viewed here.

How much are UK small businesses spending on energy bills?

Small businesses currently make up 99.9% of the UK’s business population, with 5.6 million small firms working from our high streets, office buildings and homes.

According to Tyl, 54% of the businesses they surveyed said they were currently spending £3,000 or more on annual energy bills.

These spends can have a significant impact on a small business and their overall costs. £3,000 per year is a large chunk of revenue for small firms. The average annual salary for a small business owner is £28,852 per year – meaning that energy bills are currently costing more than 10% of that amount.

Restriction on growth

Profitability is a crucial factor to obtaining funding – the biggest accelerator for small business growth and hiring.

However, the research also shows that 65% of SMEs are spending up to one fifth (0-20%) of their total business costs on energy consumption, while 8% of SMEs are spending a whopping 35-50% of their total business costs.

Particularly in the current business climate, as the world recovers from the impact of the coronavirus pandemic, SMEs can ill-afford to spend any more than this, already-sizeable, amount. But, with an increase in energy prices expected, prices will no doubt rise.

The chart below breaks down the findings in full:

Image by Tyl Natwest

Could small business energy costs increase?

On October 1, Ofgem announced a new fuel price cap based on a typical UK household’s energy usage. The new standard variable rate will be capped at £1,277 – an increase of 12%. However, the fuel shortage for the moment looks set to continue. As the price cap is reviewed twice a year, it’s likely that this rate will increase again at the start of the next financial year, on 1 April 2022.

What if your provider goes bust?

The increase has proven too much for some suppliers. Earlier this week, Goto Energy became the sixteenth energy provider to go bust in the UK – causing confusion amongst its customers.

But if you’re worried about the chance of your own supplier going bust – don’t worry, you won’t be left (literally) in the dark.

Ofgem is responsible for protecting you and your energy supply, so you won’t be left without heat, electricity or water. They’ll automatically transfer you over to a new energy supplier and a new tariff within a few days.

Does sustainability hold the answer?

Whether big or small, making energy-efficient changes can reap tangible benefits for a small business.

The research from Tyl Natwest shows that almost a fifth (19%) of businesses are saving between £2,000 and £3,000 a year through energy efficient measures, while 35% are saving between £1,000 and £1,999. In a time when energy costs are on the rise, SMEs can really benefit from such savings.

What are the barriers to going green?

Adopting effective energy-saving measures can help cut costs for small businesses. However, Tyl’s research found that SME owners face several barriers when it comes to implementing them.

Financial concerns (24%) and lack of time (31%) or information were cited (31%) as the main reasons that SMEs struggled to enforce or consider more sustainable measures.

Lack of awareness around government support

Another issue mentioned was a poor understanding of the government support programs available to small businesses to engage in energy saving business methods.

The UK government offers various initiatives to help SMEs implement more sustainable practices, such as environmental tax reliefs, the Feed-in Tariffs (FIT) scheme and capital allowances for energy efficient equipment.

However, 37% of small business owners surveyed said they are unaware of the support they’re entitled to from the government and would therefore benefit from an increased awareness of the help available.

How many SMEs are going green?

Fortunately, these obstacles appear to be traversable, as 72% of small business owners told Tyl they are currently adopting energy efficiency measures within the workplace, as an example of the positive progress being made.

These include using energy efficient LED light bulbs (40%), turning off production equipment at the end of each working day (38%), and using a smart meter to review energy usage (34%).

In our own, recent Startups 100 index which celebrates the most disruptive startups in the UK, a large number of the ranked winners demonstrated sustainable values, and were working to reduce carbon emissions and combat the climate crisis.

As Tyl’s research shows, this has benefits not just for the environment, but also for UK small business savings.