How to estimate utility costs for a business
  • Category:
    Small Business Energy Savings
  • Published:
    February 25, 2021

How to Estimate Utility Costs for a Small Business

As a small-business owner, you know that making a profit has a lot to do with how you manage expenses. And utilities make up a big part of that overhead. Especially if you’re trying to get a startup off the ground, knowing the typical utilities cost for businesses like yours will be critical to the success of your business plan.

But even if you’ve been in operation for years, it’s a good idea to get a handle on what your business utility costs are. That information can make you nimbler and better able to improve efficiency and find savings — from month to month and season to season.

Understanding the typical utilities cost for businesses

The average cost of utilities in a commercial building, specifically with regard to energy consumption, is $2.14 per square foot. Lighting and HVAC systems tend to be two of the biggest factors for most companies. But how much utilities cost for a business like yours will depend on your industry and the specific nature of your work. For instance, energy expenses from major appliances will probably be higher for a restaurant than a retailer, and a florist is bound to use more water than an accounting firm.

Small-business utilities

It also helps to define what we mean by “utility.” Some are energy-related, but not all. For small businesses, utilities include the following:

  • Electricity and natural gas
  • Water and sewer
  • Garbage pickup
  • Internet
  • Phone

How to calculate utilities for a small business

Creating a utility cost calculator for a business will be easier and more accurate if you’ve been operating for at least a year. That data is particular to your small business and is therefore more useful. But with some research, a startup can build a utilities estimator that can help with forecasting and planning. And then, after some time has passed, you can adjust your strategy by using your own bills as input.

How to calculate the utility costs for your business

1. Gather all your utility bills

Established small-business owners will want to gather their utility bills over a set period of time. The billing periods may differ — for instance, electricity bills tend to come monthly, while water and sewer bills may be issued quarterly. Ideally, you’ll want at least a year’s worth so you can capture the seasonal changes in costs for various utilities in your small-business calculation of energy expenses.

What to do if you’re about to launch a business and don’t have utility bills yet

If you’re still working on your business plan, you can put together an estimate on office utilities for the year by using publicly available averages (like $2.14 per square foot for energy expenses, as noted above). Or, if you plan on starting a brick-and-mortar business, you could reach out to a property’s real estate agent or former owner for the data you need for your utilities estimator.

Contacting each utility can also get you that information. Services like garbage pickup, phone and internet are often offered in standard packages, and electric and natural gas costs can be estimated based on property size.

2. Add all your utility expenses together to find your total utility costs

Adding the totals of all your bills (or estimates of bills) for your chosen period of time (such as a year) is how to calculate utilities for your small business. Special software can help with this, but even basic spreadsheet apps can be effective. And beyond just arriving at a grand total of utility costs, you can also compare monthly, quarterly or seasonal totals to look for patterns.

For instance if you were interested in what the business utility costs were for October, and wanted to compare it to January, you may notice a big difference in how much you spent on heating. If you have no bills yet and are only working with an estimate of office utilities for the year, you can still predict needing more heat in winter and air conditioning in summer, and budget accordingly.

3. Compare your total utility expenses to your overall costs for the period

Once you’re satisfied with the quality of the data from the utility cost calculator for your business, the next step is to compare the grand total (and subtotals) to your overall costs over the same period of time. Your expense total will be the sum of your total utility expenses and the remaining business costs, like office space, equipment, vehicles and their fuel, payroll, advertising, insurance and other supplies and services.

Comparing those totals can put your utility expenses — especially your energy usage — in perspective. And if you’ve also created monthly, quarterly or seasonal subtotals of overall business costs, you can see the changing impact of your utility expenses over time.

How to project energy costs vs. total operating expenses before starting a new business

You’ve answered the question “How much do utilities cost for a business like mine?” Now, you need to estimate your overall costs for your chosen time period (such as a year). The U.S. Small Business Administration has several resources that can assist you in projecting those expenses. Some figures — like rent, insurance or fees for licenses or permits — will be fairly easy to obtain and plug into your calculations. For other, less-cut-and-dried costs, such as payroll or marketing, it can help to reach out to similar businesses for input. Once you have your total operating expenses, you can examine how your startup’s projected utility costs stack up against them.

How to calculate your business’s utilities percentage

When examining the cost of utilities for your small business, the calculation should also show it as a percentage of overall costs. You can calculate the percentage of utility costs to overall costs using a simple online percentage calculator. Or you could do it yourself, following a few simple steps:

  1. Divide the utility costs by overall costs. You will get a decimal amount of less than 1.
  2. Multiply that decimal amount by 100 to get the percentage. You can round off as necessary.

For example, if your utility costs for last year were $30,000, and your total operating expenses were $300,000, your percentage of utility costs vs. overall costs would be 10% (30,000÷300,000 = 0.1; 0.1 x 100 = 10).

You’ve estimated the utility costs for your business — now what?

Congratulations! You now have a good idea of the impact your utility expenses have on your small business. This is invaluable information to have as you budget for the coming year, and specifically quarter by quarter, or even month by month.

You can also dig into that data to look for inefficiencies and savings. For example, as you break down your energy price, you may realize that your energy plan isn’t working for you as well as it could, and decide to change your energy procurement strategy. Perhaps you’ll realize that you’ve been making some energy mistakes, like using older, inefficient lighting and appliances. Or you may see how changing your business hours or better preparing for winter and summer temperature extremes could reduce costs.

Why should you track your small business’s utility costs?

Knowing how to calculate the utilities for your business is useful for the purposes of annual planning. But actively tracking how much you spend on utilities, especially the energy-related expenses, can also be valuable. There are many benefits of calculating utility costs regularly:

  • Make your business nimbler. The sooner you know about changing costs, the sooner you can try to address them. For instance, if you see a spike in the number of kilowatt-hours your business used in last month’s bill, you might be able to pinpoint the reason and take cost-cutting measures.
  • Spur innovation. When you think about a challenge more often, solutions will come to mind more quickly. Many small-business owners turn to smart technology to help with automation or monitoring their energy usage.
  • Avoid paying for errors. Mistakes happen; even utilities make them on occasion. Paying attention to irregularities in your statements can help you get them corrected ASAP and avoid potentially overpaying.
  • React quicker to rate hikes. If you’re just paying your bills without studying them, you may miss price changes. And then you would be paying more money over a longer period of time than if you made an early decision to go with a cheaper competitor.

Once you know how to estimate the utility costs for your business, try to make it a regular habit. That information gives you valuable insight into your operating expenses in both the near and long terms. And the more you know about your costs, the more power you have at keeping them under control — like reducing your business’s energy consumption — ensuring that you consistently turn a profit.

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