For many businesses, the pandemic induced recession has taken its toll on revenue. Now that winter months are approaching, there is even greater uncertainty for what is in store. While we hope for the best, wisdom tells us to prepare for the worst. So how do businesses who have been ravaged by the pandemic survive with limited cashflow? One strategy is to reduce fixed costs.
As most people already understand, profit is equal to total revenue minus expenses. If there is little a company can do to generate more revenue, they must start to look at the other variable in the equation – expenses.
We have all heard the adage Ben Franklin supposedly coined, “a penny saved is a penny earned.” Often, saving money by reducing operating costs is more cost-effective than investing in new endeavors to generate new income. Yet, this approach, more often than not, gets scant attention. The smart manager knows that these endeavors pay off because capital is more effectively directed where it makes the largest impact, these avoided losses add up and open new doors for companies to reinvest in themselves. If you are willing to invest in new ways to generate revenue, you should also be willing to invest in new ways to save. Here are some approaches that our clients have found to be winning strategies for their businesses.
1. Incentives and Energy Loans: Instead of using your own capital or tying up your credit line, take advantage of the many resources that are available to you. Local utility companies have a variety of incentives and rebates than can cover a large portion of energy efficiency upgrades. Additionally, there are many loan programs, such as PACE, the Missouri DOE Energy Loan Program, and even sustainable finance options from banks like PNC. These loans are designed to fund energy efficiency projects. This means that organizations do not have to tap into their cash reserves. These loans are designed so that the energy savings more than pays for the interest rate. Therefore, they do not affect cashflow, available credit, or the debt to equity ratio and are considered to be “off the books” by financial institutions.
2. Energy Audit/Retro-Commissioning: An energy audit is a deep dive into a building’s systems and identifies energy saving opportunities. For large buildings that have a building automation system (BAS), retro-commissioning (RCx) is an in-depth energy audit that includes evaluating the performance of the BAS system. Since BAS systems are often quite complex, local utility companies have specific incentives that will pay up to 100% of the survey cost in Missouri and 90% in Illinois. RCx specifically focuses on identifying energy savings opportunities that have a payback period less than 1 year in Illinois and 1.5 years in Missouri.
3. Energy Master Plan: The Energy Master Plan creates a road map for an efficient, cost effective and robust infrastructure system. The plan starts by clearly stating the goals of your organization with respect to energy. Are you trying to properly manage your capital expenditures? Are you attempting to reduce your carbon footprint? Is it your goal to go Net-Zero? Each goal requires specific details to put policy into place.
4. Fuel Transition: In areas like downtown STL, there are still many buildings buying steam. Steam is expensive and inefficient. Steam can easily be 2 – 3 times more expensive than operating in house condensing boilers. Switching to hot water for distribution also has advantages over steam.
In addition to the monetary benefits that come with energy efficiency, there are many marketing opportunities. More and more consumers are interested in companies that are able to reduce their carbon footprint. When an organization works with Energy Resources Group, Inc., we perform a detailed measurement and verification after the work has been done and share exactly how much energy, money, and carbon emissions have been saved. This is your information to use in your marketing campaigns and it is third party verified!
Finally, the reduction in fixed costs, that result from investments in energy efficiency, will continue to grow even as we return to business as usual. The reduced overhead will make it easier for your organization to rebound and become profitable earlier than it would have.
Want to know more about how Energy Resources Group can help you reduce your operating costs? Click on the links above or visit our website at, https://www.energyresourcesgroupinc.com. For more specifics email Mat Emden at Mat.Emden@EnergyResourcesGroup.com, or call (314)-644-0000.
