While the carbon tax is not a direct tax on small business, there will be indirect impacts that every business needs to consider. Franchise businesses, both franchisee and franchisor, need to consider this.
Most business won’t pay a carbon price, and they won’t have additional paperwork or compliance costs. However, carbon pricing will have a flow on effect to goods and services which small business consumes, such as electricity, travel, rent and outgoings, freight and waste removal.
In addition to the carbon tax, power costs have increased and are set to continue in this direction as the cost of electricity transmission increases.
Therefore, it is important for every business to understand the impact of carbon pricing and actively seek out ways to save energy, reduce costs, and drive revenue in order to ensure a sustainable business.
Here is a three step plan you can use to help your business respond to the effects of the carbon tax.
Understand the financial impact of carbon tax on your business
Start by understanding your current costs and how they may be affected by price changes. This will give you a base from which to make adjustments and track progress.
Costs which will be affected by price rises may include electricity and gas, travel, freight, waste removal and property outgoings.
Based on this, prepare a budget which takes into account the extra costs and identify the sales increase or cost reduction needed to achieve your target profit.
It’s also important to understand the guidelines from the ACCC regarding carbon price claims.
Identify ways to reduce the impact
Next, identify ways to reduce the impact of price rises and make the most of opportunities. These can be short term (e.g reduce power consumption), or longer term (e.g. changing fitout plans to be more energy efficient). Here are four areas to consider:
1. How can you reduce costs and save power?
Take a look at your own business. Why not conduct your own “energy audit” to identify how much power is used in each area of business and the opportunities to reduce it.
Do the obvious things, like changing to efficient light bulbs. This really can have a dramatic effect on costs. Install timers and thermostats. The savings are significant and often at minimal cost.
Also, set up a special team meeting and discuss how changes to business process or procedures might save energy or costs.
In addition to reviewing power costs, review your expenses. The best way to do this is to ask the question “How can we reduce consumption of goods and services whose price is affected by the carbon tax?”
2. Identify opportunities to boost business or secure customers and clients
Now you’ve reviewed expenses, let’s consider what can be done to increase income.
What are ways you can use marketing to promote how you are reducing our carbon footprint? Can your business help others who are looking to reduce theirs?
3. Find out how you might be able to benefit from Government incentives
The Government has introduced several incentives to help business lower their energy costs and improve efficiency. One example is the small business instant asset write off. This provides an immediate income tax deduction (up to $6,500) for the cost of eligible assets. Ask your accountant for advice on this.
4. Implement price adjustments or revised sales targets
To achieve profit goals in the face of increased costs a business must either reduce costs by spending less and being more efficient, or increase revenue. In most businesses, cost control can only get you so far. It’s essential to focus on the top line.
As you look at your plan for the year, it may be clear that price increases should be part of your strategy. Train your staff to explain to customers if needed. Make sure you comply with the ACCC guidelines regarding price increases and the carbon tax.
Prioritise and implement actions
The third (and most vital) step is to review your ideas and decide on a priority for implementation.
Go through your lists from the steps above and identify items you can take action on immediately and others you will implement later. For example, changing lightbulbs and installing timers may be a step to take now. Perhaps upgrading equipment is a next step to be planned for when cash flow is strong.
Set clear, measurable goals and monitor results, which will help your clean energy initiative stay on track. To help get things done, use an action list and set up a process to report back on progress – for example at a team meeting.
It can be a good idea to ask a staff member or team to lead your clean energy initiative. This can reduce the burden on you, and help their personal development.
The carbon tax can have a positive impact on business by causing us to look at how we can do things more effectively, save some money and contribute to a sustainable future. By planning ahead, we can make minimise the impact and make the most of the opportunities.
What actions have you taken to save power, reduce your carbon impact and respond to these changes? Please add your comments below.