When we talk about utility expenses, we are basically referring to all those costs which a business or company incurs in the process of making a service or product for their consumers.
For any business, it is really important to have a fair estimate of the utility costs. This is because it helps them in budgeting more efficiently, and the financial modeling can be done in more predictable ways. Every business tends to incur utility costs; however, some tend to incur more utility costs than other businesses.
There are many factors behind this differentiation. The ways in which these costs are calculated tend to vary from business to business as well. We know that all businesses tend to incur several expenses from the operational point of view.
Utility expenses of a business include electricity cost, water supply cost, gas supply cost, heating and cooling cost, internet cost, trash cleaning, etc.
At times, these utility expenses are estimated on the basis of different arithmetic, and other times, it tends to depend a lot on various factors. This article aims to cover all of these notions.
Arithmetic Calculation
Under the arithmetic calculations, you would want to follow certain steps, which have been listed down below.
Step 1:
You need to accumulate all the utility bills that you have incurred in a given period of time. These bills include electricity bills, water bills, gas bills, heating and cooling system bills, etc.
Make sure you do not lose out on any receipt that was written under the name of your business. You must not include any fixed costs in this because utility expenses include those costs mostly which are directly impacted by the amount of output that a company tends to make.
Nowadays, apart from the basic utility expenses, the internet expense makes up a major portion of the utility expenses. They cannot work without it.
The laptops, personal computers, machines, etc., would not work without them. In the case of businesses, the availability of the internet is necessary at all times to ensure efficiency.
Step 2:
You then need to see if there are any fluctuations in your business demand which would obviously affect your production which would affect the usage of utility items in the office.
Then you need to see if you want to make annual calculations or semi-annual calculations or do it quarterly. The financial year for every company tends to vary. For example, in most countries, the fiscal year is from 1st July till 30th June.
Step 3:
Make an estimation of the total cost of the business. This would include all the direct costs, indirect costs, fixed costs, variable costs, etc.
Make sure you do not miss out on any type of cost. This would include all the salaries, all the wages, the rent of the outlet or office that you are using for operations, the stationary items that your employees use, the furniture that you use in the office, etc.
Every major and minor cost incurred by the company would be a part of this. Every department of a business would have its respective cost as well, which would form a part of the year-end budget as well.
Step 4:
Lastly, you need to divide the total utility cost that you calculated with the total cost that has been incurred by the business. This would help you in gaining a percentage of the utility cost of business out of the total cost of the business.
For example, if your utility cost turned out to be $5000 and your total cost was $25000, then your utility cost would be 20% of the total bill. In most cases, the utility expenses make up around 20% to almost 40% of the total cost.
Factors Affecting Utility Costs of Businesses
There are several factors that tend to impact the utility costs of businesses. These factors have been explained below. The utility cost tends to increase or decrease due to the factors listed below.
Office size:
A bigger office would have higher utility costs than a business of a small size. So, it should not come as a shock to you. So, a direct relationship exists between the two.
Employee strength:
The number of employees in a company tends to affect this as well. The more the employees, the more the utility expenses will be. So a direct relationship exists.
Equipment being used:
Companies that use a lot of machinery or are extremely capital intensive would need a lot more electricity than other companies which are more labor-intensive.
Adaptation to modern technology:
If a company is not up to date and is not using smart ways to reduce its bills like smart plugs etc., then their bills would be a lot higher than others that have adapted to modern technology.
The demand for business:
You also need to see how popular your business is. Companies that have efficient models and the companies which are liked by customers tend to face higher demands and do not face enough seasonal fluctuations. This means that their operations are on the go at all times. Due to this, their bills are also higher.
Utility bidder:
If you have joined hands with Utility Bidder, then they would offer you the best rates for your utility expenses and would also give you modern solutions which would help you in reducing the utility cost altogether.
Seasonal fluctuation:
Prices of electricity tend to rise during the summers and are lower during the winters. These seasonal fluctuations can affect the utility cost of all the businesses.
Source of energy:
If a business uses solar panels after five years, it will incur low utility costs as compared to those businesses that rely on outdated sources of energy. The world is moving towards renewable energy, and one might lose the race if one lags behind in adaptation.
Tariff rate:
There are different rates throughout the day on the electricity you use. There are daily rates for timings between 7 am till 7 pm. Then there are night rates for timings between 7 pm till 7 am in the morning. Lastly, there are the weekend rates for all the energy that you used on Saturday and Sunday.
The above-listed factors can directly or indirectly affect the utility cost of a business. In some cases, the relation would be direct in nature, while in other cases, the relationship is inverse. The finance department of the businesses needs to pay close attention to all these factors before they make any decisions about budgeting.
