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On Small Business
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Posted at 07:30 AM ET, 05/10/2012

Rising gas prices crippling small businesses on a variety of levels

Since opening a plumbing franchise in Baltimore in 2010, Jamie Smith has watched the price at the pump increase 29 percent, which squeezes his profit margins every time he puts a truck on the road. He responded by recently adding an $11 fuel surcharge to all service calls in an effort

to offset the expense and salvage his bottom line.


Gas prices increased 20 percent between January and early April, and they are expected to keep rising this summer. The trend is putting the squeeze on small businesses across nearly all industries. (Daniel Acker - BLOOMBERG)
But that only works if the surcharge doesn’t drive away business.

“Many customers refuse to pay the charge,” Smith, who owns a Mr. Rooter plumbing franchise, said during a hearing before the House Small Business Committee on Wednesday. “In fact, some potential customers disapprove so vehemently of this practice that they refuse to consider Mr. Rooter of Greater Baltimore for their future plumbing and heating needs.”

Smith isn’t alone, as soaring fuel prices have left many entrepreneurs and business owners like him facing the same troubling dilemma: Pass on the rising gas prices to customers and risk losing their business or absorb the costs and sacrifice profit margins?

Neither option, he said, leaves a clear path for growth.

“If policymakers in Washington do not begin to embrace new energy policies, I believe you will begin to see an increase in small business failures,” Smith said. “Meeting obligations such as payroll, energy consumption and other overhead expenses with diminishing profits becomes unsustainable.”

Gasoline prices have soared since the start of the year, rising 20 percent between January and early April. The national average currently sits at $3.76 per gallon, with forecasts calling for a slight increase to $3.79 over the summer (recently revised down from estimates of $3.95 per gallon).

“The price of gasoline often determines where and when consumers will shop, what it costs a small business to deliver products and services and the cost of purchasing materials and other inputs necessary for business operations,” Committee Chairman Sam Graves (R-Mo.) said during the hearing. “When consumers have less money to spend, and small businesses are forced to shift resources to fuel purchases or pay higher prices for inputs, weak economic growth is often the result.”

The effects of rising gas prices impact nearly every type of business on a variety of levels, as evidenced by the testimony of C. Cookie Driscoll, who owns a horse farm in Pennsylvania. For instance, the farm equipment used to plant, harvest and transport horse feed all uses diesel, which is now even more expensive than gasoline, sending the price of feed higher. Hay prices have also risen in response to the rising cost of cutting and shipping it and because the plastic wraps that bind it together are typically made of petroleum products.

Moreover, Driscoll can’t afford to travel as far to showcase and breed her horses, as commercial horse transportation companies have been forced to significantly increase their per-mile-rates.

“I haven’t taken a paycheck in two and half years,” she said, later adding that she had to significantly cut employee hours and has subsequently been forced to lay off several workers.

“I can tell you that, without question, my issues aren’t unique to my business or my industry,” said Driscoll, who is also vice chair of membership for the National Small Business Association. “We all are hurting from volatile and rising gas prices.”

Related: How rising fuel prices translated into layoffs

Follow On Small Business and J.D. Harrison .

By  |  07:30 AM ET, 05/10/2012

Tags:  small business, gas prices

 
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