Rising gas costs mean higher prices for customers
By Mike Mitternight,
I own a commercial HVAC contracting firm in Metairie, La., a suburb of New Orleans. It’s ironic that almost five years after testifying before the House Select Committee on Energy Independence and Global Warming about the impact of rising gas prices on my business, I am now writing commentary on the same subject.
In 2007, the concern was about the cost of gasoline reaching $3 a gallon. Today, we hope for a break and gas prices to retreat to that level.
With several service trucks as well as a couple of executive vehicles on the streets every day, the cost of gas is a serious overhead expense that must be calculated into the cost of all activities. Where possible, my company has re-instituted a fuel surcharge which enables us to pass on a portion of the increase in cost of business to our customers. Almost all are understanding and pay the minimal $5 per trip without question. And since it is a separate line item, it is a single charge that does not fluctuate with the number of hours expended on a call. We also make certain to cancel the charge when (or if) the cost of fuel goes back to a manageable level to avoid charges of taking advantage of our customers.
The more serious problem with rapidly increasing fuel cost is its impact on cash flow relating to projects that are bid in advance and those contracts for which there is no opportunity to increase a billing level. Many construction and maintenance contracts are signed into agreement for extended periods of time, or they are bid at lower profit margins, due to expanding competition. As an element of cash flow, increasing fuel cost can be a crippler.
In order to facilitate fuel purchases for multiple vehicles, my company utilizes a fuel management service that is paid via weekly automatic bank transfers. When normal cash flow is based on weekly operating account deductions of $400 and that amount suddenly escalates to $750 to $800, other adjustments become necessary. Lack of capital restricts my ability to hire employees, hampers my ability to increase salaries and benefits and eliminates any hope I have to acquire new equipment.
I am not alone.
Increasing gas prices are restricting small business growth and posing, at times,almost insurmountable problems to maintaining adequate cash flow for service businesses to survive.
The Obama Administration still refuses to make a serious effort to correct the problem or develop a feasible long-range plan. Operating in south Louisiana, (fuel generator for the country), it is frustrating to know that drilling activity is still reduced following last year’s deep water disaster. Almost no activity is occurring on the Outer Continental Shelf or federal lands, and a job producer like the Keystone pipeline was vetoed in an effort to appease as yet unproven environmental concerns.
As a frustrated small business owner and advocate through organizations like National Small Business Association, I sincerely hope that changes are on the way.
Mike Mitternight is president and owner of Factory Service Agency, an HVAC service construction firm in Metarie, La.