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The real price of petrol price hikes and can we fight the effects?

Jun 12, 2018

We are currently beset with continued petrol price hikes …and the latest one has been one of the most severe yet. Occasionally, when the price is reduced, the beneficial effects appear to be minute compared to the massive knock on effect of the hikes, which greatly outnumber the price decreases!

As an accountant, always genuinely concerned with my client’s bottom line I, like them, cannot do a lot more than just shake my head when it happens, but it is my obligation to ensure that they are at least aware of what these petrol price hikes will mean to them in real terms and try to advise on any counter measures that they may be able to take – if indeed there are any! So, let’s look at the real price of petrol price hikes – and can we fight the effects?

What is the real effect?

The bottom line is that the hike in the petrol price is really just the tip of the iceberg when it comes to the actual inflationary effect on any business or individual in business. As we all know, just as the Farmer and manufacturers of all goods are affected by higher petrol tariffs, their bottom line is only protected by increasing their own price structure to remain within the same profit margins. So the price of everything across the board goes up. You only feel it in the supermarket and the shopping malls a few weeks or months later – but the increases will come.

It amazes me though, that knowing this full well, a lot of businesses, especially SMEs, don’t take them into account and create their own counter measures! Possibly it’s because of a smaller business mentality that if we hike our price we will no longer be competitive, but the reality is if you don’t take some counter measures you may well, after a few more petrol price hikes not have a viable business left!

How can we counter the effects?

I wish I could be more positive about this and come up with something that you can do that will really cushion the blow, but sadly there is no way you can counter this knock on inflationary effect without becoming part of the knock on effect! Here are just a few things we can do though, that may help:

Run meaner and leaner

Unfortunately, as overheads rise, unless your profits are increasing at a similar rate, you always simply have to run ‘meaner and leaner!’ Knowing that the petrol price hike will mean increased overheads across the board, try to run a tighter ship. This may be a time to consider outsourcing instead of some permanent employees, shopping around for lower cost products (from suppliers big enough to remain well priced in spite of the hike!) or cutting frills in any area. Try to make the cutting of employees or employee’s salaries a last resort – rather negotiate salaries and increases that are company profits based as in profit share deals etc.

Fight fire with fire – gently!

It’s highly unlikely that you can really survive continual inflation without hiking your own prices at some stage. So fine, become part of the knock-on inflation, but what you can do though is try to do it as gently and surreptitiously as possible! Don’t immediately hike prices when the petrol price goes up. Wait until the furore has died down a little and introduce price hikes in subtle ways. Possibly ask your accounting professional to assess your real increased costs across the board and factor them into your next annual increase?

Account for the effects fully!

Ensure that you account for the full effects of the petrol price increase! So many small businesses factor in the fuel price hike and not the real knock on inflation! Once again, your accountant can do an accurate assessment of the full effects you are likely to experience going forward.

Liaise with your accountant

We at Ratio accounting, as accounting professionals, may not be able to stem the tide of the petrol, or any other price hikes for that matter, but we can assist with the best advice and full accounting of what they mean to you. We also ensure that as your costs increase you receive the best tax benefits – obviously if your bottom line is shrinking SARS should be affording you whatever benefits or reductions there may be!

Contact us for more advice on this and check out our webpage to see our full bouquet of expert accounting services.