Tom Shay’s Comments on the Boston area businesses purchasing their energy together

This concept of a group of small businesses to pool together to purchase their energy needs could work in many communities. To start it, a Main Street program, Chamber of Commerce, merchants association, or small business development council could perform as the central point of coordination.

Plan to let businesses pool energy purchases - The Boston Globe

Plan to let businesses pool energy purchases
By John C. Drake
Globe Staff / June 27, 2008

Small businesses in Boston, which have seen their profits eroded by escalating energy costs, could save between 20 percent and 40 percent through a plan city officials proposed yesterday to pool natural gas and electricity purchases.

At least 200 small businesses would have to sign up for the energy pool before the city could start the process of buying energy in bulk at a reduced cost, said Evelyn Friedman, director of the Department of Neighborhood Development.

“Energy costs are rising at the same time many other costs are rising for small businesses,” said Friedman. “We’re just the city, but we want to do whatever we can to support small businesses in our community.”

The Massachusetts Health and Educational Facilities Authority has a similar energy-buying program that helps nonprofits obtain low-cost fuel, but an energy efficiency advocate said she is not aware of a municipality taking on the task.

“For a large city, it’s a good idea,” said Susan Coakley, executive director of Northeast Energy Efficiency Partnerships, a nonprofit public policy organization in Lexington. “There’s little we can do to control energy prices. At least we can help them buy and lock in rates through longer-term contracts. It will at least reduce the risk, so they’ll know what their cost is over time.”

It is the second time in three years that Mayor Thomas M. Menino has proposed harnessing the city’s buying power to reduce energy costs. In 2005, Menino proposed establishing a citywide electricity co-op to reduce energy costs for residents. After several months of study, city officials determined the idea was not practical because a co-op would be costly to run and would not significantly reduce costs for individual residents.

Friedman said the small-business energy pool is based on a program she used to reduce energy costs at rental properties when she was executive director of Nuestra Comunidad, a Roxbury community development agency. Most large businesses already pay reduced energy costs through bulk purchasing, but smaller businesses do not have the same leverage, city officials and advocates said.

Small businesses who sign up for the program would still pay their gas and electricity bills to National Grid and NStar, whose charges for the delivery of energy would remain unchanged. But the amount the businesses pay for the energy itself would be lower, because the partnership would negotiate lower prices directly through the market, using a broker, according to the Department of Neighborhood Development.

The city would not pay anything on an ongoing basis to run the energy-buying program. Instead, the city plans to enlist an energy broker who would collect fees from businesses for negotiating lower prices.

Assuming the city signs up 200 businesses, the program should be up and running within two months, Friedman said.

The city floated the idea to a group of restaurant owners last month, who are among the small businesses that use the most energy, and determined there was enough interest to launch the plan, Friedman said.

John C. Drake can be reached at jdrake@globe.com.
© Copyright 2008 Globe Newspaper Company.

response to Julya

Julya is correct in her comment. So we are making changes to the “if I lower my prices” calculator so that it will answer the question from two standpoints. The first will be making the comparison of the two retail prices and determining how many you have to sell to make the same gross sales dollars. The second calculation will compare the gross profit dollars resulting from the two prices and how many you have to sell at the lower price to create the same gross profit dollars.

Thanks to Julya for her help in making our website better!

question from a reader of the e-retailer

We received this question recently:

In the Internet tip of the month section, you ask the question how many more will I need to sell to make the same gross profit if I lower the price.  Unfortunately, your calculator tells me only how many I need to sell to make the same sales dollar not the same profit. 

I used the following information for my calculation. Twenty items at $16 each with a cost of $4.   This gives me a gross profit of $240.  If I lower the price to $10, I would need to sell 40 of the item to make the same gross profit.  The calculator tells me that I would need to sell 32 to make the same sales dollar amount.  Of course, this is correct.  It just doesn’t match what the article says unless I’m doing something wrong.

Have an amazing day!

Julya Myers
The Amazing Art Studio, Inc

Getting the gift cards out

We will probably talk about this in the monthly e-retailer but for those that read the conversations, here is a head start. If you sold gift cards or gift certificates during the holiday season, now is the time you want to invite customers to redeem them. Logic would state otherwise; you have the customer’s money and the merchandise while the customer has this piece of plastic or paper.  What could be better?

Actually, you do want customers to redeem them as it will make your financial statement look better.  When done properly, you do not have a ’sale’ until the card or certificate is redeemed. What you have is a ‘deferred liability’ - you are holding onto someone else’s money until they decide to use it. I know this sounds weird, but this is how it is done in accounting.

Financial management issues

Understanding financials, problems with accountants, inventory control, budgeting, cashflow. All of these issues are a part of the financial management categories.