Budgeting for Energy in Your Business Plan

Why Energy Costs Deserve a Line in Your Business Plan

Energy is one of those costs that new business owners often underestimate or overlook entirely when writing their first business plan. Unlike rent, which you negotiate upfront, or stock, which you can forecast from sales projections, energy costs only become apparent once you are operational and the first bill arrives. For any venture with physical premises, whether a small office, a retail unit, a workshop, or a café, energy costs can represent a significant fixed overhead that demands proper planning.

Getting this figure wrong can throw off your entire cash flow forecast. Budget too low and you will find yourself short each month. Leave it out altogether and potential lenders or investors may question whether you have thought through your operating costs properly.

How to Estimate Your Energy Costs Realistically

The challenge with estimating energy costs is that they vary enormously depending on the type of premises, how they are used, and when. A small professional services office might spend relatively little, while a food business with refrigeration, ovens, and extraction systems will face a much larger bill. A manufacturing unit with machinery will be different again.

Rather than guessing, there are several practical approaches you can take:

• Ask the landlord or estate agent for historical energy bills from previous tenants. This gives you real consumption data for that specific building.
• Request the Energy Performance Certificate for the premises. All commercial properties in the UK are legally required to have an EPC when sold or leased, and it indicates how energy efficient the building is.
• If you are taking on similar premises to an existing business you know, ask them what they pay. Industry contacts can be surprisingly helpful.
• For a rough benchmark, GOV.UK publishes non-domestic energy statistics by sector and premises size. Search for BEIS building energy efficiency data for current figures.
• Once you have an idea of consumption in kilowatt hours, get quotes from business energy suppliers for your expected usage level. This will give you a realistic annual cost based on current market rates.

Remember to account for seasonal variation. A retail unit will likely use more energy in winter for heating and lighting, while a business with air conditioning will see summer spikes. Build in a contingency of ten to fifteen percent to cover unexpected increases, wholesale market shifts, or geopolitical events affecting energy supply.

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Understanding Business Energy Contracts

Business energy works differently from domestic supply, and understanding the basics will help you budget more accurately and avoid costly mistakes.

Most business energy contracts are fixed term agreements, typically lasting one to three years. During this period, your unit rate for gas and electricity is locked in, which makes budgeting straightforward. At the end of the contract, you will have a notice window, usually between 30 and 120 days, during which you can switch suppliers or negotiate a new deal. Miss this window and you may roll onto out of contract rates, which can be 80 to 100 percent higher than your original negotiated deal.

If you use an energy broker, be aware that they typically earn commission from suppliers, which may not always be disclosed upfront. Ofgem has introduced rules requiring greater transparency around broker commissions, so ask directly about fees before committing.

There is one particular trap to watch when moving into new premises. If the previous tenant has left and no active contract is in place, the property may be on deemed contract rates. This default rate is almost always considerably more expensive than a negotiated deal. Contact suppliers immediately when you take on premises and arrange a proper contract as quickly as possible.

Ofgem regulates the energy market to ensure suppliers comply with rules on switching, transparency, and customer rights. Their website at ofgem.gov.uk provides guidance on business energy protections.

What to Include in Your Business Plan

In your business plan, energy should appear as a fixed overhead in your monthly operating costs. While usage might vary slightly, treating it as a predictable expense makes your cash flow projections more reliable.

Include the following details:

• Your estimated annual energy cost, broken down monthly.
• A brief note on how you arrived at this figure.
• Any assumptions about the type of contract you intend to take, such as a two year fixed deal.
• Contingency for price increases when contracts renew.

If energy is a particularly significant cost for your type of business, mention efficiency measures you plan to implement, such as smart meters for monitoring usage, LED lighting, modern equipment, or renewable energy integration where feasible.

Before committing to premises, check what rates might apply if you ended up without a contract in place. Our free Out of Contract Energy Rate Checker can help you understand the potential cost difference and avoid unpleasant surprises.

Taking time to research and budget for energy properly shows anyone reading your plan that you understand the true cost of running your business.