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The Utility Audit: Uncovering the mysteries of your resort's yearly utility expenditures
by Kathy Kiernan
VP of Business Development
APPI
The Challenge
For most companies the never ending struggle to manage and decrease expenses is at the top of the list of business challenges. We all suspect that today’s complex utility tariffs and billing structures translate into errors on our utility bills. If your business is like most, you don’t have the resources, skills, or time to track down and correct these errors. Growing your business while satisfying customers and managing employees is probably your top priority.
Although you suspect these errors exist you don’t know what to do about them. Unless you have personnel with the technical knowledge and relevant market information dedicated to reviewing the bills each month, you are very likely leaving money on the table and thereby, unnecessarily squeezing profitability. In some cases, errors and unnecessary costs can be 15 to 30 percent of your monthly utility expenses. These expenses include electricity, natural gas, telecom, water, waste removal, credit card processing. Aggregate these expenses to understand just how large a chunk of your monthly operating costs they really are. Now imagine reducing that number by 15 to 20 percent every month. That can add up to a nice sum of money and increased profitability without generating new revenue.
So what exactly does a utility audit uncover? Here are some examples:
Incorrect tariff class or rate structures assigned to your business
Overcharges on contracted rates
Bill processing fees improperly assessed
Opportunities for exemptions from taxes and fees
Cancelled or unnecessary services still being rendered and charged.
In today’s age of advancing technology it’s a wonder these errors can happen. But in some instances, it’s the advances in technology that actually increase the prospects for errors. Take, for example, cellular phone service. The services and hardware options continue to expand yet the billing remains difficult to understand and check for accuracy. Changing service options normally requires an extension of the contract period. Customer service is unavailable. Cell phone and other telecom services are examples of rapidly changing services that have a high rate of errors and cost inefficiencies.
As your business changes so do the services it requires to operate efficiently. Many utility service providers are lax in updating product offerings and in removing unneeded services. Consequently, businesses pay for services they no longer need. Utilities that bill under a tariff structure, like electricity and water, are under no obligation to ensure that you are purchasing services at the lowest rates or that you are on the correct tariff rates. This is especially true in areas where no competition exits.
The Solution
A utility audit identifies the myriad of billing errors and implements options that reduce expenses such as energy (electricity and natural gas), telecommunications, water, recycling, and waste removal services. Consider the positive effect an audit can have on your profits. If your company operates with a ten percent profit margin, it will take $10 of new sales to equal the value of cutting $1 in expenses. Reducing expenses works more efficiently than increasing revenues at improving your margins.
There are many types of auditing companies. Some have a specialty, such as telecommunications. Some are geographically focused and understand only local providers, service options, and billing procedures. Others operate nationally but may utilize specialists in different service areas. Not all of them will be right for your business. The larger, more complex your business, the more global in scope you want the audit to be. If you have multiple locations you want a company that has experience in the various states in which you do business.
Employing an auditor is similar to buying any other type of service. You want to work with an experienced company that is well-recommended. Ask your trade association or other business contacts for referrals.
Some questions you should ask any audit consultant might include:
How are you compensated? Most consultants work on a contingency basis meaning that you pay only when the consultant identifies savings. Some require upfront fees or retainers.
How involved will your business staff need to be? Make some estimates of the man hours required to get the job done.
Carefully review any agreements that require your signature and discuss how disputes will be resolved.
• Will the auditor recommend changes to your service providers or will they work within your current supplier network? Some auditors are aligned with particular providers and use the audit as a guise to get you to change services to a select supplier. Some auditors first recommend changes within your current provider network and then look for alternatives.
Liken a utility audit to the annual audit of your insurance coverage – it assures you that you are paying a fair price for the coverage/services you need. Conventional wisdom holds that companies should conduct an audit a minimum of every three years. The faster your business changes, the more often you should conduct one. You will gain an understanding of what your true costs are and be advised of solutions that reduce expenses. At the very least you will be assured that you are paying reasonable fees for necessary services. All you have to lose is the money that’s on the table.