Rising energy costs are likely to cause an increase in Irish business insolvencies as additional strain is placed on struggling firms.
Previous energy shocks, such as the one seen following the Russian invasion of Ukraine, have already demonstrated the negative consequences that can ensue for SMEs. Sectors like hospitality and retail are particularly vulnerable as these are areas where margins are tight, other costs are increasing, and energy accounts for a large proportion of fixed costs.
Firms are encouraged to monitor their financial position closely so they can recognise the early warning signs and take action before problems escalate.
We saw during the previous energy price shock that some otherwise viable businesses found themselves under serious financial pressure simply because their cost base changed so quickly. Most businesses have options available but the number of options are always greater when action is taken early. Our key advice is to stay close to the numbers and remain calm. Most businesses will navigate this volatile period but vigilance and planning are essential.
There are several practical steps business owners can take if they are beginning to experience financial pressure.
Steps businesses should consider if cost pressures begin to build
Quantify exposure immediately
Before making changes, businesses should calculate how much fuel and energy costs affect their operations.
Key actions:
- Identify fuel-dependent activities (fleet, deliveries, machinery, heating).
- Calculate fuel as % of operating costs.
- Model price scenarios (e.g., diesel €1.80, €2.00, €2.20 per litre).
- Understand how price increases translate into margin pressure.
Strengthen cash-flow management
Energy shocks can quickly reduce working capital. Cash flow resilience is often more important than profit margins during shocks.
Businesses should look to implement:
- Shorten payment terms where possible
- Chase receivables / debtors earlier
- Renegotiate supplier payment schedules
- Build a cash buffer for fuel volatility
Review supplier and logistics contracts
Supply chain costs will rise alongside fuel prices. Transport costs often represent the fastest-growing cost line during oil shocks.
Businesses should:
- Renegotiate delivery terms
- Consolidate orders to reduce shipping frequency
- Request fuel surcharge transparency
- Explore local or regional suppliers
Introduce fuel or energy surcharges
Instead of raising base prices immediately, many firms implement temporary cost-linked surcharges.
Examples:
- Delivery fuel surcharge
- Logistics adjustment fee
- Energy surcharge for production services
Benefits:
- Transparent to customers
- Easier to remove when costs fall
- Protects margins quickly.
Adjust pricing strategy gradually
If costs continue rising, businesses should avoid sudden large price increases.
Instead:
- Introduce small incremental price adjustments
- Communicate early with customers
- Link changes to energy market conditions
Transparent communication prevents customer shock and preserves trust.
Accelerate energy resilience investments
If the crisis persists, businesses should consider structural changes:
Examples:
- Electrifying vehicle fleets
- Installing solar panels
- Switching heating systems
- Upgrading insulation and energy systems
Energy independence becomes a competitive advantage during global energy disruptions.
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