How can you best protect your business?

For a brief, shining period in 2025 and up until two weeks ago, it seemed as if the worst of the energy crisis was behind us with wholesale rates stabilising and even dropping slightly in February. 

Then Israel and the US attacked Iran and sent shockwaves throughout the Middle East and through global energy markets.

If you’re running a small business, energy bills are no longer a broadly predictable operational expense, they’re a critical factor that can dictate the difference between survival or insolvency. 

With inflationary pressures mounting by the day and fixed energy tariffs vanishing overnight, it’s vital that business owners understand exactly what’s happening and will happen in the energy market this year and what proactive steps they can take – right now – to best protect themselves and mitigate any damage.

The pre-crisis landscape: a fragile foundation

UK energy prices were historically high before the recent escalation in the Middle East. 

While domestic households benefit from the Ofgem energy price cap – set at £1,758 for the first quarter of 2026 and expected to fall to £1,641 in the second quarter – there is no price cap on business energy rates. Additionally, crucial lifelines like the Energy Bills Discount Scheme ended in 2024, leaving businesses without direct support.

The reality is that UK businesses operate at a severe disadvantage compared to their international peers. Electricity prices in the UK are currently around 92% higher than the European Union average for medium-sized businesses. In the first half of 2025, the UK’s electricity to gas price ratio was 4.3:1, significantly above the EU average of 2.5:1, making the UK the most expensive country in the EU for electricity relative to gas.

The Iran conflict: a new shock to the system

The geopolitical landscape fractured further when the US and Israel launched attacks on Iran, pushing oil prices over $100 a barrel. With the crucial Strait of Hormuz effectively closed, the energy market reacted with immediate panic, pushing the cost of a barrel of oil to $90 even after initial peaks.

For SMEs, this international crisis has an immediate, localised impact on procurement. 

Energy suppliers have begun pulling a raft of fixed-price tariffs from the market due to the extreme volatility. In just a matter of days, the number of fixed tariffs available plummeted from 38 down to 15. The prices for the few remaining fixed deals surged drastically jumping from a range of £1,509 to £1,898 and £1,640 to £2,194.

Major suppliers such as British Gas, Ovo and Scottish Energy have withdrawn their fixed tariffs entirely. Those that remain are taking drastic protective measures; Octopus Energy, for example, has temporarily introduced exit fees for new customers leaving their fixed tariffs early, stating they can no longer absorb the upfront costs of buying energy in advance. 

Because day-ahead wholesale rates (currently around 125p per therm for gas and £105 per MWh for electricity) are considerably higher than forward delivery contracts, suppliers are struggling to offer fixed prices for a year or longer.

Inflationary pressures and the squeeze on consumer spending

The spike in energy costs is not just a line item on your balance sheet; it is a primary driver of economy-wide inflation. The British Chambers of Commerce has forecast that inflation will remain “firmly above” the Bank of England’s 2% target due to the highly uncertain global situation. Chancellor Rachel Reeves has acknowledged that the war is likely to cause economic damage to the UK and put upward pressure on inflation over the coming months.

This inflationary pressure presents a dual threat to SMEs. 

Firstly the Bank of England may delay expected interest rate cuts to combat rising inflation, meaning borrowing costs for businesses will remain prohibitively high. 

Secondly, rising energy prices disproportionately affect consumers. Domestic energy debt hit a record high of £4.48 billion in late 2025 with around 3.6 million customers falling into arrears. 

When households are crippled by their own utility bills and a 3p per litre increase in unleaded petrol, they drastically cut back on discretionary spending. For SMEs in retail, hospitality and services, this translates directly to falling revenues at the exact moment their operating costs are soaring.

What can small businesses do to mitigate rising bills and inflation?

SMEs cannot control global oil markets or international conflicts, but they can control how they respond. There are several strategic actions they can take right now to help shore up their finances and protect their operations:

  • Secure a fixed contract to avoid out-of-contract rates

Because there is no commercial price cap, falling onto a supplier’s out-of-contract rate can be financially devastating. Out-of-contract rates can be up to 35% more expensive than what you would pay on a fixed contact. Despite the shrinking number of available fixed deals, businesses should urgently compare quotes to secure a fixed rate, providing vital certainty for financial planning and protecting against further wholesale market spikes.

  • Conduct an energy audit and prioritise efficiency

Improving energy efficiency is one of the fastest ways to reduce bills. A comprehensive business energy audit can identify exactly where power is being wasted, highlighting both quick, low-cost fixes and necessary longer-term upgrades. Simple steps like upgrading to LED lighting, installing smart heating controls and improving building insulation can significantly cut daily consumption. Additionally, implementing staff training to ensure equipment is turned off when not in use can embed efficiency into your everyday operations.

  • Invest in renewable energy generation

As Energy Secretary Ed Miliband has noted, the ultimate solution to unpredictable fossil fuel markets is to transition to clean, homegrown power. Many forward-looking UK businesses are heavily investing in on-site renewable energy generation, such as solar panels. While this would require an upfront capital investment, it provides long-term energy resilience, reduces reliance on the volatile National Grid and substantially lowers monthly operating costs over time.

  • Monitor your cash flow and billing closely

Microbusinesses are particularly vulnerable because they lack the same regulatory protections as domestic consumers regarding debt and disconnection. Under current rules, suppliers are only required to provide microbusiness customers with a statement of account twice a year, meaning debt can silently accumulate over several months. Businesses must actively monitor their usage and request regular billing to maintain full visibility over their cash flow.

  • Get some professional advice before debt becomes unmanageable

High energy costs can quickly erode profits and cash reserves, forcing companies to borrow just to keep the lights on. If your business is experiencing persistent cash flow issues before energy prices rise and struggling to pay suppliers or HMRC, you could be in a financial danger zone. Don’t wait for disconnection before acting. 

Get in touch to arrange a free initial consultation with one of our advisors. We will look at your current circumstances and prospects and help you plan a way forward. We’ll explore restructuring and rescue options such as Time to Pay arrangements, administration or Company Voluntary Arrangements (CVA) or if the business is unviable, voluntary liquidation.

The ripple effects from the Iran conflict serve as a stark reminder that while energy prices remain a volatile and disruptive force on the economy, SMEs are not entirely powerless in the face of this storm.