When profits lag or cash flow dips, reassessing a company’s overhead costs can help to turn the corner. Indeed, a check up on business spending is a useful exercise at any time from which almost any business can benefit. Overhead costs are an essential part of doing business and yet they can get out of control, often without a business owner or company management realising it. Hauling them in can prove to be profitable and rewarding.
Here are nine tips to help you investigate your overhead costs and ways in which you can cut back on them.
#1. Conduct an in-depth check on all details of spending
A first step should be to take a close look at every aspect of how your company is spending its money. Take nothing for granted. With the help of your bank and credit card accounts, outline every cost, no matter how small and categorise them. Draw up a comprehensive list.
Look at your rent, your utilities, your office supplies, your salaries or commissions, your loans, and your maintenance costs. Each company will spend more on some aspects of doing business than others. Depending on the size and nature of your business, this step may take some time. But the exercise will be worth the investment.
If you are serious about cutting costs this initial step is vital as without a thorough list you will be working in the dark.
#2. Trim out the obvious fat
As you draw up the list, some items will jump out at you. Perhaps you will be surprised as to how much you are spending on office supplies, for example. Ascertain how you can cut back on each of these obvious items.
It is important that you do not simply cut, say, 10 percent across the board on all items. Some items simply cannot be cut without damaging your company’s performance; others can possibly be cut more than 10 percent.
#3. Secure better terms on services
Examine ways in which you might lower your monthly or weekly costs for services. You might secure a better deal by paying for a service on an annual rather than a monthly basis, for example. If you can afford to take a dip on a payment one time a year, you will benefit from having no payments for the other 11 months.
Similarly, you might want to look at the feasibility of buying office supplies, such as paper and ink, in bulk. You are going to be using the items anyway, so, again, spending more up front saves money down the road.
Avoid the temptation to save on securing better terms and buying in bulk only to spend the money you have saved on other services or items. Remember you are trying to cut costs, not balance them out.
#4. Look at refinancing your loans
It is possible that you might be able to cut back on the monthly amount you pay on your loans by talking to your lender about paying them off over longer terms. Doing so frees up money for you to have more cash available immediately. Later, when business improves, you might want to look at paying off the loan more quickly. You might also be able to refinance your existing loan at a lower interest rate or over a longer period of time.
#5. Discuss better deals with suppliers
If you receive regular shipments from suppliers, you might want to check with them whether you can negotiate better deals. Instead of paying for shipping items once a week, you might want to receive larger shipments once a month, enabling you to save in shipping costs, for example.
Suppliers will be eager to keep your business and the markets you provide for them, so many will be cooperative in negotiating a better deal.
#6. Consider moving offices
If your rent is high and is having a dragging impact on your business, you might want to take steps to reduce that amount. Perhaps a smaller area is available that will cost less, but with a little imagination, you might still be able to operate well from the smaller area.
If you wish to retain your own business office, or need to do so because of the nature of your business, you could consider allowing some or even all of your employees to work from home. Your employees will pay for most of their home business costs and you will save on rent.
#7. Consider spending your advertising dollars more wisely
Take a close look to check whether you are advertising in the right places at the right rates. Does that newspaper advertisement bring in any sales? Would you have better results advertising on the Internet? Or perhaps the nature of your business means that you will have improved results in newspaper advertising than on the Internet.
It’s even possible that you could abandon advertising and rely solely on word of mouth, saving considerable amounts of money.
Talk to your staff about their experiences with customers. Ask them to question customers to find out where they heard about your company. Or take a mini-survey with a special prize for customers who complete it.
#8. Examine your utilities accounts
Consider ways in which you can cut back on your utilities costs. Devise ways in which can you save on electricity, on the Internet and on your telephone bill. Consider moving to a VoIP system that provides you with free telephone calls around the world for a reasonable small monthly amount and likely will cost less than a traditional landline.
#9. Cut back on delivery costs
If your company offers deliveries, analyse how much you are spending on each delivery. Check whether you can combine several deliveries in one or whether you can buy smaller vehicles that take as much as you need to deliver. You might consider a scooter for delivery for small items, such as medications or other pharmaceutical products, for example. Even pizzas can be delivered using smaller cars that use less petrol.
Add up your savings
Once you have determined as many ways as possible in which you can reduce your overhead costs, add up your savings. You will be surprised how much you can cut back, helping you to achieve improved cash flow and improved profits.
Undertake this exercise regularly as conditions change.