Published on 15 April 2015. Updated on 3 February 2025.
If you are an entrepreneur or self-employed, you will be very much aware that out of control overhead costs can make or break your venture. You cannot make overheads nil, as money needs to be spent to generate more money. This issue is even more important for any startup that is trying to break even. In these tough economic conditions, when business is falling and resources are scarce, out of control overheads can lead to closure of business in a short span of time.
There are many elements to overhead costs, but the common ones are expenses for rent, office consumables, advertising, communication, traveling, uniform, stationery etc. These are there in every big or small set up, but they can total up to a great amount over a year, and any saving in such expense is simply your added margin.
To cut costs is easier said than done. For the benefit of our readers, we have listed here few ways to effectively cut down the overheads.
Effectively Cut Down the Overhead Costs
1. Work Paperless
Using no, or minimum, paper saves money as well as space. With the advent of cloud computing, businesses can store the documents in the cloud, sign documents electronically and use email to transact business communication. No paper means no ink cartridges, no filing cabinets, no staff spending time filing, no box files and above all no fall of trees. So, you shall save money and environment too; nothing can be better than this. I should say however, that often in marketing, going a little low tech (ie printed material) can really stand out and be effective.
2. Engage Great Advisors and Know Your Figures!
Having great people around you will help in every aspect of your business. When I talk about ‘trimming the fat’ I absolutely do not encourage a business to ‘cut out muscle’. Your muscle are things like your great advisors, your marketing budget and having people around you who give you excellent advise, knowledge and have a heap of expert experience. When you have a great accountant, you won’t be paying more tax that you legally have to. Likewise, a great bookkeeper will keep your records in order. Having an excellent Google Ads Manager (like my fellow Andy) means your advertising spend on Google is being done most effectively and making you money, rather than losing it. Of course, someone like myself who is an exceedingly experienced (and multi qualified person) can help your business improve, grow and excel in so many ways. I work with business owners to not only help their business, but also to help them, with great strategies around planning, goal setting and time management – plus all the business aspects too. It’s smart to avoid costly errors by having experienced people to keep you on track.
3. You Must Know Your Needs
If you look around your office, there may be many things that you should not be paying for. Analyse critically and stop using the unwanted things like multiple subscriptions, or a service you just don’t continue to get value from. Perhaps you’re paying for advertising in a magazine that doesn’t have the circulation it used to have since digital has become so popular. Don’t keep doing marketing which isn’t working – move to something else which proves far effective. Likewise, look at rent and lease of equipment. If you use it all the time, is it better to buy it outright? Conversely, if you use a piece of equipment 3 times a year, are you better renting it?
4. Evaluate your Space Requirements
Evaluate your need of area and location of office space. Ask yourself if you wish to have office in a prime location or can shift to downtown where rentals are much lower – or better again, move to remote services. You may also shift to smaller office or may like to work from home in case you do not need to meet with clients face to face too often. The perfect fit to all these questions depends on the type of business, size of business and future plans. One thing is for sure; large, highly unused office space is a waste of money.
5. Control Communication Expenses
Communications are another major chunk of your overheads. You can cut down on these expenses by using VOIP services such as Skype or Google Voice. As these services are available on mobiles also, your staff can stay connected even on the move and at a cost that is a small fraction of the expenses of using conventional communication.
6. Control Staff
Hire all-rounders who can perform many functions. To employ persons with past experience helps you to utilise them productively immediately after employment. Spend money to train existing employees to develop multitasking abilities. This will keep employees happy, and you will have enough reason to give raise to existing employees for the extra functions performed. This will still work out to be simpler and cheaper compared to hiring different people for different jobs. When hiring your team, be sure to get people who have proven skills in the tasks you need; spending time training someone how to use a particular piece of software, or how to manage a system is just going to cost you money in their time and yours as well as lost productivity for you both.
The second part of this is ensuring your team are working effectively, have the resources they need to work well (ie equipment, software, training etc) and are not wasting business time by surfing the web, chatting to friends or hanging out on their personal Instagram page. When reviewing your Profit & Loss Statement, unfortunately there is no line item for “Wages Lost”, so you need to dig a bit deeper to see if time waste is occurring. I’m not saying be an ogre, but also don’t ignore this important aspect of your overhead expenses.
7. Control Contractors
Quite often, especially in the construction industry, subcontractors assure they will always have the work and often get “heavy handed” on their pricing. Especially in building, it’s wise to have a few subbies from each industry in order to keep them competitive and their pencils ‘sharp’ when it comes to quoting. They may not like it, but your profit levels will.
The Conclusion
It is not possible to eliminate expenses, but they can be considerably reduced by working smart and by following the above suggestions, which are simple but highly effective. You might not save a million dollars with adjusting just one item, but if you saved a few hundred dollars on several line items every week or month, the benefits really do start to compound.
However, having said all that, before you can make changes, you need to know what the figures are like and how you are performing; which means you need to be all over your finances.
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