Posts Tagged ‘overhead cost’

 When you own a small business, there's no easier way to discuss how critical saving on overhead costs is to just tell you that if you do not manage the costs of your operating expenses effectively and properly, it can kill your business. Of all the expenses involved that are not directly related to the manufacturing of your products or from the process of delivering them, expanding overhead expenses are dangerous. Here are three critical aspects that you need to be aware of concerning operating expenses or overhead:

Even in small businesses, overhead expenses have the tendency to increase, usually slowly and oftentimes unnoticed. Then suddenly you are confronted with a serious situation – your overhead expenses have grown and are out of control

Swollen overhead costs are a threat to the competitiveness of your small business as well. By the same token, lower overhead costs can become one of the best competitive weapons in your arsenal.

Creeping costs can oftentimes be insidious. Those seemingly minor costs that get added here and there start to add up. Just remember that it is very easy to add additional overhead expenses, but eliminating them can be far more difficult.

Your office space is a prime example of a major overhead expense. The big mistake that most new business owners make is that they have more space or higher quality office space than what is actually necessary. I call this one “overkill”, but the only thing that really gets killed is your cash flow and your profits. Keeping overhead expenses in check is the most ideal reason for designing and using a home office.

Here is a list of the 7 most important action steps to deal with first in order to help you save money on overhead in your small business:

1) F ocus on cutting your energy costs ; this is one of the major areas that drain a business  bank account and they are continually rising. A terrific source of assistance in cutting energy costs is the government-backed program called Energy Star.

2) Control your inventory; carrying excess inventory or the wrong inventory hinders your turns on that merchandise and can ultimately cripple your operation. Inventory control software is available online and it is highly advisable that you invest in this.

3) Do you have a cost-effective insurance policy? another critical area is business insurance. You might want to consider re-evaluating the type of coverage that you have versus what you actually need.

4) Don't waste money by spending it on waste ; sounds redundant doesn't it? I'm referring to what it costs you monthly to have your trash removed. Try using smaller receptacles and having fewer pick-ups per month.

5) Spend less time on the phone ; phone costs can be lethal. A good suggestion here is to look into converting your landline over to VoIP (an internet-based phone service provider). This is much cheaper than the standard phone service.

6) Involve your employees ; believe it or not, you would be amazed at how adept your employees can be when it comes to identifying wasteful spending in your business. It is always advisable to enlist their assistance in your cost-cutting mission, just be sure that you can reward their valuable input if that is warranted.

7) Spend less for assets; if you require to buy assets for your small business try to search through search engines to identify second hands systems furnitures and machinery from liquidated  businesses. Buying such used systems can greatly help you reduce your expenses.

Here are 4 helpful suggestions for implementing the above actions in your business:

Avoid overstaffing your business. Establish staffing levels in order to meet minimum requirements, not what you define as needs. The critical issue here is that you don't want to compromise the quality of your customer service levels. Hiring temporary employees occasionally or biting the bullet and paying some overtime is far cheaper than having excessive payroll expenses.

Investigate the cost of delivering or shipping your products or services (if these expenses exist). Over-nighting product is one area where numerous small businesses spend money needlessly. I have always found that coordinating all your deliveries and shipments through one person or company is the most beneficial way to handle this aspect of your operation.

Sharpen up those purchasing skills. Developing good vendor relationships helps to eliminate needless expense. Ignoring these relationships oftentimes leads to unnecessary expenses. You should constantly evaluate every product or service that you purchase regardless of how large or small that expense is. This is a potentially huge source of savings for you.

Review all those monthly business dues, memberships, and subscriptions that you are currently paying for. Are these necessary to the life of the business or are they just for personal enjoyment. Learn to recognize the difference between the ones that are critical to the operation of your business, versus those that are a waste of money. Additionally, avoid any memberships or subscriptions that utilize an automatic renewal function. Granted, automatic renewal is a nice convenience, but they can add up and hinder your cash flow.