While it’s always important to keep an eye on your bottom line, watching your costs has become even more essential in the past year.
Rising inflation and interest rates paired with an economic slowdown have reminded us how important it is to monitor expenses and, when possible, cut costs.
If you want to grow your business and your profits, let’s look at a few ways you can cut costs by focusing on reducing overhead in your business.
8 Ways to Reduce Overhead In Your Business
Business overhead includes any ongoing expenses incurred to support your operations, regardless of your level of production or sales. The expenses are typically fixed or semi-variable and not directly attributable to a specific product or service.
In the past year, overhead costs have gone up as inflation and high interest rates impacted the pricing of many goods and services. Now is the perfect time to take steps to reduce overhead in your business where you can.
Here are a few tips for cutting costs and keeping more money in your business.
1. Get full visibility into your expenses.
To know how to cut costs, you first need visibility into how you are spending. Compile a list of your monthly overhead expenses, and start to assess where you may be overspending. A list of overhead expenses might include:
- Rent or lease payments
- Utilities (electricity, water, heating, and cooling)
- Communication expenses (phone bills and internet services)
- Office supplies and stationery
- Software licenses and subscriptions
- Loan interest payments
- Taxes
- Licenses
- Payroll
- Employee benefits (health insurance and retirement contributions)
- Professional services fees
- Insurance premiums
- Advertising and marketing costs
- Depreciation of assets
You can’t begin to reduce overhead if you don’t know what your business is spending monthly. It’s one of the many reasons why having a clear view of your business finances is so important.
Related: Build an Accurate Business Budget In 8 Simple Steps
2. Avoid using credit cards.
While credit cards can provide convenience and short-term financing options, they can be an expensive way to fund your business. Credit cards often come with high-interest rates that add to monthly overhead as an additional cost for your business.
Instead of using credit cards, look into opening a credit line so you can access capital when you need it without the high interest rates.
3. Audit your technology subscriptions.
Technology tools can push your business in the right direction, but they can also be a drain on financial resources. To reduce overhead in your business, take an inventory of your tools and ask the following questions.
- Are you paying for tools you don’t need or use?
- Can you find more affordable options for the tools you need?
- Are there new tools that could automate or simplify tasks to save money?
4. Improve your inventory management.
Inventory management can help businesses reduce overhead costs by minimizing carrying costs, reducing the risk of excess inventory, and improving overall operational efficiency.
If you don’t have a strong inventory management process, implement steps to align inventory levels with actual requirements. Utilize inventory management systems to automate inventory-related tasks, improve accuracy, enhance visibility, and reduce errors.
5. Evaluate staffing needs.
Staffing is often one of the largest monthly expenses for a business. To find ways to reduce overhead, audit your employee list to see if you are spending in the right ways. This doesn’t mean cutting your staff. It means being intentional about who you hire and what positions you fill.
- What are your staffing needs? Are you over- or under-staffed in areas?
- Can you outsource roles, or do they require a full-time employee?
- How can you keep existing team members to cut down on hiring costs?
Related: 60+ Small Business Hats You Should (& Shouldn’t) Be Wearing
6. Consider remote work options.
Staffing employees in an office space comes with a variety of overhead costs. You must pay for office space and supplies, utilities, and cleaning services. Review your office costs and determine if you could reduce overhead in your business by opting for remote work options.
Whether cutting down days in the office or moving to full-time remote work, your business has options for moving teams out of office space to save money.
7. Review vendor contracts.
An opportunity to reduce overhead in your business lies in your vendor contracts. Assess your vendors and their pricing, quality, and reliability. Compare prices, terms, and conditions offered by different vendors to ensure you are getting the best value for your money.
Engage in negotiations with vendors to secure better pricing, discounts, or favorable terms. If you have a long-standing relationship or purchase in bulk, you may have leverage to negotiate better deals.
8. Review your tax strategy.
Think about your taxes as an overhead cost, and look for ways to decrease the tax liability you owe. Decreasing your tax liability is a good way to create savings within your business. Talk to a professional tax planner and ask the following questions.
- Is my business claiming all available deductions?
- Is my business entity structure appropriate?
- Is my business eligible for tax credits?
- What are other ways the business can decrease tax liabilities?
Related: The 10 Tax Mistakes You Don’t Want Your Small Business to Make
Create a Stronger Financial Plan For Your Business
When you cut costs, you keep more money in your business. More money in your business increases profits and funds expansion and growth.
Keep an eye on your expense line and always be on the lookout for ways to cut unnecessary costs and reduce overhead in your business.
For help creating a financial plan that offers oversight into your monthly and annual spending, download our free Small Business Financial Planning Guide. Or talk to our team about creating a custom 12-month plan to help you monitor expenses and increase your profitability. Schedule your intro call with our team today.
- Beneficial Ownership Information (BOI): What Every Business Owner Needs to Know - November 21, 2024
- Add These Important Tax Deadlines to Your 2025 Calendar - November 20, 2024
- Use This End-of-The-Year Checklist to Make Your Business More Profitable - November 17, 2024
