How to reduce overheads in your business

Overheads are ongoing costs for general business functions, or costs that you would still have to pay even if you didn’t produce or sell anything for a period of time. This includes things like rent, software, insurance and general utilities. Learn how to reduce these to create a leaner more flexible business.

Types of overheads

There are many types of overhead that a business might incur; fixed, variable and semi variable.   Fixed overheads are described as costs that don’t change regardless of profit, time or activity.  Variable overheads do change and are dependent on sales volume for example, shipping and purchases.  Semi variable overheads are costs that you need to pay, but which may change slightly depending on your activity as a business, like hourly wages, vehicle costs and sales related salaries.

Five ways to reduce your overheads

Rent instead of buy

Buying equipment for your company may not be the best policy.  You could find a way to rent or lease it, which would allow you to make use of the equipment without the worry of maintenance or repairs.

Outsource

Outsourcing specific tasks and responsibilities can help you reduce your wages bill while saving on the cost of office supplies and other overheads.  If you need to scale back you can just stop using the services.

Review contracts

Re evaluating contracts and renegotiating terms can be a good way to reduce costs. Cancel contracts that no longer serve your business needs and renegotiate the necessary ones to get more favourable deals.

Go green/paperless

Utilities are getting more expensive.  Going for more eco friendly alternatives like LED bulbs, “green” outlets and energy saving power strips may have a bigger upfront cost, but they will result in lower utilities cost in the future.  Paper and ink costs add up, particularly if your business deals with lots of different documents.  Try looking for paperless alternatives.

Find more cost effective office space

Office premises can make up a huge part of overhead costs.  Re evaluate the size and location of your space while thinking about whether it addresses your business’ needs. Contemplating more remote working is also a way to reduce utilities overheads in the office.

Invest in accountants

Hiring a professional firm to handle your finances is one of the best ways to cut costs in the long run.  It will help to improve accuracy and avoid costly mistakes, but your accountant can help you identify potential tax deductions as well.

If you need help understanding your overheads and a solution to reducing them, please get in touch with our Managing Partner Melanie Richardson who will be able to help you further