Whether you’re experiencing a lull in business or simply want to make sure you’re maximizing your savings, your overhead costs are a good place to start when you’re looking to trim some costs.
In accounting terms, overhead costs are the expenses your business pays just to be able to remain open but don’t directly generate a profit. Of course, even though paying them diligently doesn’t increase your profit, how much you’re paying and to which entities does impact your overall profitability. If you make cuts in the wrong areas, you can unintentionally affect your business, but if your mindful and deliberate, you can save money and continue operations without issue. Here’s a quick look at a few ways to save smart.
1. Reexamine Recurring Expenses
“Determining a reasonable rent payment helps bring stability to your business expenses and helps you navigate the slow times with a greater sense of calm,” says financial writer Mary Wroblewski. She recommends spending one to 13 percent of your income on rent, with most industries falling in the two to three percent range.
Rent isn’t the only recurring expense you may be able to save on, though. Review things such as your phone service and insurance plans on an annual basis to see if there are alternate options that might save you money.
2. Consider Leasing Equipment
The upfront costs of purchasing equipment and depreciation are huge drains on businesses. As the needs of a business change over time, sometimes pricey equipment can fall into disuse. Find out whether you can lease equipment rather than make outright purchases and compare the costs of each over a several-year span. You’ll likely discover that leasing works out to be less expensive over time.
3. Look into Outsourcing
Labor doesn’t always technically fall into the category of “overhead costs.” For example, if you’re in the service industry, those providing the service are required for you to earn a profit. However, most companies do have departments which fall into overhead, such as accounting, human resources and marketing. Oftentimes, outsourcing the work done by these professionals can save on expenses, but you do have to examine what your team is doing, and how they’re currently spending their time.
4. Bring in Experts
Sometimes the idea of bringing in a consultant or expert seems daunting because with expert skill comes expert pay. However, let’s say you hire an efficiency expert to conduct an audit and the consultant charges $5,000, but finds ways to save you $25,000. You’re obviously saving money. It’s always smart to vet your experts before you bring them on and know what kind of track record they have, so you can get a good idea of how much they will help you save even after the bill for their service is paid.
5. Go Green
Oftentimes, businesses worry about the upfront costs of going green, but they don’t realize there are often substantial long-term savings. Take switching to a paperless system, for example. The software may have an initial or monthly cost, but being digital means there’s lower or no costs for printing and related supplies, plus efficiency also tends to improve, which results in savings in time and money. Each company is unique, so conduct a green audit to find out ways yours can reduce overall expenses.
6. Review Your Processes Regularly
Conduct internal audits on a regular basis. If your company is newer, you may want to do this as often as a few times per month. As it ages and business needs become more regular and predictable, annual audits are typically enough. Be prepared to look into all business practices and procedures, so you can make a solid cost-benefit analysis.
7. Learn More About Factoring
Invoice factoring is a process which involves selling off your current invoices to a third-party company. When you leverage factoring, you get paid for your services faster, which means you have money that goes back to the business faster. Invoice factoring also helps your collection rates, and you have more money on hand for daily operations. You also may be able to eliminate some costs related to billing and collecting.
To learn more about how factoring can help your business reduce overhead costs, download Interstate Capital’s FREE Factoring Guide today.