How to manage your overhead costs as a small businessStuart Taverner
More than half of Australia’s small businesses reported a bigger growth than the past several years, according to a recent CPA Australia report.
However, keeping the doors of your business open takes a lot more than passion and a stomach for risks. Business owners have a lot of things to consider when running a business, including the costs. With invoices, income statements and other expenses to consider, it is no surprise that many small business owners overlook their overhead costs. This has left them spending thousands of unnecessary dollars on overhead costs and overspending by as much as twenty per cent, which is what leads to more than one third of businesses failing.
If you are looking for ways to manage your overhead costs and increase profits, we have compiled some handy tips for you below.
What are common overhead costs for businesses?
Most business overhead costs are unavoidable. However, with effective management, you can streamline overhead expenses. Common overhead costs in business that can sometimes be reduced are materials and stationary, office space, computers and hardware and insurance. Here are some cost saving ideas to get you started, whether you there is just one or two of you in your business or a small team.
Overhead cost #1: materials and stationery
Depending on your type of business, it’s most likely that you will need raw materials and/or office stationery for your operations. You can cut costs by buying these items in bulk from wholesale suppliers and taking advantage of supplier discounts and deals. You can take it a step further and replace these physical items with digital alternatives. For example, a laptop instead of a filing cabinet system. This can also help you reduce rent by requiring less office space or being able to work from home, when it comes to the administration side of running your business.
Overhead cost #2: office space
For businesses that need an office, a high rent can dramatically increase your monthly overhead costs.
There are multiple options to support you working from home, community spaces or coworking spaces and cheaper hot desking alternatives in shared offices, to help you keep the costs of rent down. Coworking and hot desking can often eliminate the cost of utility bills as well.
Alternatively, you might look into areas where Council are supporting small business and offer incentives to work in the district.
Overhead cost #3: computer and software
Computers have become a core part of almost every business, contributing a huge part of the overhead costs. You can minimise your computer costs by examining your current tech setup, including the office applications you use to determine their impact on everyday duties. You can also use a small business accounting software to help with cashflow.
Overhead cost #4: insurance
You can reduce your overhead costs by reviewing your insurance policy to ensure that you are not paying for coverage you don’t need. Have a professional take a look at your coverage and try to learn as much as you can from articles and manuals to get an idea of how you can cut insurance costs without losing protection.
Managing and reducing your overhead costs
Even though most small business overhead costs remain fairly consistent, we recommend reviewing them regularly to make sure the money is well spent. Being aware of your overhead costs is critical to keeping your business out of considerable debt and managing cash flow well.
Revise Your Overheads Regularly
Set out time monthly or quarterly to review the overhead costs you incur while running your business. This will inform you of any changes over time and show how it relates to your total sales/profits for the same period. By managing your cashflow, you will stay in control of your finances and have a better understanding of your business operation needs over time. A simple bookkeeping software is key and is reliable enough to generate financial statements at any time.
Negotiate To Get The Best Deals
It’s important to ensure from time to time that you are getting the best deal from your suppliers. You can do this by testing the market and getting quotes from other providers to make sure you’re getting the best value. You can try buying from fewer suppliers as the more material you buy from one supplier, the better the discounts you receive.
Regulate Your Power Usage
Reducing the amount of power you use is not only good for business, but it is also good for the environment. Start by turning off any equipment, not in use and reducing the ‘standby’ mode setting on computers and office equipment to 10 minutes or so. You can install timers to automatically switch off lights and equipment when not in use and opt for energy-efficient appliances and equipment. You can also make use of simple bookkeeping software to track and analyze your power usage.
Don’t let your overhead costs hold your company back from reaching its goals. By managing and staying in control of your overhead costs, you can put your business on the path to financial success.
The benefits of bookkeeping software
Use a simple bookkeeping software, such as Cashflow Manager, to help curb all costs. It’s one of the most cost efficient bookkeeping solutions available and it helps save you time and effort, so you can focus on what you do best in your business.
Need to keep track of your overhead costs? Try Cashflow Manager for free now.