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7 Ways To Reduce Business Overhead Costs

by Tanya May 04, 2022

Do you run an SME (small to medium-size enterprise) and want to cut overhead costs?

You’ve come to the right place.

Overhead costs are costs that are associated with running your business but don’t directly contribute to profit generation.

There are many types of overhead costs for small businesses, including insurance, administrative costs, professional expenses, licenses and permits, property taxes, utilities, rent payments, and office equipment.

Around 50% of new businesses fail, and approximately 20% of small businesses fail within the first year.

One of the common reasons is too high overhead expenses. Too much spending can quickly put a company in the red.

In this blog post, we will discuss 7 ways to save money and improve your profitability.

1. Outsource some of the services

You can save money by outsourcing some of the services to 3rd parties. This could include hiring a third party to handle your payroll, accounting, marketing, IT support, or accountancy IT specialists  – the latter can solve a unique problem every company faces. From automating repetitive tasks and accounting functions, to allowing you to access your work anywhere.

Read more about small business outsourcing here.

By outsourcing some of these business functions, you will reduce overhead costs and free up your employees’ time to focus on more immediate aspects of the business.

Ensure that the suppliers you select are reputable and have a good track record.

2. Automate and streamline some of the processes

You can also reduce overhead costs by automating some of the processes in your business. This may mean you may need to invest money in technology upfront. But over time, it will pay off by reducing labor expenses, time, and improving efficiencies.

business planning brainstorm
Some examples of process automation include
payroll, accounting, order processing, and customer service. You can also use software to manage inventory levels and track sales performance. Automating these processes will free up your employees to do more important tasks that require human interaction.

3. Improve staff training

Employees’ salaries are considered a business overhead. As a business owner, you probably want to motivate your staff, so that they will stay with you for long. Every new employee means potential financial loss, because of the time takes to train them.

So allocate some time to write procedure documents that detail the workflow best practices for each task. Re-writing your procedure documents will ensure that you can detail the steps that your employees need to take to reduce wasted time.

Your procedure documents will provide a handy reference point for staff and should help you to increase productivity and, ultimately, profits.

Make sure all new staff are equipped with the knowledge needed to perform their role to the highest standard.

4. Reduce your utility costs

If your heating bills seem expensive, you can look at ways to reduce your business heating costs. Nationwide Fuels is an independent fuels and lubricants supplier offering high-quality services to businesses and homes across the UK. Industrial heating oil, also known as IHO, is a cost-effective alternative for diesel oil in oil-fired boilers. It’s most commonly used to provide heating and hot water in industrial, commercial, and public buildings.

There are a few simple steps you can take to reduce electricity bills, like turning off lights and appliances when they are not in use, using energy-efficient light bulbs and appliances, and making sure that your HVAC system is properly tuned.

You can also save money on energy costs by taking advantage of government programs that offer rebates for businesses that make energy efficiency improvements. Contact your local government offices to find out if there are any available in your area.

5. Compare suppliers on comparison sites

Every industry has its equivalent of comparethemarket.com – an aggregator that allows you to compare prices for electricity, broadband, insurance, etc providers. This is known as comparison shopping which allows you to get the best deals on whatever you need.

Using comparison sites is the quickest and easiest way to cut your overheads. As seen at compareyourbusinesscosts.co.uk, you can compare different suppliers and business service providers and pick the one with the best value for money.

Look for various factors such as cost, quality of service, customer reviews, and how long it will take for you to receive certain services or products.

You can compare the prices of utilities, equipment, supplies, and even office space before you decide which is best for your company’s needs.

6. Switch to digital, move away from traditional marketing

Every business is looking for low-cost and high-impact advertising options, especially now that people spend a lot of time online.

Digital marketing is by far the best and quickest way to get your business out there, generate leads, and communicate with your customers. It is because it’s measurable, which means you will only spend money on activities that bring in sales.

Digital marketing allows you to track the results of each campaign with free software such as Google Analytics.

Compared to billboard advertising and newspaper ads, digital marketing is very cost-effective. Read about the 5 best digital marketing disciplines here.

7. Negotiate better rates with vendors

This is something that many SMEs don’t even consider, but it’s a great way to reduce your overheads almost overnight.

You can ask them about their current promotions and discounts, negotiate volume discounts, or ask for a price reduction by comparing them to a cheaper competitor. 

Don’t be afraid of negotiating with vendors because they often have room to give discounts if they feel that it will result in more business from you.

Just be sure to have all of your numbers in front of you when negotiating so that you can make an informed decision.

Final words

There are many ways to reduce overhead costs at your business. You’d be surprised how much cutting small things here and there can add up over the long term.

It doesn’t need to include drastic budgeting or downsizing—just reevaluate your current financial situation and see where you can cut costs in little ways.

We’re sure the 7 tips above will help to improve your bottom line, which will lead to better profits for your company.

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Tanya

The first Millennial blogger in the UK. Twitter @_luckyattitude

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