Your overhead costs are parasites eating up your business little by little if not kept in check. Those forgotten subscriptions, unnecessarily high rents, inefficient employees, and internet charges leak all your revenue without you even realizing it.
You certainly need to spend money to earn money, but you can avoid these pitfalls that hamper your company’s growth. There are many ways to decrease overhead expenses, increase profit margins, avoid cash flow problems, and keep your business afloat even through economic downturns like the one we’re experiencing these days.
All of your business’s recurring costs that do not directly impact the production are overhead costs. Office rent, maintenance, employee payrolls, management and marketing charges come under the tag of overhead costs. It is a good practice to keep your overhead costs in check throughout the year, but economically unstable times and low revenue seasons, require more action on cutting overhead expenses to a minimum.
Let’s dive deep into ways to reduce overhead costs without damaging your growth or quality.
1. Analyze
A Deep Analysis of your Business’s Revenue
Before you get on a layoff spree, do an in-depth analysis of your revenue model and your bottom line. Go through your profit and loss statement line by line, and examine what might be a waste of money. This would allow you to cut out funds going towards things you don’t necessarily need. Metric develops the profit-loss statements for you while giving weekly, monthly and yearly cash flow reports, which limits this lengthy procedure to merely minutes. This occasional check keeps you aware of your financial health and spending trajectory.
Revisit Costs
After a period of big growth and profits, be careful to revisit all costs and make decisions based on updated data. While reviewing, mark off items that you consider expensive, that can be made more efficient, or those that are simply not needed anymore. All such items can be eliminated when the company requires.
Scale Down Variable Costs
Desperate times call for desperate measures. During low sale periods or a global recession, you must scale down on variable costs that are acceptable and even preferred in normal business operations. Once you’ve reviewed your costs, you can cut down on some unneeded liabilities and temporarily stop a few services. This step might require a change of strategy or even a different mode of work for employees but would greatly benefit in saving the company’s revenue in hard times.
2. Automate
Automate Payments
Suppose you keep forgetting the bill payment due dates and always end up paying fine charges. This might seem like a small amount but when added every month costs you a great deal which could easily be avoided by timely payments. Metric helps you optimize your cash flow by paying invoices on their due date thus saving you from overdue bills.
Automate Administrative Tasks
Automating generic tasks like invoicing, appointments, scheduling, client follow-ups and others of the sort through apps like Metric, takes so much off your plate. Companies hire separate employees for these functions which costs you an extra expense. Mostly, founders try to do it themselves with their already hectic schedules, this burns them out and greatly increases the risks of error.
3. Invest in an Accountant
You’re laying off your visiting staff, and we’re suggesting a new hire! Regardless of how ridiculous it might sound to you now, you’ll thank us later. Tough times require accountancy support like never before. Taking the right decision, saving your revenue, and keeping your company afloat, all while dealing with a recession is not something you could manage alone. With all other things, you need the support of an accountant for cutting overhead costs and helping you with the layoff if needed.
Metric’s “Growing” plan offers you automated generic tasks along with professional accountant support. However, if you’re a small company and can no way invest in an accountant right now, then Metric’s free plan works best for you. It facilitates you through insights and cloud-based real-time financial dashboards that assist you in making the right move in your business.
4. Re-evaluate Office Space and Equipment Expenses
Cost-Effective Office Space
A larger part of your revenue goes into office space rent. A great office location undoubtedly reduces turnover rates and absenteeism, both of which can be sources of great financial loss. However, if your company is going through hard times, it’s always a good idea to reevaluate your office size and location. If your operations and productivity don’t get affected by a different location or a smaller office, it’s time to move.
Rent not Buy Equipment
For your operations, you might need a few pieces of equipment once a month or even less. For a small business, it’s not smart to invest in buying equipment that you would use this rarely. Reach out to suppliers renting those pieces of equipment, make a contract of monthly renting for a few days, and save your precious capital.
5. Smart Employee Management
Trim Excess Staff
When your business was growing and spreading, you might have hired a larger workforce than you require. Employee wages are one of the highest contributing factors to your overhead cost. Low performers are a drain on the company but layoffs certainly do impact the morale and productivity of the employees left. Thus ideally, it’s always better to make smarter hiring choices and go for multi-skilled candidates that could be used in other roles when needed.
Invest to Reduce Turnover
The company invests a huge amount of capital, time and effort in recruiting and training a single employee. According to this report, Voluntary employee turnover costs U.S. businesses $1 trillion per year. Even if you have other important expenses, setting an amount to maintain a healthy work environment and incentives for staff to stay is a must. IN economic downturns or company’s hard times, you can go for cheap alternatives to have the team refreshed and entertained. It is always a good choice to involve your team in the company’s goal to have them attached to it.
Embrace Remote Working
Among other lifestyle shifts, covid brought, it had us all shift to remote work. It turned out to be a blessing in disguise, as companies noticed the drastic savings from utility bills, monthly rent, transport costs and much more. Companies can easily shift most of their workforce to remote work under unfavourable circumstances and make it a permanent change for roles that can easily be handled remotely.
Outsource Services
With millions of freelancers available to perform tasks at way lesser prices than a full-time employee costs, it’s time to explore new options. Your business can outsource some services from freelancers or give project-based contracts for a set time period. This saves you the cost of an employee you only truly need seasonally.
6. Make Sustainable Changes
Invest in Products that Give Long-Term Savings
Day-to-day products with a larger upfront cost but long-term savings could have a lasting effect on your revenue saving. Solar panels, energy savers, and convertible air conditioners are a few such products that could give you long-term relief.
Go Paperless
This might seem like a small expense, but when you have a look at your yearly spending on papers and stationery, the cost is huge. With the availability of a great number of digital alternatives, it’s a cheaper option to progress to them and save capital.
7. Revisit Marketing Strategies
“Stopping advertising to save money is like stopping your watch to save time”
– Henry Ford
Marketing has become as important as the product itself, if not more. You can not eliminate the budget of marketing altogether under recessions and economic downhill. However, shifting market strategies in accordance with the need of the hour is significant.
Customers as Brand Ambassadors
The most trustworthy advertisement your company can have is the word of mouth. Satisfied customers bring you more customers than the most creative of ads. Using your loyal customers as brand ambassadors can increase your customer base like never before. This is also a cheaper way since hiring professionals costs the company a lot.
Review Contracts
In the current era of social media, trends change every day. If you have made marketing contracts that have become redundant now, it’s time to reevaluate them, alter them or break free from them altogether.
8. Eliminate Less Used Subscriptions
Avoid Unneeded Subscriptions
Startups usually rely on a plethora of service subscription plans for a variety of functions. YOu might have signed up for a subscription you needed a year ago and forgot to unsubscribe later. A subscription amount is deducted from your revenue every month for absolutely nothing of use. Revisit all your subscription plans, delete the unused ones, scale down to a lower financial plan for some, and keep the ones extremely essential to the company.
Audit your Software Subscription
Many business owners rely on cloud-based tools to help manage their business. However, the monthly subscription costs for these systems add up quickly, so it’s a good idea to periodically audit your recurring subscriptions. These seemingly small amounts make a big difference in the longer run.
Metric app offers a great range of accounting and finance management services for free while the alternates of hiring an accountant or subscribing to some other accounting software might cost you loads. Look out for companies offering the same services you are using for a lower cost or completely free.
Whether you are growing fast, worried about profits, or considering shifting your approach under the given recession, now is the right time to take a hard look at overhead costs and work on these ways to cut back. Metric helps you with cutting overhead costs by automating most of your accounting tasks and providing in-depth insights and instant documentation.