Overhead cost can be a big culprit to pull your revenues down, but you can manage to save your money with the tips mentioned in the blog.
Are you not able to meet all of your expenses with monthly revenues? Do you think that your revenues have fallen short? When entrepreneurs face difficulty in meeting all of the regular costs, they often blame falling revenues. You start to invest in marketing to increase your sales, which further accounts for increased operating expenses.
Well, stop blaming your marketing and sales team unnecessarily. Some other reasons could also be responsible for increased overhead cost. First off, overhead costs and operating costs cannot be used interchangeably.
Operating expenses are essential expenses that you need to incur to run your business. It can include costs related to producing, selling, advertising, material, labor, manufacturing, packaging, and the like. On the other hand, overhead costs have those expenses that you are to incur, no matter your business produces any output or not.
These expenses include but are not limited to rent, accounting software fees, insurance premiums, salaries and wages, utility bills, and the like. If you want to make most of your money, you should calculate the overhead expense ratio that you can do by dividing the figure by monthly sales and then multiply the question by 100. A rule of thumb says that it should be lower than your gross profit ratio. Here is how you can reduce overhead cost:
Use a cost-effective approach.
A cost-effective approach covers many areas that you need to look over to whittle down the overhead cost. Here is how you can cut back on your overhead cost:
- Space optimization
If you own office space, it is fine. If you rent it, you should find out how you can cut the rental cost. Rent for commercial buildings is more expensive than for residential buildings. If you can switch to a smaller space sufficient to occupy the whole of your staff, you can save a lot of money.
You can look for another building at a lower rent. Some landlords do not charge very high rent. If both options do not suit you, you can think about shifting to a smaller space and allowing half of your staff to work from home. You can start a rotational cycle so everyone gets a chance to work from home alternatively.
- Save on energy bills.
If you expect all of your employees to work in the house, you will have to bear many expenses on energy. AC and blowers eat up a lot of electricity, which means you will have to pay high energy bills. You can easily save on these bills if you allow your employees to work from home.
After the pandemic outbreak, many companies have modified their working way. Now it should not be difficult for you to invest in remote employees. As far as it is about tracking their progress, you can use the same software you have already been using.
Outsourcing can also be a solution to reduce your overhead cost. However, not all entrepreneurs do need it to cut back on their overhead costs. There are a lot of services you can outsource, like accounting, marketing, and payroll.
However, before deciding on it, you should carefully figure out if the in-house cost is more than the outsourcing cost. Drop the idea of outsourcing if that is not the case.
Rent instead of buy
If you are trying to switch to another location or plan to open a new branch, you should carefully decide what will be beneficial for you – renting or buying. As you know, commercial spaces are more expensive than residential spaces, which can cost you a small fortune.
It does not make sense to block a large amount of money in property outright when you know you may fall short of cash to meet day-to-day expenses. If you are using long-term loans in the UK to fund your office space, you should think about it.
Consider renting a space instead of buying then. This is because you will be able to save interest on your loan payments. You may not realize at the outset, but in the end, you will find you have paid off more than the cost of your office.
Overhead cost is a big culprit to pull a business from growing. A rule of thumb says that it should be as low as possible. Try to find out where you can cut back, so you have enough money to meet all your operation costs.
If you follow the tips mentioned above, you will be able to save a lot of money. However, if you still need some money, you should apply for loans for everyone. Whether you have a good credit score or a bad credit score, you can easily apply for the loan.