10 Easy Ways Any Small Businesses Can Reduce Overhead Costs

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One of the greatest challenges for small business owners is raising capital. Many of them end up losing their business because they could not raise enough capital to keep operations running. Sometimes accessing capital is not the challenge but spending limited capital the right way is. It is true that you cannot make money without spending money. However, this does not mean that spending more will always lead to gaining more money. If you notice that your level of profitability is not increasing for some months, you need to start evaluating your overhead costs. Cutting costs may seem like a challenge because all the cost items seem necessary for your business to run. If this sounds like the case, here are some easy ways to reduce the overhead costs in your business that you might not have considered:

1. Evaluate All the Overhead Costs

You cannot cut costs if you do not know what you are spending your money on in the first place. If you have hired an accountant, ask for a full list of all the current costs. It might help if you can get past data on each item. You might not notice that you have been increasing some costs without any corresponding increase in sales. Review each item at a time and determine if you still need it. Check the price or cost and determine if it is too high for your business. Consider cheaper alternatives for each item where possible. When doing your analysis, check the fixed and variable costs because both are part of your overhead costs. It is possible to reduce fixed costs, which sometimes are the highest costs in a business.

2. Evaluate Your Contracts

The next step after checking your cost items is evaluating your contracts with third parties. Reducing some of the costs you identified in the previous step might require you to change some contracts. You may have signed contracts when you started your business and have kept them even after your business has expanded. However, the realities of your business have changed and your current contracts should reflect the new positions. Identify some contracts with suppliers that you can renegotiate for lower prices. You can eliminate some contracts that are no longer necessary for your business to run. Be careful when canceling contracts because you have to look for alternative ways of getting the services or products that the vendors were providing. You should identify a cheaper source of the products or services before canceling any contract.

3. Adopt New Technology

You cannot ignore the latest business technology if you want to reduce costs. You can automate so many processes and reduce the number of employees with current technology. Some technologies may have a high initial cost, but will reduce your overhead costs by more than half in the long-term. For instance, you can replace traditional phone lines with internet phone services or Voice Over Internet Protocol Services (VoIP). You can automate marketing processes with applications and reduce your sales team. Another way to save costs through technology is by shifting to cloud computing. You do not need to create space for servers when you can use remote computers to store data safely.

4. Determine the Ideal Space for Your Business

Rent is the highest variable cost in most businesses. You want a spacious office to give your clients a good impression of your business. However, the truth is that you can achieve the same goal is a smaller office. Check your current space and determine if it would be better to shift your business to a smaller space. If moving is costly, consider renting out the extra space. Subleasing your space will eliminate the need to communicate to your clients and partners your new location. If you are just starting your business and have few employees, you may realize that you do not need any office space. Many successful entrepreneurs started their ventures from their home garage or home offices.

5. Have a Paperless Office

Piles of documents may be taking up much of your office space; an area that you can sublease to reduce rent costs. Going paperless helps you to reduce the cost of papers, printing, storage space, toner, and ink among other expenses. One way of going paperless is utilizing fax to email services. Companies like VoiceOnyx offer such services to enable businesses to fax documents even without a faxing machine. You can sell your faxing machine and save on paper costs. If you do business with companies that use faxing services, you can still provide your faxing number. You will still receive faxes, but by email instead of the faxing machine. Visit VoiceOnyx to learn how to shift from traditional faxing to this new service.

6. Change Your Hiring Strategy

Most entrepreneurs do almost everything themselves when starting a business. However, as the business grows, you need to hire employees to handle the ever-increasing workload. You may be willing to take up some responsibilities, but you need to focus on expansion. One way to reduce human capital costs is to hire employees that can handle several tasks. For instance, you can hire an assistant or sales representative with basic knowledge in computer science. The new employee can check if all the systems are running as he or she handles his or her main duties. You will save your business the high cost of hiring a computer engineer who will be underemployed in a small business.

Always go for applicants with multiple skills. Sometimes you do not need to hire a new employee. Your current employees may have all the skills and knowledge required to handle the tasks the new employees would handle. You may have to raise an employee’s salary, but this cost is still lower than hiring a new employee.

7. Utilize Your Customer Base

The business world evolves daily as new ways of doing business are introduced. Technology is the major cause of changes in business processes and operations. However, some traditional strategies still work in the modern business environment. Word-of-mouth is still an effective marketing channel. The best part is that the channel is almost free. You can reduce the cost of promotions in your business by utilizing your client base. Encourage your clients to share information about your business in their spheres. You can give small incentives like price discounts or free after-sale-services to encourage them to refer people to your business. With modern communication technologies, interacting with your clients is fast and easy.

8. Review Your Workforce

Hiring employees with multiple skills is one way of reducing costs. Another way is firing redundant employees. It may take a while for you to admit that you made wrong hiring decisions before. Evaluate the contribution of each employee to the business and make rational decisions. You may be attached to some of them and seeing them leave will lead to some negative emotions, but you must be committed to change. Ensure that you give them enough time to look for an alternative source of income before dismissing them. An alternative way of handling the change is reducing their working hours. If they can complete their tasks within four or five hours, you do not need to pay them for nine hours every day.

9. Change Your Credit Cards

Plastic money is a convenient way to pay cash for large purchases. Many banks target business owners because of the large and multiple business transactions. The truth is that many business owners incur high costs in terms of fees and interest rates. Go for credit cards with fair rates and additional benefits such as cash back rewards. Some credit cards have reward systems that earn you points for traveling or shopping at specific retailers. Utilize such reward systems to save money. The little savings accumulate over time. You can use the savings to meet other important expenses. Compare the rates and fees that different banks offer. Do not shy away from replacing all your current credit cards or reducing them to one if the change will save your business some money.

10. Change Your Purchasing Strategy

If you have little or no control over purchases, you need to change your strategy. Instead of having several employees buying raw materials or supplies for your business, allocate the task to one employee. The employee should be responsible for looking for the best prices and deals for all the items in the market. The designated person can also negotiate for discounted prices if you buy goods in bulk. Such negotiations are almost impossible when you send different people to your suppliers. Since you do not purchase goods every day, the designated person can handle other tasks.

Conclusion

Small businesses can reduce their overhead costs through simple but consistent changes in their spending. If you are running a small or medium-sized business, start evaluating your cost items. You will discover that your business can run without some of the items you pay for every month. Some items or services can be replaced by cheaper alternatives. Some changes will require you to break some relationships or cancel some contracts. However, you must do whatever it takes to make your venture profitable. Do not wait until high overhead costs run you out of business. Start implementing the tips outlined above today and the changes will reflect in your end-of-year financial statements.

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