Strategies to Drive Down Overhead Costs in Your Small Business

January 3, 2019

The reality of business is that you must spend money in order to make money. However, each expenditure must be justified to ensure sustainability. While most direct costs can be easily justified, special attention must be given to overhead costs that remain present despite.

While most overhead costs are lower in value compared with some direct costs, it can still be an untapped source of cost savings that can have pronounced benefits, especially when revenue volumes go down. Here are some strategies to get you started on trimming the fat off your overhead costs.

Find the right office space

If you do find a magic bullet among your overhead costs, rental — being a substantial and reoccurring cost — might just be it. If your business is not highly reliant on location and foot traffic, consider moving your office space in an area with lower rental costs.

Sure, a downtown office is nice to have, but if it’s just a place for you and your staff to get work done, rather than attract clients, then consider a different location. Avoid commercial retail spaces if your business does not demand it as it can carry other hidden costs on top of the monthly rental.

If you have a smaller office setup, you could even consider eliminating the rental expense altogether and moving to a backyard studio in your own property. This saves you not only rental fees but also transportation costs going to and from your place of work.

You could also take advantage of co-working spaces if you need to meet with clients in a convenient location or make use of their big conference rooms if needed.

Conduct a thorough review

Businessman using calculator

It’s important to know where you and your figures stand before you make sweeping changes in your business in hopes of driving your costs down. Don’t expect to find magic bullets — large cost contributors that, when eliminated, can put money back in your pocket.

The devil can be found in the details, so accept this and get busy. Work with your accountant to pull up the complete list of overhead costs or generate the report yourself with your accounting software.

From there, sort entries according to the following categories: as is, unnecessary, and open to efficiency. Doing this will give you a starting point of action. Terminate all unnecessary costs and review those under open to efficiency.

Defray other overhead costs

Some overhead costs are necessary and cannot be eliminated, but you can still defray these costs to drive down your overhead expenses. If you have a harmonious relationship with your office space neighbour and situated close enough, consider sharing the internet and Wi-Fi monthly service fees and pest control services, for instance.

Clean out your back storerooms that might just be storing equipment you no longer need and make use of the space. You could also sublease it as another storage facility and create a separate source of income to defray overhead costs.

Evaluating your current business situation carefully will give you ideas on ways to trim the fat in your business and ensure its long-term sustainability. However, the task of driving down your overhead costs can be an ongoing long-term project for the continued health of your business.

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