Reducing Your Small Business Overheads: A Complete Guide

Reducing Your Small Business Overheads: A Complete Guide

by Bryn Fest

There are two ways to increase your profits as a small business. The first is to increase your sales, reaching more people across more territories at a higher frequency. And the other is to reduce your operating costs, optimizing the amount of cash you spend to keep your business running smoothly and sustainably. Given that there are thousands of articles out here about boosting your business and growing your company, this article’s instead focussing on the other side of profit maximization: reducing your overheads gradually so more of your incomings transform into a profit.


Many businesses rent a space in which they and their workers perform tasks that contribute to their profits. And these premises – be they a factory, an office, or a shop – cost money to rent. Now, it’s unlikely that you’ll be able to reduce the cost of your rent right away, but there are ways in which you can renegotiate contracts to give your firm a better deal. And you’re always free to walk away from a rental agreement, too – finding a new location that asks for less in rent each month.


The same goes for utilities. You’ll likely be paying a flat rate for your access to utilities like electricity and water, but there’s competition in these markets that could result in you finding a better deal with another provider. If possible, and if your firm is effective at saving power and water, it might also be preferable to switch to a pay-per-use contract that’ll reward you and your business if you use less of a given resource. Make inquiries, and look into the market for different utilities in order to find the best deal for your small business.


Speaking of energy, there are ways that you can create electricity on your premises. By installing solar panels or a small wind turbine at your place of work, you’ll generate power for your business, and you may even have excess power produced that you can sell back to the grid. Of course, installing these items costs you cash. But you should see this as a one-off investment, just as you invest in your company over time. Eventually, solar panels pay for themselves – and then begin generating your savings long into the future.


When that time of year rolls around, during which you’re scrabbling over your accounts to pay the correct amount of tax, you’ll be concerned that a good chunk of your profits may well be handed over in tax. For some businesses, paying tax each year can be destabilizing, given that this is a large lump sum that you might to have instant access to. That’s why preparing your taxes long in advance of your tax collection date is a wise idea. Moreover, using accounting software can also help you prepare your balance sheet for the big day. It’ll even work out deductions that’ll save you cash on your tax bill.


Your staff are the lifeblood of your business, and it goes without saying that you want to reward them for all their hard work with salaries that are proportional to their skills and dedication. So this tip isn’t about reducing the salaries you pay to your employees. Rather, it’s about finding the most cost-effective way to use their human capacities while engaging with modern technologies designed to help you save your workers time. Automation has come a long way in the past five years and now takes care of a great number of the tedious and repetitive tasks that your human workers are used to performing. By using better technology in your business, you’ll save on new hires – and you’ll put your workers to far better, more valuable use.


We’ve already mentioned renegotiation in the context of your rent and the bills you pay each month. But you’re also able to renegotiate contracts with suppliers, services companies, and your clients. Each and every one of these contracts is a work in progress, and if you come to believe that you’re offering more value than you’re extracting from these contracts, it’s only right that you return to them to readdress the costs or payments you’re involved in. This is high-level business management, and you’ll want to make a comprehensive plan before you steam into conversations about your contracts. Still, such conversations can turn out to be very lucrative for small businesses, saving you or making you plenty of cash.


Using consultants or agencies to help progress your business certainly has its upsides. Small businesses tend not to have all the skills internally to ramp up, market, make sales, and cover all of the other business responsibilities in their in-tray. So outsourcing makes sense in this regard, tapping into the skills of others to help your business grow. But these are expensive relationships – and can often deliver a service that you could manage far cheaper if you handled things internally. The advice here, then, is to outsource conservatively while hiring strategically to cover the most important tasks that you and your business need to perform.


There’s nothing more frustrating than adding up your books at the end of the month, only to discover hundreds or even thousands of dollars written off as wastage. This is a problem throughout the business, be that a firm that is involved in manufacturing to one that sells products on the shop floor. Most firms accept a certain volume of wastage each month – after all, no process is perfect – but that’s not to say that you can’t significantly reduce the amount of stock you waste over a period of months. One way to do this is by training your staff adequately to help them understand how and why they’re creating waste. Another is to listen to your staff to understand whether there’s anything you can do from a management standpoint to reduce waste – be that changing processes, or buying better equipment.

Make your firm a little more watertight when it comes to your overheads with these simple tips. They’re all designed to help you make more of your incomings, transforming more of your sales into profits.

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