Tips for reducing business overhead costs

Key points

• The importance of managing your overheads.
• Common business overheads worth reviewing. 
• Who can help you to cut costs.

Keeping track of your business expenses is essential for your business financial success, especially during those more challenging times when profit margins are at risk of being squeezed.

One way to keep a tight rein on your expenses is to review your business’s overheads.

Business expenses are usually divided into two main groups: variable expenses and fixed overheads.

Variable expenses vary in proportion to your sales. For example, the amount you spend on raw materials making tables will vary depending on the number of tables you actually make.

Overheads on the other hand are the fixed costs of running your business, such as phones, office supplies, salaries, leases, insurance and power.

Here are a few common business overheads worth reviewing.

Manage your advertsing

Businesses can easily waste thousands of dollars on advertising, so make sure you monitor your spend to understand and improve what's working and imperative for your business – and stop what's not.

Advertising that hasn’t been well considered can be a waste of money, so:

• stick to your marketing plan
• make sure your advertising is targeted
• avoid falling for the ‘great deals’ offered by advertising reps if they aren’t
• know which advertisements deliver results.

For every marketing initiative, work out how many extra sales you need to get a return. Choose cost-effective advertising forms first – would a classified ad in a business directory work as well as a display ad on a newspaper website, for example? Direct marketing is often easier to monitor and refine than mass advertising.

Review and renegotiate your supplier deals

Supplier relationships may need review from time to time. Having a long-term account with one supplier shouldn't stop you from getting other quotes, which you can then use to negotiate better deals. It’s also handy to have alternative suppliers on hand should regular suppliers be unable to meet your needs.

Put your insurance out to tender

If you think your insurance bill is getting high, introduce a competitive element by putting your insurance out to tender to an independent broker who is able to source cover from a range of suppliers.

Cost of leasing

If your lease creeps upwards, what can you do? If a landlord is willing to link your lease to turnover, this may be a win/win for both parties.

It removes a risk for you (if your turnover declines, so does your rent) and provides an opportunity for the landlord (if your business does well, the landlord gets a higher rent).

Looking for sources of help

Staff

Your staff can help brainstorm ways to cut costs effectively. Encourage them to treat your business’s money as if it were their own. For example, through a profit-sharing scheme.

Accountants and professionals

Accountants and professionals typically deal with hundreds of businesses, so they’re in a good position to help you identify unusually high costs and suggest ways to reduce them.

They may also be able to:

• benchmark your costs against industry averages
• advise you on how your business is performing in comparison.

Cost reduction analysts

Cost reduction analysts usually work with medium to larger businesses and compare what you currently spend with the best prices they have identified.

Don’t be afraid to ask for help in areas where you believe your business needs it.

Next steps

• Download our Cash flow improvement checklist (PDF 1.5MB) for 34 ways to improve your cash flow.
• Take control of your business' cash flow with our Cash flow forecast template (xlsx 114kB)