Overhead costs are often referred to as the fixed or indirect expenses associated with running a business. To put it simply it’s the expenses of a business that do not directly contribute to the production processes of the product or service. Examples of these costs include administrative expenditures, professional fees, insurance, permits and licences, property taxes, rent payments, utilities, and office equipment. These costs are relevant to a small business as they are essential financial obligations necessary to in day-to-day operations.
Although the majority of these costs are necessary, businesses can fall in the trap of passively paying these bills without review. From week-to-week these fixed costs often do not change but throughout the year circumstances may change, thus, so will the overhead costs. Therefore, it is recommended these operating costs are thoroughly reviewed every 12 months to ensure all purchases are contributing to the success of the business.
Hints to reviewing:
Phones
In today’s digital business landscape, phones have become an essential tool in everyday practices. With the increasing mobile technology, it is crucial for businesses to carefully consider phone plans and service providers. Searching for different phone plans can play a huge role in cost savings, especially for organisations with heavy data usage or multiple lines. Additionally, evaluating the need for new technology such as 5G capabilities or innovative features, is essential in staying competitive, enhancing efficiency, and appealing to consumers. However, due to societies heavy reliance on digital technology there are many upgrades and updates that are not deemed worthwhile investments. It is crucial to continually assess potential upgrades, ensuring they provide value for expense by evaluating their advantages.
Subscriptions
As a business, periodically reviewing your subscriptions is vital in identifying redundant or unutilised applications. Understanding what tools are bringing in return on investment means you as a business owner is spending your money where you should be. These costs are necessary as they are bringing in an income. Through assessing these expenses, you can monitor whether there have been any unnoticed updates that have led to increased payments. It is common for applications to increase subscriptions amounts over time, although this can happen for various reasons it is important to evaluate whether this is right for you and your business.
Merchant fees
Merchant fees is the charge imposed by payment processor or acquiring banks on merchant for processing credit card transactions. It is typically a percentage of the transaction or a flat fee per transaction. Whilst these fees may seem insignificant, they do add up quickly. Business owners must ensure these costs are covered as often as possible by the customer purchasing the product or service otherwise this becomes an overhead cost that could be avoided. Business owners must review these fees frequently and stay vigilant to ensure no hidden fees have accumulated.
Vehicles
Overhead costs for a business are inevitable, although some items being a bigger investment than others, vehicles being one of the bigger ticket items. Reviewing the costs associated with a vehicle is essential as they can have a major effect on profitability.
Here are some questions you can ask yourself about your vehicle:
- Is your vehicle fuel efficient?
- Can you downsize?
- Is it time to upgrade?
- Is your old car costing more than buying a new car?
- Are the parts found locally or do they have to be shipped from overseas?
All of these questions can assist you in making a more informed decision on vehicle financials. With the price of fuel steadily increasing, business owners must consider whether their vehicle is built to alleviate this challenge. The size of the vehicle can also impact this fuel dilemma as big vehicles obviously require more fuel. In the modern-day cars have been made to become more fuel efficient, with the introduction of the electric vehicles, looking through these options could be beneficial. Your current vehicle could in fact be costing you more then buying a new car in the long run, factors such as whether the cars parts are readily available, or the type of fuel could be impacting your financial position.
Another factor to consider would be looking into fuel cards, these offer several benefits such as:
- Centralised fuel expense management
- Detailed reporting for tracking fuel consumption
- Potential discounts or reward programs offered by fuel providers.
These factors can make vehicles an uncomplex overhead costs and has the potential to benefit the business.
Marketing
Marketing is vital in ensuring your business is getting recognition and interaction with consumers. It is important to understand whether your marketing is just brand or if it actually being converted into sales. Although branding is important, ensuring your money is being converted into profit is the ultimate goal of investing in marketing.
The marketing world is forever changing which means the consumers preferences are often fluctuating, therefore, reviewing these techniques is fundamental.
Take a look at our previous blog for more info
Insurance
Business owners should regularly review their insurance costs to ensure they are getting optimal value for their coverage. Much like many other fees, insurance rates can sometimes increase without notice, thus impacting your profitability.
The insurance market is extremely competitive and taking advantage of this can benefit your business. Comparing your coverage plan and price to other alternatives has the potential to save you money and better fit your business. Also, assessing whether your coverage is continuously aligning with the evolving needs and risks of the business can significantly affect the stability of your operations.
To summarise, reducing business overhead costs requires a proactive approach when reviewing in order to optimise profitability. By regularly assessing these few expenses you can feel confident that each expense is effectively contributing to overall success of the business. Embracing this consistent evaluation process empowers businesses to adapt to changing circumstances, optimise resource allocation and ultimately reach your business financial goals in the long term.
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