Reduce overheads – and help your business survive

Running a successful small business means managing your cash flow – in simple terms, making sure that more money comes into the business than is paid out. Business overheads can comprise a number of items – stock, staff, business premises, supplies and IT costs. Such overheads account for a large part of the money that has to be paid out in any business. While many of these overheads are necessary for the day-to-day running of the business, if they can be reduced or minimised, then the pressure on cash flow can be eased, and the financial stability of the business underpinned.

There are a number of ways to cut business overheads.

  • Staff

For many businesses, staff costs are the biggest single expense, and, in some cases, due to legal and financial requirements and the financial cost of termination, the hardest to reduce when times are tough. Staff costs do not only include salaries; depending on circumstances, there may also be associated social security and tax, pension and health insurance expenses, annual bonuses, holiday and sick pay. There may also be costs associated with their recruitment and training and development, as well as the administrative burden of monthly payroll, and state/government reporting. That is over and above the “hidden” costs of having to manage staff every day.

Where possible, avoid taking on staff, and consider instead outsourcing functions or hiring consultants instead. Not only do you gain almost immediate access to the expertise and knowledge of these third parties (something you may have to invest training time in with employees to get them to the same level of skill), but you also gain flexibility at the same time. If the business is struggling and cash flow is tight, you can save money by just discontinuing the engagement with the consultant or pulling the plug on the outsourcing arrangement. Compare that with the legal and financial cost of terminating an employee which, depending on country and seniority, can be very expensive, time-consuming and administratively difficult.

  • Premises

The cost of premises can be a big overhead for many small businesses. It is easy to decide that you want “state of the art” offices or a shop in a prime location, but is it really necessary? Do you need the foot traffic or could you relocate to another part of town or elsewhere without it significantly affecting your business? Whilst renting premises in the “right” location could be important for your business, many could as well operate from a less fashionable area where rents, and associated costs like business rates, are lower.

Also, there is no need to outfit your offices with expensive furniture and accouterments. Instead go to IKEA or similar outlets and buy office desks and chairs that are both durable and relatively cheap. The same for other office furnishings and equipment,

Another option is to work from home. Whilst not an option for all businesses, such an alternative could work for many companies who are not selling physical products, or are providing online or consultancy services. Allowing staff to work from home, especially those who are in support functions or are not customer-facing, may reduce the stress of commuting for them and increase business productivity as well; studies have shown that those who work from home work longer hours and achieve more than those who travel to an office every day.

  • Shop around for the best deal.

Try to make sure that you are getting the best deal possible from all your suppliers – including utilities like electricity, telephone and internet fees. If your business uses stock, try to negotiate with suppliers on price, and explore what credit options are available. You may find that if bulk-buying or “preferred” supplier status is on offer, then suppliers can be receptive to a deal being done.

  • Rent rather than buy.

Business savings can be achieved sometimes by choosing to rent rather than buy. For example, capital equipment – plant, machinery, cars and vans etc. – can be expensive to buy, and costly then to repair and maintain. Renting reduces capital investment, lets you upgrade to new equipment easily, and saves on repair and maintenance costs.

Switch your computing to cloud services and get a range of up-to-date business software and applications without having to buy them. There is no need for expensive data storage and email servers, and because web-based software does not require complex installation or maintenance, IT support can be reduced as well.

  • Hire an accountant.

Whilst it may seem paradoxical, hiring the services of a qualified skilled accountant can help you save money and reduce overheads in the long-run. This does not mean taking on a full-time employee; rather, engaging the services of an outsourced consultant for a few hours’ support a week can be a valuable investment generating far more in savings than their cost.

A suitable accountant can look at your business expenses and find ways of saving money across the board. Perhaps they might suggest cutting travel costs by encouraging the use of teleconferencing, reducing premises costs by renting out spare office space, switching online payment providers to a cheaper alternative, or putting office supply costs out to competitive tender. A good accountant can generate a whole host of money saving ideas for your business, paying for themselves many times over.

The key to long-term business success, especially if you are just starting out or your business is growing, is cash flow management – making sure that the money which comes into the business is more than the money which is being paid out. A key way of controlling the money that is spent is to keep a tight control on overheads, reducing them, where possible, to the minimum. To this end we suggest outsourcing as an alternative to hiring staff, relocating to cheaper premises or working from home, shopping around for the best deal and renting rather than buying. We also recommend engaging the services of an accountant – in exchange for a few hours’ support a week, they can generate a wide range of ideas which can help both save you money and underpin the long-term success of your business.

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