How-to-handle-soaring-overhead-costs

4 practical ways to reduce your company’s overhead costs 

At times, managing a business can feel like costs are getting out of hand. When your running expenses keep going up, it can be hard to gather the money needed to meet your responsibilities and make a profit.

To evaluate your company’s finances, start by reviewing your varying business costs – like raw materials, transport, shipping, and production expenses. Yet, when seeking areas to reduce costs, don’t overlook your everyday overheads, as they can swiftly become a substantial part of your monthly outlays.

 

Overheads encompass expenses like property leases, insurance, utilities, and salaries. Essentially, they are the necessary outlays that must be settled regardless; the company’s profitability or level of activity doesn’t influence the amount or frequency of overheads. Due to their stability, it’s easy to overlook them as you get used to bearing the cost each month.

Even though overheads are an inevitable aspect of operating a business, it doesn’t mean that savings cannot be achieved to retain more funds in your business. Trimming a few of these overheads can significantly impact your cash flow, releasing essential funds and promptly enhancing liquidity.

While these suggestions may not be applicable to all businesses, and this list is by no means comprehensive, here are some initial steps to assist you in managing your essential spending effectively.

 

I. Rent – Rent for your business premises is likely your most significant monthly expense, but the positive side is the potential for substantial savings. If you’re approaching the end of your lease or have a break clause, consider exploring the option of relocating to more cost-effective premises, perhaps smaller or in a less prominent location. The feasibility depends on your business and its reliance on foot traffic for sales. While a high street presence is beneficial for retailers, an office-based business might find a more affordable location on the outskirts just as suitable. Terminating a lease might not be feasible as many agreements, especially in retail, can be lengthy, often spanning 10 years. Even if bound by a lease, negotiation with the landlord could still alleviate the financial strain. The growing popularity of CVAs, an insolvency procedure for companies restructuring debt and obligations, has made landlords more open to adjusting lease terms mid-contract to retain good tenants.

II. Salaries – While you might be understandably cautious about reducing expenses in this area, trimming your salary costs doesn’t necessarily mean resorting to redundancies. Some staff members may be open to job-sharing or reducing their hours to better suit their lifestyles, ultimately reducing their wage expenditure. If you’re hesitant to discuss this directly, it’s still essential to ensure you’re extracting the maximum value from each employee. While enhancing staff output may not directly reduce your current salary expenses, it can curb the necessity to hire additional personnel and lead to heightened productivity, offering better value for your money.

III. Utilities – It may sound straightforward, but making sure you’re on a competitive tariff for your energy usage can yield significant savings. Given that your business likely requires much more heating and lighting than your home, even a small saving of a few pence per kilowatt of energy used can accumulate to a substantial amount. Assessing your utilities extends beyond gas, water, and electricity. Remember to review your internet service provider and existing phone contracts, both landline and mobile, to ensure you’re on the most cost-effective plan for your usage. Speaking of usage, ensure it’s at a sensible level. For instance, if you tend to make lengthy long-distance phone calls, consider switching to online video chat to trim down the bill.

IV. Go Paperless – Not only is it beneficial for the environment, but it’s also advantageous for your financial bottom line. Transitioning to a paperless system allows you to not only reduce associated overheads but eradicate them entirely. Depending on your business, significant savings can be achieved by avoiding expenses related to paper, toner, or ink. Additionally, there’s potential to save on storage costs once all data has been shifted to a digital environment.

 

While reducing overhead costs can lead to significant savings for your business, if your expenses have already been minimised, or if your financial concerns extend beyond cost-cutting measures, it’s advisable to consult with a professional for further guidance. A licensed insolvency practitioner can evaluate your business’s financial situation and explain the available options.

This may need a formal insolvency procedure such as a Company Voluntary Arrangement (CVA) to restructure outstanding liabilities. If the challenges have rendered the business irreparable, discussions about concluding the company may arise. With over 70 licensed insolvency practitioners located throughout the UK, Vanguard Insolvency is well-placed to help you assess your current situation and formulate an appropriate plan for the future.

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Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.