Last Updated on September 13, 2024
Are you an owner or manager of a business? Do you feel like costs keep going up and it’s challenging to stay within your budget? If so, you’re not alone. Many companies across many industries are looking for ways to reduce overhead costs, especially in light of changes to the economy in the past couple of years.
As a business owner or manager, you often need to find ways to reduce costs, especially if you’re running a small business. Many issues can cause you to go over budget and hurt your bottom line, whether because of inventory costs or rent for the building.
While dealing with excess expenses is fracturing and stressful, there are ways to take matters into your own hands and save money. Get some valuable tips on reducing overhead costs and saving your company money.
Overhead Costs Or Operating Costs?
Sometimes these two terms are used interchangeably, but there are some main differences between the two.
Operating expenses are more about the daily operations of the business. These costs include how much it takes to make, sell, package, and market goods and services. Operating costs also include other elements such as paying employees and buying equipment.
Alternately, overhead costs are more about the ongoing expenses that need to be paid. For example, you can consider rent, software, business insurance, and utilities as overhead costs. These are the expenses that don’t change as often and that you’ll have to cover even if you aren’t producing products or services for a time.
There can be some overlap between the two, but overhead costs are generally less adjustable from week to week.
Now that you know the difference between the two, let’s get into the specific aspects of reducing overhead costs.
Find a cheaper office space.
Most businesses spend the biggest portion of their budget renting out an office, warehouse, or other facilities. This area could be where you can save the most money, but you have to be willing to make some adjustments. It’s also not always easy to change locations or cut back, but it could be necessary.
More and more people are working from home, so if you can go without an office space, it’s worth considering. If not, you could find a smaller, cheaper option if you offer both work-from-home and in-person hours.
Make your overall operations run more smoothly.
The cost of operating your business in the short and long term can be impacted by the software and technology you use. So, to cut down on both overhead costs and operating expenses, you could consider upgrading and automating when possible. Some options include software to keep track of inventory or find a program to handle payroll for you.
Consider time spent on adjustments versus money saved.
While reducing overhead costs could be the way to save money, you also have to factor in how much time and work goes into making these changes. If you and your employees spend hours going over the budget and trying to save money through minor cuts here and there, you will probably lose money in the end. You’ll want to quickly estimate the areas where you could significantly cut costs while factoring in the daily expenses necessary to even make these changes.
Concluding Thoughts: Think Long Term
While operating costs are more about the small adjustments you can make to things like inventory, overhead costs deal more with the long-term, fixed portions of the budget. To reduce these expenses, you’ll need to weigh the benefits into the future, not just a month or two ahead.
Remember that each company is different, so you’ll have to do what works best for you and the company’s success.
