There are challenges that come with running a small business and knowing how to manage your finances is important so that your company can be successful. There are many ways that you can free up your cash flow and save for the future, from finance options like a merchant advance, or a small business loan, to reviewing your bills and making cuts if necessary. Your overheads make up some of the most expensive bills that your business will have to manage – below, we’ll look at a few tips on how to minimise these costs to give your finances a boost.
Take-home income can be quickly drained by operating costs, and many small businesses have failed as a result of neglecting to keep track of their spending. In this article, we’ll examine typical small business overhead costs and offer tips for reducing them.
What Do We Mean by Overhead Costs?
The overhead costs of your business refer to the expenses that you have to pay for your business to simply exist, without making sales or producing anything for a period, so things like the cost of your premises, insurance, accounting, and salaries.
These overhead costs can become difficult to manage because they are always in place, and need paying to keep your business functioning, which is why they can be the best place to start if you need to free up your cash flow.
What are the Benefits?
Taking the time to review your overhead costs is advantageous, it means that you can pay less for your fixed bills, and free up cash flow within the business, so you can get your company to a place of financial security.
Reducing your overhead bills also means that your business will have a better chance of surviving times of economic crisis, or periods of slow business because you’ll have been able to save money to help you stay afloat. It is said that you have to spend money to make money, which is true in some cases.
However, if you’re spending money in areas that you don’t need to, this attitude is not going to get your business where you want it to be. Here are a few tips on how you can minimise overhead costs so you can improve cash flow and increase your profit margins.
Read how to write a business plan for alternative funding to understand the funding sources and additional information along with this topic.
The premises that you operate from is arguably themost important part of your business – if you didn’t have a premise, your business wouldn’t be able to run and make a profit.
If you find thatthe building or office space that you’re in is causing you financial difficulty, you should re-evaluate your space, and whether you could downsize, or move locations to a more affordable area.
Another way that you could make your premises more cost-effective is to rent out space that you are not using to other companies. They can potentially bring more customers to your business and will help you to pay for the unused space.
Become More Sustainable
Energy prices are on the rise, so looking closely at how you can reduce your usage or become eco-friendlier could be beneficial to your business.
There are simple things that you could do that can reduce your bills to make them more manageable, like switching to energy-saving LED light bulbs – this can make a huge difference especially if you’re using them all day.
Energy-saving power strips may seem like an investment at the time, but in the long run, they are some of the best pieces of equipment that you can use to reduce your energy usage and will bring your payments down in the future.
This can refer to both suppliers that you purchase stock or supplies from, as well as your energy and insurance providers.
Over time, your business is likely to have grown and changed, which means your relationship with your suppliers will have too. Get in touch with your suppliers and see if you can renegotiate terms with them to bring down your costs – if you have a good relationship with them, this could help with reducing your overheads.
Reflecting on how much you pay your energy provider, as well as for contracts with broadband and phoneline companies, can help you to work out whether you are paying too much. Compare with other suppliers online and see if you can negotiate a new deal or make the switch.
Think About Employees
Wages are another overhead that could be impacting your cash flow as a small business. Of course, no one wants to let their employees go, but downsizing and trimming your team could be an option – although you must consider whether you could work without as many staff members.
If you need more staff but you can’t afford to pay an extra wage, training your staff internally means that you are investing in your employees and your business, by filling any gaps – this will also save you money.
You would think that reducing your overhead costs is a daunting task, but you’d be surprised at how much even small reductions here and there can amount to over time. Simply re-evaluate your current financial situation and look for places where you may make small cuts to your expenditure. It doesn’t have to be a drastic re-budget or downsizing!