Author and educator Peter Drucker once said, “Effective leadership is not about making speeches or being liked; leadership is defined by results, not attributes.” Being a great leader in your company means being in charge of a lot of tough decisions, and a lot of those decisions will have to do with cutting down on business expenses. Out of all the business expenses that are creeping up on CEOs and business owners everywhere, overhead costs are the most subtle yet dangerous.
We have compiled a list of tips to help reduce overhead costs in your company by reaching out and talking to some business executives. We hope their expert input will help show you how to be more cost-efficient in how you run your company.
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What are Overhead Costs?
Before we answer the question of how to reduce overhead costs, we must first define what they are exactly. Overhead costs are business-related expenses that are necessary for the functioning of your business but must always be paid, even if you do not produce or sell your product for a while. Some examples of overhead costs are office rent, utility bills, and insurance. They are costs that are necessary for the functioning of the business but not related to product manufacturing.
What are the Different Types of Overhead Costs?
There are three main types of overhead costs. These are fixed overhead costs, variable overhead costs, and semi variable overhead costs.
- Fixed overhead costs are fixed amounts that must be paid regularly, such as rent, insurance, and other loan payments.
- Variable overhead costs fluctuate based on your amount of sales, such as shipping, marketing, and maintaining equipment.
- Semivariable overhead costs also fluctuate based on how well the business is doing but must be paid regularly, such as certain utilities and staff wages.
Now that we’ve defined overhead costs and discussed the three main categories of overhead costs let’s see what our experts have to say about reducing overhead costs.
Invest In an Accountant to Cut Long-Term Costs
If you currently don’t have an account or two on staff at your company, you might want to consider getting one as soon as possible, especially if you’re looking for ways to reduce overhead costs. Liza Kirsh, a CMO at Dymapak, strongly suggests investing in an accountant. “You can look all you want for ways to reduce overhead costs in your company,” Liza Kirsh says, “but at the end of the day, that’s exactly what accountants are trained to do. They’ll notice financial patterns in your company that you don’t and see the areas where you’re spending too much on overhead costs. Accountants will help with the accuracy of your business’s financial dealings and also with taxes, and you definitely don’t want to get into any trouble in that area, or you’ll have a lot more to worry about than overhead costs.”
While hiring an accountant means additional money spent on salary, you will quickly get all of that back and more. With a staggering 1.3 million accountants in the United States alone, you should be able to quickly hire a suitable accountant for your company and reap all the financial benefits of having one.
Downsize Your Team
No one likes telling people they’re being let go, but sometimes it must be done if your company is in way over its head with salary expenses. After analyzing the cost-effectiveness of your team, you might realize you have a few more staff members than needed. When this happens, think about which employees are not needed in their position, and figure out how to tell them you’re letting them go.
Gigi Ji is Head of Brand and Business Development at Kokolu, which specializes in sustainable footwear, clothing, furniture for consumers around the world. She says, “Letting employees go is one of the hardest parts of reducing overhead costs, but sometimes, it must be done. If your business is falling apart financially because you have too large of a team, you can either keep everyone employed and have them all be out of a job when the company goes broke or you can let a couple of employees go, re-gather your company financially, and be able to potentially re-hire when you are better established financially.”
Outsource for Specific Tasks
If you need to reduce overhead costs, especially employee salaries, but also need people to perform very specific tasks for your company, then you’ll find that outsourcing is your new best friend. How much is outsourcing? Save up to 70% on staff costs, while having on board high-performing talents. There are a wide variety of ways to find independent contractors who can be hired for specific tasks you need to get done in your business.
Monte Deere, a CEO at Kizik, says, “When you have a specific temporary need in your business, the best way to meet that need is to outsource. You bring them in to accomplish a very specific and temporary task, and then it’s agreed that they will no longer be working with the company once that task is complete or their contract is up. This can save you so much money on overhead costs because you only need to pay for the full-time salaries of employees who are needed constantly.”
Downsize Your Space
We mentioned downsizing your team earlier, but another tip that could prove just as helpful is downsizing the space your company operates out of. Brianna Bitton, Founder of the company behind Flo Vitamins says, “Too many companies are spending way too much on space that is unnecessary. If you try organizing your space and placing your employees in smaller office spaces, you might realize how much space you don’t use. If you’re trying to get rid of some extra overhead costs, consider getting out of your current office space and renting a smaller place instead. You might be surprised at how comfortably you will still be able to work, even in a smaller space.”
Conclusion
To summarize, here are the four tips provided on how to reduce overhead costs:
- Invest in an accountant to cut long-term costs
- Downsize your team
- Outsource for specific tasks
- Downsize your space
We hope this article gave you some insight that proves itself useful as you try to save as much of your company’s money as you can. Remember – if all else fails, call your accountant.