When running a small business it is important to be on top of your numbers, which is why a lot of people look to reduce overhead costs for small businesses. While you need to spend money to make money in business, there are ways to limit your overhead expenses and increase your net income.
Operating expenses can easily eat into take-home profits, and many small businesses have shut down because they failed to monitor their spending. In this article, we talk about the typical overhead rates for small businesses and provide tips on reducing overhead costs.
What does overhead mean in business?
Overhead refers to the ongoing expenses of a business that are not directly related to the production of goods or services. These include rent, utilities, and administrative costs.
Table of Contents
- What are Overhead Costs?
- Effective Ways to Trim Overhead Expenses For Small Businesses
- Reduce Small Business Overhead Significantly with iFax
What are Overhead Costs?
Overhead costs refer to ongoing business-related spending. That is, things you have to pay for whether or not your venture sells or produces anything for some time. Examples of overhead costs are rent, insurance, general utilities, and software. They differ from operating expenses, which are what you have to pay so you can produce, sell, and market your products and services. Examples of operating costs are manufacturing equipment, packaging, and labor.
There are three types of overhead costs: fixed, variable, and semi-variable. Fixed overhead are costs that are unchanging regardless of activity, like insurance and rent. Variable overheads are those that change depending on sales volume, like marketing and office supplies. Finally, semi-variable overhead are costs that must be paid regardless, like utilities and sales-related commissions or salaries.
Effective Ways to Trim Overhead Expenses For Small Businesses
With all the types of expenses, one can see that a small business owner has a lot of spending to monitor. This is why knowing how to reduce overhead costs is a huge deal. Here are some suggestions for reducing overhead costs.
1. Assess your needs.
Look around your business and identify the things you don’t use daily. Do you really need all that furniture and fancy machines? Do you still need to print out flyers and business cards in the age of social media and the internet? Whatever it is that you can do without, get rid of them.
2. Find the right location.
Find a more cost-effective space, preferably at a location that does not charge high rent. Do you need all that space where you are right now? If your customers prefer pickups and deliveries, wouldn’t it make sense to move to a small location that will accommodate just your staff and equipment? Is there a way to switch spaces without compromising productivity?
3. Hire smart.
You need the right people with the right skills and agile mindset to be part of your core team. This way, you know that when one staff member is out, the others can pitch in and you don’t have to hire new people. In addition, some employees probably don’t even need to report to the office to work. Perhaps they can work from home instead.
4. Invest in an accountant.
An accountant is not cheap, but the accuracy and timeliness of the work they produce will save you a lot of time and money from having to correct erroneous entries or pay for penalties. More importantly, an experienced accountant can provide great insight into other cost-cutting measures that you might have overlooked.
5. Consider outsourcing.
Do all your office tasks need to be done in-house, or would it make more sense to have third-party professionals take care of certain aspects of your business? Outsourcing independent areas, like billing and customer support, could be cheaper than having people go to the office every day. It also saves your core team from managing payroll, tax, benefits, and other HR tasks.
6. Go paperless.
Going green is one of the best ways to reduce small business overhead costs. When you take the paperless route, you get rid of clutter and boost work efficiency by storing important documents and resources in the cloud. You can say goodbye to your printer and fax machines, too, by sending and receiving important documents through encrypted channels over the internet.
Reduce Small Business Overhead Significantly with iFax
Gone are the days when you need to print documents and feed them into fax machines to transmit them to another location. iFax provides safe and secure fax solutions for SMBs. All you need to do is take a photo of the documents to scan them and then either store in the app’s cloud storage for later use or immediately send it to your recipient. No machines are needed.
iFax boasts a highly secure 256-bit SSL end-to-end encryption system — fully compliant with HIPAA, GLBA, and GDPR. So even when you are transmitting the most confidential documents, you can breathe easy knowing that your information is moving within a safe network.
Want to reduce overhead costs significantly? Go digital and avoid expensive fax machines and high maintenance costs that eat into your profits. Signup for iFax’s business solution or download the iFax app.