A business overhead is any cost that the company incurs in the process of conducting its business that is not tied directly to the goods and/or services that the company provides. Nevertheless, it is something that you cannot run the company without. An example is the CEO’s personal assistant. The CEO needs an assistant so that he can manage the duties of his position effectively. However, the PA is not directly involved in the production of the company’s product or service offering. Thus, the cost of the PA’s package is an overhead.
Business owners and managers need to look carefully at their expenses to make sure that they are not losing profit. In industries with narrow profit margins, cutting down on overhead expenses may be necessary to stay out of the red. In this article we will look at how you can lower your business overheads.
Adopt a Remote Work Setup
A study on remote work found that more than two-thirds of staff members perceived themselves to have higher productivity when working from home. Greater productivity is linked to better profits and any steps in this direction should have a positive impact on your bottom line. The transition has been greatly eased already by what many businesses have experienced during the Covid pandemic. Three-quarters of professionals surveyed felt that the norm had shifted to remote work primarily.
Don’t Buy Office Space
You can save a lot of money overall if the majority of your staff are home-based. Although you might still need a small commercial property to operate from, this will be on a much smaller scale and lead to a huge saving. The potential commercial property rental savings for each person working remotely have been estimated at £11,000 a year.
In the short to medium term, if you are dealing with low profits and high overheads, you should not purchase a property outright. Owning a property is a good long-term investment that will appreciate as an asset over the years. But it will increase your current expenditure way beyond the costs of renting the same-sized property. It uses your working capital, which is better spent on getting the business fully operational. Once you own a property, you are also tied down to ongoing maintenance and repairs costs.
Renting does not require a huge cost outlay at the start of the term of the contract. You will have to pay a deposit and for certain initial service fees in addition to the first month’s rent. However, this is minimal and will not require a huge downpayment.
Renting also offers more flexibility. If you need to increase or decrease office space or move to a new location, this is relatively simple and cost-effective. IT will immediately enable you to start saving if you downsize.
Shared Office Space
Since Covid, businesses have largely adapted to many of their employees working from home. Desks stand empty in offices that are too big for the new seating requirements, as staff members only come in for face-to-face meetings or some other reason that needs them to sit at a desk and have access to an office computer. Property that is rented is one of a business’s biggest overheads. A desk booking system allows staff members to share desks. It makes provision for the actual capacities utilised rather than allocating exclusive space to individual employees.
How you manage your space requirements has a great effect on your overheads and subsequent profits.
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