MLR

Five ways to cut those fixed overhead costs

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Overhead costs are those ongoing operating expenses that aren’t tied directly to sales volume.

In accounting terms, they’re often called “fixed” costs since they are incurred no matter how your business performs.

For many companies, they often become fixed in another sense, too, when regarded as the inevitable cost of doing business. But with a little work and research, you can cut your overhead and, in doing so, improve your bottom line.

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1. Right-size your space

Occupancy costs are a major expense. In a buyer’s market, now is the perfect time to review your business location.

Perhaps you can buy a building and pay less each month than your current rent. You will need to factor in taxes, maintenance and the other expenses of building ownership, but this could be a profitable deal, especially if you can rent out part of the new building.

Be sure to run the numbers with vacancy rates of zero to 100 percent to make sure you aren’t putting yourself in a worse position should tenants leave and the units remain empty for a while.

If you already have a mortgage, talk to your bank about refinancing, especially if you borrowed when rates were higher. If you are renting, look at space usage to see how much you actually need. Can you downsize by putting seldom-used items in storage?

Maybe some employees can telecommute or share cubicles while on site. Check current rental rates in your area to see if you have any leverage with your landlord for a rent reduction. Even if you have a long-term lease, your landlord would rather have the space filled than lose you because your business folds. If you are scheduled to move, then you may be able to obtain better space for the same or fewer dollars now.

2. Reduce energy use

By becoming more energy efficient, small businesses can reduce energy costs by 10-30 percent, according to Energy Star.

Your heating and cooling system, which can account for up to 40 percent of your electricity bill, is the first place to find savings. Besides making sure systems are balanced correctly and operating efficiently, tweaks to other building components can “lighten the load.”

These include tightening the building shell, choosing new lighting and equipment, reducing or increasing solar gain, and installing new windows.
Programmable thermostats prevent waste, too. New lighting can save you a bundle through a combination of lower heat emission, electricity use per watt and automatic shut-off switches. Energystar.gov has specific suggestions and guides for many business sectors.

3. Assess telephone and Internet services

With all the new and exciting gadgets that come along, it’s easy to end up with a steep monthly bill. Companies may have too many phone lines, excess cell phones and unneeded services.

At the same time, using Web video services like Skype may save you travel costs and make employees more productive. Compare your services and equipment to actual usage patterns. For example, are data packages really necessary or does your employee in the field just need to be able to call or text?

Some companies are finding their Facebook page more valuable in reaching customers than their stand-alone website, which may be rarely visited. Use Google Analytics to evaluate whether you actually still need a website and the associated costs of hosting and maintenance.

4. Review insurance premiums

The cost of insurance coverage, whether property, vehicle, health or worker’s comp, never seems to go down. Hefty annual increases seem to be a given, and it’s easy to assume that’s just the way it is.

To be sure you are getting the best deal, get competitive quotes every couple of years. One business owner reduced insurance bills 30 percent by switching companies even though his coverage stayed exactly the same. His previous company had taken advantage of long-standing loyalty with rate creep.

5. Re-think use of catalogs and other print materials

Changes in how business is done today has affected the usefulness of printed materials, such as stationery, catalogs and annual reports.
If most customer interactions, whether new or ongoing, occur online, then the need for some print materials is called into question.

Why pay for boxes of expensive letterhead when you rarely write formal letters? A document file with your logo and address can be printed on demand. While you may want hard copies of your glossy annual report to give out at meetings, posting a PDF for use by the majority who might give it only a glance will save thousands of dollars.

The same is true for product catalogs. Digital versions are searchable, which makes better use of the customer’s time. You won’t want to eliminate printing entirely, but do look at how many printed materials you end up discarding over a year. That money can be better spent elsewhere.