5 Tips To Reduce Your Overhead Expenses And Become More Profitable

The truth about COVID is that it has not only affected the health and wellbeing of countless Indians but has also put a question mark on the future of many businesses (especially the small and medium ones). So, if you want to bounce back from the lull and achieve profitability, you need to reduce overheads for starters. As you must be aware, overhead refers to those ongoing expenses that a business bears to stay operational, even though it has nothing to do with creating any product or service. In other words, whatever you spend on rent, office supplies, utilities, payroll, and advertisements, comes under overhead.
 
So, if you are wondering how to reduce overhead costs and survive the pandemic, here are 5 tips that will help.
 

How to reduce overhead costs?

 

1. Assess what you really need

   Consider these examples to understand this. Your business has a decent online presence (with a website, blog , and social media pages), but you still keep printing business cards. Or, you still have a fax machine, though you communicate mostly via email. Or, almost everything in your office gets done on computers, but you are still stocking up on stationery items like pens, notebooks, and folders. So, these are overheads that you can easily reduce. Take a good look at what utilities and equipment you really need, and let the others go. You can also look for cost-efficient options like LED bulbs and natural light instead of conventional bulbs.
    

Also Read: 8 Simple Ways to Save Money
 

2. Lease rather than buy

   This goes for both your office space and the utilities and equipment in it. Buying usually means either paying the whole amount in one go or making a substantial down payment. With leasing, even if you have to pay the rent for the next 3 or 6 months in one go, it will be a cheaper option. This is a good way to reduce fixed costs in a business, which are otherwise higher if you make an outright purchase. Plus, leasing gives you more flexibility in case you want to expand in the future. And, if your current lease terms are too heavy for your pocket, try and negotiate with the landlord or look for another place.
    

3. Hire and compensate smartly

   Since these are trying times, hiring someone who is good at more than one thing can benefit your bottom-line immensely. For instance, an individual who can develop a website as well as create great search engine optimised content will be an asset. Also, you can tweak the compensation model so that it relies on performance rather than the time an employee puts in. With time, you can try to invest in training programs as well, so that your team can become more proficient and get better results.
    

Also Read: Fixed expenses v/s Variable expenses: How to control your business budget
 

4. Make communication more affordable

   This is another smart way to reduce overhead costs. Use as few traditional landline phones as possible (zero if possible). Alternate to mobile calling such as calling (both audio and video) apps that can be used for one-to-one communications, meetings, and even presentations. Therefore, just having a reliable and fast internet connection in place might be sufficient, depending on your business type, industry, and workforce size.
    

5. Pay attention to the little things

   Other minor elements such as printing and paying for unnecessary software solutions, inflate overhead costs for small businesses over time. So, try and go paperless and save more documents on disks and in the cloud. Print less or use both sides of a paper to save money. Stop subscribing to the software you no longer need and look for more affordable options or vendors who offer discounts for long-term contracts. And, try to serve coffee that is good but not pointlessly expensive. Take effective measures that can help cut down your electricity bill and other utility bills.
    

Other Ways to Reduce Overhead Costs

 
In addition to the above methods, you can try some of the ways listed below to reduce fixed costs in the business. 
 

Switch to Remote

After the pandemic hit the country, the government declared a nationwide lockdown. Every company, from large corporations to small firms, were forced to work from home. It was difficult at first to manage employees remotely, but as time passed, both employees and employers became more comfortable with remote working. Offering a work-from-home option to your employees allows you to reduce fixed costs in the business. For example, you can save money on utility bills, stationery, free lunches, internet expenses,  and other expenses. In case you are not comfortable with a permanently remote culture, you can try a hybrid working model.
 

Reconsider your marketing strategy

It is no longer necessary to open a new branch in order to generate revenue. Businesses these days make more sales from an online platform without having a big brick and mortar office. When you work through multiple offices, your overhead costs for your small business skyrocket. Hence, you must consider focusing on digital marketing and improving your branding through quality content. 
 
Consider hiring a full-fledged digital and content agency in India. They will work to improve your website's technical flaws, create quality content, and post regularly on your company's social media platforms. All of these steps contribute to the generation of high-quality leads while reducing the need for offline marketing budgets.
 

Switch to Freelancers

If your business is experiencing cash flow issues and cannot afford to hire a large number of permanent employees, consider hiring freelancers. Regardless of your needs, it is now simple to find qualified freelancers. If you are a startup, you can hire freelancers to help with digital marketing, business consulting, software development, website design, and other tasks. You may also hire commission-based salespeople, which can significantly increase your annual revenue. Simply put, if you are wondering how to reduce overhead costs, freelancers are the solution.
 

Hire an Accountant

You may be well-versed in budgeting, but changes in government rules, tax policies, and other compliances can be tough to navigate. Government regulations, which are constantly changing, have a direct impact on your revenue and expenses. A professional accountant is well-versed in corporate laws and keeps a close eye on regulatory policies. They can help you save money on taxes by recommending various investment options. A qualified accountant can also assist you in designing your employees' annual compensation packages and recommend the most relevant areas where you can try cost-cutting measures.
 

Switch to Technological Advancements

Implement technologies in areas where tasks are repetitive. As an example, consider a banking institution. In an effort to reduce their reliance on cashiers and operations executives, banks have begun installing advanced ATMs in densely populated areas in recent years. Though the initial investment is higher, it still allows them to better serve their customers while reducing the recurring salary expenses of thousands of employees.
 
As an SME, you can use technology in your human resource system to reduce reliance on manual workers, install software to help with customer service management, and so on.
 
Also Read: Smart Tips to Keep Your Business’s Variable Expenses Low
 

To conclude

So, consider the pandemic to be a wakeup call and reduce overheads to earn profits and thrive in the coming days. Apart from trying out the tips mentioned above, you can also approach financial institutions for loans to tide over a tough spell and keep the cash flow positive. Overall, better times are just around the corner if you hang on.
 
Disclaimer: This post was first published on 27th August and has been updated for the latest information, freshness, and accuracy.