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Seven Ways to Reduce Business Overhead

Trying to cut overhead expenses—whether it’s ordering fewer paper clips or “making do” with fewer perks—is a practical way to improve your profit margin. Here are several suggestions for getting started.

1. Examine current costs. Before you can determine where waste exists, you need to know what your current overhead is. Be sure to get accurate, up-to-date figures for each and every item in your accounts payable. This includes such things as equipment, stationery and forms, mail services, phone expenses, office furniture, etc. Compare this year’s total for overhead to last year’s. If the trend is upward, chances are that you have some cost-cutting to do.

2. Get employees involved. A cost-cutting memo from the top probably won’t be nearly as effective as sitting down with employees and getting their opinions as to how overhead can best be trimmed. For instance, someone who runs an assembly line usually is in the best position to tell you what costs can be cut in his or her particular area.

3. Use the new technology at your disposal. In this day and age, you should investigate ways that your company can do things faster at a reduced cost. Make sure your practices and procedures are up-to-date.

4. Make it worthwhile. Give employees more than just credit for coming up with a cost-cutting idea that saves your company money. You might set up some type of incentive plan using cash awards for beneficial ideas. Other incentives, depending upon the company, might include employee discounts, added time off, free lunch for a week in the company cafeteria, etc.

5. Control purchasing. All too often, employees have the attitude that, no matter how much an item costs, “the company can afford it.” It is important to let employees know that bargain-hunting is just as vital in the office as it is at home. For instance, you may train employees responsible for purchasing to seek several bids before committing to any one vendor’s price. It is also critical that your invoices are audited to ensure that the bargain price you thought you were getting is, in fact, what you are paying.

6. Examine inventory. Go through your stockroom and storage areas. Are there items that are simply gathering dust? If so, perhaps they are no longer needed. At the very least, they should not be reordered.

7. Recycle. The same rigorous environmental standards that people are beginning to use at home could be applied on the business premises. Any item that can be reused—disks, paper, folders and so on—should be reused. Any items that cannot be reused should be recycled whenever possible. This will not only cut your purchasing costs, it could also reduce your trash collection bill.

There is no time like to present to get started. If your company is suffering from a slow cash flow or a downturn in business activity, these cost-cutting measures may help pick up the slack.

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