14 Creative Ways You Can Reduce Small Business Overhead Expenses

Steve Martin once said, “I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline-powered turtleneck sweater. And, of course, I bought some dumb stuff, too.”

A small business owner who spends like that can quickly find themselves in a lot of trouble. The process of bringing a product or service to market requires a certain amount of money. Some of those costs are beyond your control, but there are a lot of business overhead expenses that you do have authority over.

Since we believe that you deserve to keep as much of your hard-earned money as possible, we’d like to share 14 ways that you can trim your business overhead expenses and boost your profits.

Business Overhead Expenses Defined

Before we start saving you some money, let’s clarify something about overhead expenses. They are not the same as “cost of sales.” Cost of Sales is related to money you spend to produce the goods and services that your company provides. These are the dollars you spend on production, materials, labor, marketing, etc.

Overhead expenses, on the other hand, are business costs that you are responsible for even if you don’t make any products or serve any customers. Things like rent, utilities, insurance, and salaries fall under this category.

These are the areas where we’re going to help you find ways to save money. Every dollar you keep from spending in these areas is one more dollar that you can reinvest in your business, grow your company, and make a positive impact on the world around you.

Types of Business Overhead Expenses

There are two basic types of overhead expenses…and a possible third.

  1. Fixed Expenses – Rent, insurance, loan payments, etc. These do not change regardless of whether you make a single sale or not.
  2. Variable Expenses – Office supplies, marketing, shipping costs, etc. These things fluctuate based on how much activity your business is doing. When you’re moving more product, they go up. When sales fall off, they go down.
  3. Semi-Variable Expenses (the possible 3rd category) – Sales commissions, some utilities, vehicle maintenance, hourly payroll, etc. Like fixed expenses, these are costs you can expect to pay regardless of activity. However, like variable expenses, how much you pay will change depending on how much you use them.

(A side note about Business Interest Expense: If you take out a loan in order to maintain business operations, the interest on that loan is considered a “business interest expense.” It could qualify as a tax deduction depending on the size of your business. To learn more, take a look at this article on Business Interest Expense from Investopedia.)

Get Organized to Get Control of Business Overhead Expenses

Before you can start finding ways to trim overhead costs, you have to know what those expenses are! Too many times, we see business owners who are frustrated and overwhelmed by their finances simply because they have no idea where their money is going. All they know is the stress that comes from never having enough!

You shouldn’t have to feel that way. That’s why one of the first steps we take with our clients is a comprehensive analysis of where every single dollar is going. Once you know how your money is flowing into and out of your business, you can begin to give each dollar an assignment through a detailed budget.

When it comes to business overhead expenses specifically, it’s usually helpful to create some sort of list or Excel worksheet. Being able to see all of your expenses arranged in orderly categories will go a long way towards taking the stress and mystery out of where your money is going.

If you’re looking for a good self-employed business expenses worksheet, here are 30 Business Expense Spreadsheets (100% free) from TemplateArchive.com to get you started. For a good business expense categories list, check out this article from FreshBooks on “How to Categorize Expenses for Small Business.” (A list like that or something more detailed like the example below will definitely be beneficial at tax time as well.)

Spreadsheet Example

Let’s say you run a janitorial service. You might use a cleaning business expenses spreadsheet that looks like this (courtesy of pdffiller.com):

Regardless of the type of business you are in, take the time to track your expenses and put them into logical categories. Then you can begin to go through each line to determine if there is a more cost-effective way of doing that particular thing.

Tips for Managing Business Overhead Expenses

Now that we’ve covered the types of business expenses you can expect to deal with and the importance of understanding where every dollar is going, let’s point you to a few ways to better manage your overhead costs. Here are 14 places you might not have realized you could be saving money:

  1. Work from a better space. The square footage your business operates out of is one of your biggest expenses. Look at how your business might be able to operate out of a smaller space to reduce those costs. Depending on the nature of your business, renting part of a coworking space could also be a good option.
  2. Rent equipment instead of buying. Things like copy machines and other large pieces of equipment can be really expensive. By leasing instead of buying, you avoid a cash draining expense as well as the ongoing maintenance and repair costs.
  3. Go digital with your record keeping. Paper is expensive. Toner for your copier is expensive. And needing space to store all those records you’re printing forces you to pay for a bigger office…which is expensive. By doing as much as you can digitally and storing those files in the cloud, you can save a lot of money. (Be sure to back everything up like we recommend in this post on protecting your data!)
  4. Renegotiate or cancel contracts that are outdated, and shop around for suppliers. If you’ve had a contract with a particular vendor for a while, the odds are good that your business needs have changed. Take time to look over the contracts you have with other companies and see if you can renegotiate for better terms. Also, cancel any contracts that are no longer necessary. Then, shop around for any better deals that may be available from other suppliers. Competition in the marketplace for the services you use can help you find a better deal and save big money.
  5. Review your utilities. You may not be able to get your power company to lower their rate, but you may be able to find ways to use less energy at your workplace. Switching to better light bulbs, installing motion-detecting light switches, adjusting thermostats, and exploring other energy efficient ways of doing business could save you a bundle.
  6. Review your phone and internet packages, and cut the landline. Is there a better rate plan that you could take advantage of with your company’s mobile phones? Is there an internet/phone bundle available? Do you really need a dedicated landline? (More than likely, you can use an internet-based VoIP system that works just as well and costs a lot less.)
  7. Cancel unnecessary subscriptions. Those magazines piled up around your office aren’t really being read, and The Wall Street Journal at your door every morning is getting dropped directly in the trash at some point. We bet you’d be shocked to see how much money you’re spending every month on subscriptions that you barely use. Go ahead and cancel anything that isn’t essential to your business. If you find out that you really have to have one of them later, you can always sign up again. They’ll let you.
  8. Review your insurance coverage. Every small business needs four basic types of insurance. Rates on all of these are getting more and more competitive, so check with several companies to make sure you’re not overspending. (Business News Daily did an article featuring “7 Websites to Compare Small Business Insurance Quotes” that might be helpful.)
    1. Property – protecting your physical business and equipment
    2. General Liability – protecting you from lawsuits related to accidents or negligence
    3. Professional Liability – protecting you from malpractice incidents if your business offers specialized, knowledge-based services like a doctor, lawyer, accountant, etc.
    4. Business Interruption – covers your business from loss related to closure or disaster
  9. Trim your team and hire smarter. Your employees make up one of your biggest ongoing expenses. Hopefully, you have a great team that knows how to get things done. But you might be able to save money by combining roles or moving people into different positions. Also, the next time you need to make a new hire, look for candidates who can provide multiple skill sets and design their position so you get two employees for the price of one.
  10. Outsource whenever possible. There are probably positions within your organization that are costing you more than you need to pay. With the abundance of freelance professionals available today, it’s very possible that you could outsource a lot of responsibilities…saving you money and freeing those current employees up to do other things. One of the big ones that we help business owners with all the time is accounting and payroll duties. Our Part-time CFO Service can save you a ton of money when you consider how expensive an in-house role like that would be!
  11. Offer Telecommuting. Thanks to COVID-19, most of us got really good at working remotely in 2020. As your business (hopefully) returns to normal, this is a good time to consider whether or not it is a good idea for some or all of your employees to continue telecommuting as a way to reduce your need for office space.
  12. Get your team involved! As you look for ways to reduce overhead costs, brainstorm with your employees and see what they can come up with. Involving them will create a sense of ownership and improve team morale…instead of cost cutting coming across as a punishment they just need to learn to deal with. Reward creative ideas and have fun with it.
  13. Provide training to get your team working efficiently. How much time and money is your staff wasting by not working efficiently? For example, business consultant Kevin Dwyer says that sales teams are some of the worst offenders. They may spend their time “building relationships” (i.e. hanging out with the easy clients) and pursuing accounts that are not going to provide a good return on the investment. He says, “I find that salespeople are spending only 60% of their time or less selling.” That statistic could easily be applied to roles throughout your company. Stay engaged with how your team is spending their time by spending your time with them on a regular basis. Resist the tendency to lock yourself away in your office. And invest in training and mentorship opportunities for your employees to keep them engaged, energized, and productive.
  14. Consider business overhead expense insurance. A business overhead expense policy covers your business’ expenses in the unfortunate event that you, the owner, become disabled. It provides your company with much needed business income and extra expense coverage during a time in which you aren’t available to manage things and help generate revenue. This business overhead expense policy covers things like:
    1. Rent
    2. Interest payments
    3. Utilities
    4. Insurance premiums
    5. Accounting fees

Bonus: If you need more ideas, here are “17 More Things You Can Do To Reduce Your Overhead Costs” from Inc.com.

Still need help? We’re here, and it’s what we do!

We here at CRS CPAs get it. Running a business is hard, and finding ways to trim expenses can be even harder. We’ve been around a long time (40+ years, in fact), and we’ve helped a lot of businesses save money using the ideas we just listed…and then some.

If you’re tired of your money being too tight, let our team of strategic planning and accounting professionals help find you some relief. You deserve to keep as much of your money as possible, and we can show you how.

Schedule a call today, and let’s get started!

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