Overhead costs, often known as fixed or indirect expenses, are essential business obligations necessary for running a business but do not directly contribute to the production of goods or services. Examples include administrative expenditures, professional fees, insurance, permits and licenses, property taxes, rent payments, utilities, and office equipment. These costs are crucial for small businesses as they support day-to-day operations.
While most of these expenses are necessary, businesses can fall into the trap of passively paying these bills without regular review. Although fixed costs may remain constant from week to week, circumstances can change over the year, affecting these overheads. Therefore, it’s recommended to thoroughly review these operating costs every 12 months to ensure all purchases are contributing to the business’s success.
Hints for Reviewing Overhead Costs
Phones
In today’s digital business landscape, phones are essential tools. With advancing mobile technology, it’s crucial for businesses to consider phone plans and service providers carefully. Comparing different phone plans can lead to significant cost savings, especially for organizations with heavy data usage or multiple lines.
Subscriptions
Periodically reviewing business subscriptions is vital for identifying redundant or underutilized applications. Understanding which tools provide a return on investment ensures money is spent wisely. Assessing these expenses can help monitor unnoticed updates that might have increased payments. As subscription costs can rise over time for various reasons, it’s important to evaluate whether these increases are justified and beneficial for your business.
Merchant Fees
Merchant fees, charged by payment processors to allow your customers to pay by “card” can add up quickly. Many merchant facility advisors are able to oncharge the costs to your clients, remember that you can not profit from this it is oncharging of costs. Some providers charge the client directly so the income is not received into your bank account and neither the cost but this can be false economy as you maybe able to find a better deal. Tap and go costs you more than a client inserting their card in most instances so read the fine print.
Vehicles
Vehicle-related costs are significant overheads that can impact profitability. There is some legislation around fuel efficient cars and FBT so be sure to chat with your accountant about that.
Marketing
Marketing ensures your business builds a garden of potential customers. It’s a long runway, making it fundamental to regularly review marketing techniques.
Insurance
Regularly reviewing insurance costs ensures optimal value for coverage. In our experience working with a broker so that you know you have the cover you need at the best price provides the best results.
Summary
Reducing business overhead costs requires a proactive approach to optimize profitability. The other option is to increase sales. What is your plan for the year ahead?
