Know the difference between overhead costs vs operating expenses
Overhead costs and operation costs are business-related expenses, but each refers to different associated costs of running a business. Overhead costs are the type of ongoing costs a business spends and would still have to pay even if it wasn’t producing or selling goods. Overhead costs include things like rent, insurance, software, accounting salaries for management, and any general utilities.
Operating expenses, on the other hand, are the costs needed to run the business or the costs that the business incurs over the course of its day-to-day operations. Also called direct costs, these include the expenses it takes to produce, sell, and market a product or service. Also included are materials, equipment, parts, labor, manufacturing-related utilities, packaging, shipping, and other like costs.1 However, there are steps you can take as a business owner to reduce overhead costs and lower operating expenses.
Lower your office building overhead
To lower your office space costs, follow these tips:
- Ask your landlord to renegotiate your lease. Be honest if your business is struggling and you need to reduce business expenses. Any good landlord in a struggling economy may rather have a tenant paying a little less than have an empty storefront.
- Consider subletting or leasing your unused space. If you do, be sure to talk to your insurance agent – changes to your property coverage may be necessary.
- Consider switching to an office suite where you'd share copiers, meeting rooms and a receptionist with other small business owners.
- Buy used office furniture, computers and phones as needed. The best deals are often found online.
- Save energy by placing your lights on a timer and changing to a programmable thermostat.
- Turn off equipment when not in use.
- Allow some or all of your team to work from home. This could reduce the size of the office you need, reduce daily energy consumption, or eliminate the need for an office altogether.
- Comparison-shop Internet and telephone service providers. Or save money by bundling those services.
Outfitting your office with eco-friendly alternatives like LED light bulbs, power-strips that save energy, and “green” outlets have an associated upfront cost that might seem more expensive than their less efficient counterparts, but they will reduce your utility bills in the long run and make it worth the investment. Going “paperless” is another eco-friendly way to save on things like paper, printing costs, and electricity.
Lower your staffing costs
To lower your staffing costs, consider the following tips:
- Reduce your staff hours or your headcount
- Hire independent contractors or temporary workers as needed
- Go to a four-day work week
- Outsource your payroll, benefits and human resources
- Get a virtual assistant or answering service
- Hire an accountant
Evaluate your marketing and advertising strategies
To keep your marketing and advertising budget in check:
- Switch your advertising efforts to digital, if that’s where your customers are. It can be more efficient to advertise online, and costs only your time to establish a presence on popular sites such as Facebook, Twitter and LinkedIn.
- If you have a website, be sure to let people know the web address. Put your web address (and maybe your email) on anything printed, such as letterhead, business cards and ads in the paper or phone book.
- Develop an e-newsletter to stay in touch with your clients. It’s usually much cheaper than producing printed pieces.
- Scour your mailing list to remove duplicate names and bad addresses that cost you unnecessary dollars.
- Review and evaluate your contracts to make sure they are still serving your best interests. Cancel the ones that don’t and renegotiate the ones needed for a better deal for you.
Ask your insurance agent how to reduce your insurance costs
Insurance is an essential part of doing business. But there are ways to save on your insurance. Check with your insurance agent about the following:
- See if it makes sense to get lower premiums for a higher deductible. A high deductible is cheaper than losing your business if you face an uninsured accident, damage, or other event.
- Ask if your insurance company offers monthly payment plans that could help you spread out the expense.
- Find out if there are any groups or associations you can join to take advantage of member discounts.
- Take advantage of free loss control resources, such as loss control safety newsletter email on nationwide.com.