How to reduce your overheads
Increasing the turnover of your business is not always enough to improve your profit margins. Cost control and reduction of overheads play an important part in managing the margins of small businesses. Some costs are hard to cut back but others can be easily controlled to stop direct and indirect costs getting out of hand. This guide from Companeo helps you consider your business spending and highlights areas where you can make some easy reductions.
- Step one : Analyse your expenditure
- Step two: Dont stick your head in the sand, do something !
- Diagram
This may sound obvious, but the expenditure of a business must be kept under control. Take stock and see where you can make cuts.
• The profit and loss account of your business is the ideal place to start your analysis: it sets out all of the previous year’s expenditure and income. Identify the outgoings that you would like to reduce and those that you absolutely have to cut.
• Check your net margin. Know exactly what margin you stand to make on your services and / or products. Are you charging enough to cover your costs?
o Calculate your operating costs. Make sure you include employees’ salaries and all related costs, distribution and storage, as well as the actual cost of production. This process can also be applied to a service.
o Make a list of indirect costs: rent and property expenses; upkeep; utilities –electricity, water and gas; insurance; management salaries, administrative and maintenance staff (including all associated costs such as national insurance contributions).
o Work out your administrative costs: telephone, postage, suppliers etc.
o Add up all the costs and expenses and subtract this figure from your turnover. This is your net margin. To work out
How to reduce your overheads
