How to Prune Away Overhead Expenses

With Alex Kasprzak, Assistant VP, Commercial Banking,
Bank Mutual

What’s the key to growing a tree that will last through generations? A little pruning here and there.

The same concept applies to your business by controlling overhead.

Overhead, by definition, is the cost of doing business. Your rent, phones, administrative staff, marketing efforts, insurance, office supplies – all of the little things that aren’t directly related to the products or services you offer, but are necessary to run your business.

When the Great Recession hit in the late 2000s, it hit consumers and businesses hard. Purse strings were tightened, budgets were examined, and expenses were pared down. For businesses, that meant hunkering down until the economy showed signs of life again by managing growth and overhead, and running as lean and efficient as possible. As the economy recovered and businesses returned to, well, business as usual, they started letting out the reins little by little.

Now, a decade removed from the start of the Great Recession, many businesses run a real risk of giving the overhead leash a little too much slack – which can adversely affect efficiency and competitiveness.

So, while your contracts are being renegotiated and budgets are being finalized and reviewed, here are a few ways to prune your overhead costs for continued growth.

  • Review current overhead costs and make note of things that are no longer needed, too high priced, or open to efficiencies.
  • Don’t expect to find that one big item that will magically reduce overhead; it may take a lot of small adjustments.
  • While you have your eye on the big picture, your employees have an intimate knowledge of the day-to-day (and will be affected by whatever changes you make). Don’t be afraid to ask them where they see room for reducing overhead.
  • If your business has changed over the years, but your third-party contracts haven’t, now may be a good time to revaluate them and make sure they’ve scaled appropriately with your needs.
  • What about all those outdated computers, unused furniture, and old phones? Get rid of them. You can either sell them for cash or donate them to charity for a tax write off.
  • As technology evolves, you may find that some of your equipment is costing you time and money. Look at upgrading, automating or outsourcing to reduce inefficiencies.
  • Break down your per-unit cost of overhead. Not only with this will help you better price your goods, it will help you find your break-even level of production to set goals against.
  • Reevaluate your marketing tactics. Print and television may seem like the place to be, but studies have shown that word of mouth is hugely influential. Consider soliciting reviews, testimonials and referrals and reallocating marketing funds to social media.
  • Paper is expensive. Toner is expensive. Storage space is expensive. Why not go paperless – or as close to it as possible? (Just make sure all of your documents are backed up before getting too shredder-happy).
  • Make sure that you’re using a credit card that gives you the most benefits, including miles or points for travel, cash back or other rewards.
  • Is your space appropriately sized for your business? If you own a building, consider subleasing space to other businesses, or, if your business allows, give up your physical location for telecommuting.

Going line by line through your sales and expenses can be tedious. And, sure, saving a penny here and there may not seem like much. But by carefully examining your overhead expenses at regular intervals and pruning away those inefficiencies, your business will stay strong and healthy for generations to come.

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