Tag Archives: Fixed cost

7 Ways to Control Your Small Business’s Overhead Costs

Whether you’ve just launched a startup or have been in business for years, it’s critical to control your company’s overhead costs. Overhead expenses, the fixed costs (rent, insurance, etc.) of operating your business, have a tremendous impact on your bottom line. How effectively you manage them can mean the difference between profitability and extinction.

It pays to carefully review what you’re spending on overhead and find ways to reduce those costs. Not sure where to start? Consider the following ideas:

7 Tips for Trimming the Fat From Your Small Business’s Overhead Expenses

1. Explore sharing marketing costs with complementary businesses in your local area.

Brainstorm ideas with fellow entrepreneurs about how you can cross-promote each other and get exposure through collective efforts.

For example, a bed and breakfast that serves as a wedding venue, a photographer, and a florist could all save money by splitting the bill and running an ad featuring all three businesses in the local newspaper.

2. Keep a tight rein on travel and entertainment expenses.

Have a clear policy and budget for these expenses. Under some circumstances, it might make sense to hold business meetings that involve treating clients to lunch or dinner, but be judicious in determining when that’s necessary. Wining and dining costs can add up quickly when no guidelines or boundaries are in place.

3. Reduce the need for office space by having a virtual team.

As your business grows and you need to add headcount to your team, consider allowing employees to work remotely. This can help you avoid needing to lease or buy a larger office space, and it will help you reduce the costs of office supplies and utilities, as well.

4. Be selective about the memberships and subscriptions you maintain.

Besides the challenges of finding the time to participate in multiple networking groups and professional organizations, the membership fees can put a strain on your budget. Strategically choose the organizations you join by considering whether they provide ample opportunity to build relationships with your target customers and whether they are necessary for your professional reputation.

For example, the owner of a tour company would likely benefit immensely from a membership to the local visitor bureau whereas professional organizations not focused on the travel and tourism industry might not offer as much return on investment.

5. Pay the annual fee rather than on a monthly basis for cloud-based software.

Even though the lump sum annual cost may sound like a lot of money compared to the monthly fee for online software programs, paying for a year upfront can often save an appreciable amount of dollars over time.

For example, a subscription to Evernote Plus costs $3.99 per month with the month-to-month plan and the equivalent of only $2.92 per month by paying $34.99 for the annual plan—a savings of 27 percent.* Similarly, Hootsuite offers its Professional subscription for $14.99 per month, or you can choose to pay for an annual subscription for $119.88, which is the equivalent of $9.98 per month—a 33 percent savings.*

By switching from month-to-month plans to annual subscriptions for several or all of the software solutions you’re using, you may discover you’ll cut costs considerably.

6. Collaborate by phone and email when it can be just as effective as meeting face-to-face meeting.

With the high price of gasoline, it makes good economic sense to reduce how much you drive. While some business dealings require face-to-face interaction, many collaborative efforts can be accomplished through a phone call or email. When appropriate, suggest that you talk with customers and project partners via phone or exchange information through email. You might find that they, too, would rather converse that way. Not only does cutting back on driving decrease your mileage costs, but it also saves valuable time and wear and tear on your vehicle.

7. Leverage rewards programs.

Take advantage of free rewards programs that retailers, your credit card, airlines, and other businesses offer. From office supplies to business furnishings to discounted airfare to cash back, these programs enable you to get exclusive deals, rebates, and other incentives that can save your business money.

Where to Turn for More Tips on Running a Profitable Business

For more insight into how to manage your business’s overhead costs, contact a SCORE mentor for guidance. With experience in all aspects of starting and running a small business, our mentors can help you objectively review your spending and brainstorm ways to run a more profitable company.

*According to the company’s website on 8/30/2018

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New Business StartUp Costs

While every entrepreneur knows starting and running a business isn’t free, not all realize the variety (or breadth) of costs that come into play. That’s not surprising considering all that’s involved. If you’ve never been down the road to entrepreneurship before, you don’t know what you don’t know. But lack of experience doesn’t mean you can’t educate yourself so you’re better prepared for the small business journey.

To get you started, here’s a checklist with some of the costs entrepreneurs face when starting and operating their companies.

Fixed Costs

Fixed (indirect) costs are those that are not affected by the volume of products or services you make or sell. They might change over time due to other factors (like vendor pricing, economy, etc.), but they’re not tied directly to your level of production or amount of sales.

EXAMPLES OF FIXED COSTS INCLUDE:

  • Rent or office mortgage
  • Insurance
  • Bookkeeping and accounting fees
  • Legal fees
  • Licenses and permits
  • Utilities and phone
  • Dues for memberships to professional organizations
  • Office equipment leases
  • Salaries
  • Marketing and advertising

Variable Costs

Variable (direct) costs are those that rise and fall as a direct result of your production and sales volumes. When production and sales increase, your costs increase. When production and sales decrease, your costs decrease.

EXAMPLES OF VARIABLE COSTS INCLUDE:

  • Raw materials to make a product
  • Inventory
  • Packaging supplies
  • Shipping expenses
  • Hourly wages associated with making a product
  • Sales commissions

Costs: A Major Consideration As You Explore The Feasibility Of Your Business Idea

As you’re determining the viability of your business idea, think carefully about the costs that will affect your company. Not devoting the time needed to determining costs can result in unwelcome surprises that could put your business model in jeopardy.

That may sound a bit overwhelming, but you don’t have to do it all alone. Consider asking for guidance from a SCORE mentor.

SCORE mentors can help you determine the fixed and variable costs your business will face. They can also help you identify how much you’ll have in startup costs to open your doors and ongoing operational and administrative expenses. Best of all, mentoring from SCORE is free of charge.

With over 6 locations  in Maine you can easily find a SCORE mentor near you.   SCORE can help with all aspects of starting and running a business. Mentors can meet with you face to face or over the phone, or  via email.

Successful Business Startup Questions

Starting a successful business requires much more than a great idea. Can you define your innovation in the market?

Most people start with a predefined idea in their head about what they want to sell.  The reality is the world may not be waiting for your product or service. Define what you will you do, what value will you create that makes you different from similar businesses?  Identify exactly what benefits you are delivering:  better service, more convenient location, innovative design, hands on training? The process to determine your product involves testing, searching and reacting to feedback provided by your target customers. Never assume you know what your customer wants. unless you have asked.  Invest time upfront asking questions to potential customers. Data driven decisions will beat guesswork every time.

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