Exploring Overhead Costs
Reduction of overhead costs should be viewed as a continuous improvement process. It never ceases to amaze me at the new opportunities that emerge after you think you’ve cut everything you could. At the beginning of the year, a small business I invested in took a hard look at these expenses and some examples of things that were done included:
- Reducing our waste disposal / recycling costs by 50%
- Exchanging a vehicle to avail ourselves of the investment tax credit and improve our fuel consumption
- Migrating from mailing to e-mailing of invoices which was the beginning of our transition to a paperless workflow. This reduced postage expense, improved cash flow and lowered administrative overhead.
- Meeting with the landlord and “asking for help” (especially advantageous if you’re close to a renewal period) in providing some concessions. Just by asking, we were offered a 25% reduction on base rent over the five months prior to our renewal date and the landlord taking responsibility for the replacement of the A/C unit when required – usually a cost (very expensive a might add) borne by the tenant.
What is more interesting however is that by communicating the goal of a “continuous improvement” process of expense reduction to the team generated thoughts and ideas we had never considered before such as –
- Changing our land lines to VoIP which will result in a phone savings of 30% or more.
- Analyzing our mobile phone service to incorporate most frequently called numbers thus reducing the service plan resulting in a savings of 50%.
- Negotiating with vendors to make payments via credit card which provided additional terms, improving cash flow and generated additional discounts. (Certain credit cards offer cash back incentives of 1 to 3 percent.)
The take away is that clearly communicating the objectives and engaging the team in the goal can yield unexpected and at times pleasantly surprising results.
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