Overhead Management

Adjusting Overhead to Save Profitability

Business costs money. But the process of how much money your company costs can determine whether it makes a good profit. While many companies might look for high expenses to cut when it comes to saving money and adjusting their overhead, the smaller costs are eating into potential profits. But, how do companies adjust their overhead to protect their profits? Read ahead to find out why.

What Are The Two Types of Expenses in Business?

Business expenses typically fall into two categories: operating costs and overhead costs.

Operating costs are also known as direct costs or operating expenses. They're the costs that add up in the day-to-day operations of running your business. These can include:

  • Any fuel costs
  • Utility bills
  • Equipment
  • Packaging
  • Labor costs
  • Production, sales, and marketing costs
  • Raw materials
  • Supplies

Overhead costs are slightly different. These costs can also be known as overhead expenses related to supporting your business. These expenses can include:

  • Office supplies
  • Accounting
  • IT services
  • Labor costs, like salaries
  • Administration
  • Insurance
  • Software

It's here in the overhead costs where companies can adjust to impact their profitability significantly. There are three variable types within the overhead: fixed, variable, and semi-variable.

Do you know your true overhead? The majority of companies we have worked with had no clue what there actual overhead was. If you do not know your exact overhead, how are you creating the pricing for your sales or service you provide?

Without accurate overhead, any overage will immediately reduce profitability. A company can actually lose profitability before they begin the sale or service.

If you'd like a more in-depth discussion on how reducing overhead can benefit your business and help your profits, get in touch with us here at Belfield Management Solutions.