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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?

Cornerstone Adjusting Overhead to Save Profitability

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.

Let’s go ahead and look at ways you can adjust your overhead to save profitability for your company.

How Can My Company Reduce Overhead to Save Profitability?

Most businesses can reduce overhead with a few simple (yet incredibly powerful) steps.

Firstly, embrace digital. When going paperless to automating your processes, there are many ways having a digital-first company can reduce your overhead spending. For example, by investing in a closed buying environment, you can automatically match your business with the best vendors in terms of pricing and support. This same environment can also cut costs in terms of rogue spending, which will cut your overhead. You can also automate your payroll and bookkeeping – eliminating human error, freeing up resources, and cutting costs simultaneously.

Similarly, suppose your business is brick and mortar, or you have an in-person office. In that case, it might be wise to consider a move online. The digital world is thriving, and a brick-and-mortar business costs a lot more to rent office space and supplies. The pandemic taught us all that people can successfully work from home, so why not continue to embrace this change and drastically reduce your overhead in the meantime?

Go green. Sustainability is not only fantastic for the environment, but it will also reduce costs for your business. It can be as simple as buying different light bulbs, paper products, and power strips. While it might be a bit more to invest initially, the long-term savings and the effect on the environment will do wonders for your overhead and your reputation as a company.

Lots of companies want viable ways to reduce their overhead spending. With these measures, you will see an immediate reduction in costs and profit growth – without having to make more sales. Consider doing this and other methods for your company – and watch it thrive throughout 2022.

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 Cornerstone Management Solutions.

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