7 Ways to Reduce Overhead Costs for Small Businesses

Overhead is a big ugly word that no business wants to deal with. However, all businesses have it and the best thing that you can do is figure out how to minimize the money you’re spending. Everyone says that you need to spend money to make money, and while that’s true, there’s also a point where you have to make smarter choices so that your expenses don’t outweigh your profits. 

A smart budget and operations strategy can go a long way in helping you cut costs. Of course, it’s also important to understand the expenses associated with running a business so that you can plan and budget accordingly. 

Overhead vs. operating costs 

Overhead and operational expenses are often used interchangeably, but the two are slightly different. Operating expenses are the direct expenses that are required to run the business on a daily basis. This could include materials, labor, equipment, packaging and shipping materials, and so forth. 

Overhead, on the other hand, refers to ongoing business costs that you would pay even if you weren’t producing or selling things. These are your usual bills like rent, salaries for management, insurance, technology, utilities, etc. There are also two groups of overhead costs:

1. Fixed: These are costs that do not change. Rent, insurance premiums, taxes and government fees, and other fixed expenses fall into this category. If the bill is the same every time, it’s a fixed cost. 
2. Variable: These costs are ones that will change with your business. Shipping, legal costs, office supplies and equipment, marketing expenses, and other items will go on this list. Having a budget is a great way to rein in variable overhead expenses. 

How to reduce overhead costs 

Now that you have a better understanding of what overhead costs are, let’s look at seven surefire ways to reduce them. That way, you can spend money on things that matter or add more to your bottom line. Pay special attention to our last tip on outsourcing—you can get support for everything from outreach campaigns to sales to finance and more. 

#1 – Hire an accountant 

Especially for startups and small businesses, an accountant is essential. A professional that understands business finance can make sure that your business is on track and not spending more than it should. As a bonus, it can also give you a chance to learn more about finances as you talk with your accountant about various activities and business endeavors. 

#2 – Reconsider your business space 

If you’ve got a physical business, you might be paying for something that’s far more than what you need. Commercial rent and office leases make up a huge part of the overhead for your business. Consider whether you can find a smaller space that costs less, switch locations to a region with lower rent costs, or even consider offering hybrid remote work to your team so you don’t need to pay for the space to house them. 

#3 – Trim the fat 

You need employees, but you may not need as many as you think. As a small business owner, it’s easy to get overzealous and start hiring a full team of people that you might not really need just yet—but they’ll be there when your business grows, right? 

If you’re worried about overhead, consider whether you can downsize or limit the employees that you have. You can always add people later when you need them. Another option is to find employees with versatile skills so you can use internal talent to fill gaps in your team. 

#4 – Check your carbon footprint 

Going green is not just trendy. It’s smart business. Find ways that you can reduce your expenses by making eco-friendly upgrades. For example, switch to LED bulbs in your office, upgrade to smart outlets or use power strips to save energy. Consider paperless documentation and encourage your teams only to print what’s necessary. 

As a small business with limited resources, you may not realize that you can make a lot of great changes that are going to help the environment and your bottom line, but it’s worth investigating. 

#5 – Review contracts and agreements 

If you’ve been in business for a little while, you might have agreements and contracts that are outdated and costing more than they should. Take the time to review all of your contracts periodically and make sure they’re still suited to your needs. If you’re paying too much, renegotiate the contracts or cancel agreements you no longer need. This could include vendor contracts, client agreements, and other deals or relationships where you are paying people for services. 

#6 – Use free tools and resources 

The Internet is full of free and cheap marketing and business management tools. You can find a full tech stack that costs a fraction of what you used to spend on a single software program, making it easy for you to run your business without running your budget into the ground. 

Check out free:

• CRMs 
• Keyword research tools
• Analytics platforms
• Marketing platforms 
• And other resources 

No matter what you need for your business operation, you don’t have to invest thousands of dollars in your tech stack anymore. 

#7 – Outsource 

In business, outsourcing is a huge budget-saver. There’s no need for you to do everything in-house these days, and you might not have the resources available to make that happen. That’s okay because there is a better option: outsourcing. There are teams available that can handle everything from prospecting and outreach to follow-up, and everything in between. The accountant isn’t the only outsourced resource that you can benefit from. 

For example, if you want to improve your outreach campaigns without spending a fortune on in-house marketing staff, you can outsource to the virtual receptionists at Smith.ai. In addition to providing a full team for outreach, we can also offer support for lead intake and appointment scheduling while acting as your 24/7 answering service so that you never miss an opportunity. 

To learn more, schedule a consultation or reach out to hello@smith.ai. 

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