Running a business is expensive business, and more so now than ever. Companies across the country have been buffeted by harsh economic conditions, from several near-recessions to landmark hikes in essential costs. Indeed, for many failing businesses in the UK, it is the rising cost of overheads that has represented the final nail in the coffin. As a business, new or old, what are some ways you could reduce your own overheads and improve longevity?
One of the more essential sets of overheads with which your business contends is utility costs. Energy usage is a major cost to commercial enterprises, and particularly so with today’s mercurial energy market – whether powering industrial equipment or simply heating administrative office spaces. There are several ways to tackle these rising costs, but the approach has changed in recent months.
Previously, it would be relatively easy to negotiate a new quote with a new energy supplier, but as domestic residences have discovered in the months since late 2021, there are few competitive rates on the market at present. As such, more direct routes to energy savings are necessary. For example, you might install more effective insulation in the walls of your office to improve the heat retention of office spaces. For industrial processes, you might replace older equipment with energy-efficient alternatives – or even invest in alternative energy sources like solar to reduce reliance on the grid.
Variable overheads are overheads that change with respect to business conditions. We have already encountered one such variable overhead, in the form of utilities. But there are other variable costs that change with respect to the productivity or success of the business, raw material costs chief amongst them for manufacturers. Labour is a key example of a longer-term variable overhead, where employee expansion is necessary to meet fresh demand or facilitate growth.
When it comes to tangible variable overheads like materials, addressing the supply chain would be the first port of call. Are there ways to minimise middlemen, or are their cheaper suppliers that could reduce cost-per-unit?
With respect to labour costs, there are several considerations, an often-overlooked one of which is the cost of turnover. Retaining employees is not an inherently damaging cost where profits are guaranteed, but the cost of replacing leaving employees can balloon if turnover is high. Ensuring onboarding processes are on point, and that good work is recognised, can have major financial benefits in this regard.
Finally, there are also key costs associated with core financial processes, from payroll management to the organisation of tax payments and the cost of regular independent audits. For businesses with a more established base, bringing roles in-house as opposed to outsourcing tasks can be beneficial long-term; for start-ups with a skeleton crew, the opposite can be true.