7 Essential Strategies to Cut Overheads and Increase Your Bottom Line

Overhead costs are an unavoidable aspect of running a business. Without paying operating expenses, such as rent and utilities, wages, and administrative fees, your business cannot be up and running on a daily basis.

But that’s not to say you can’t manage your overhead costs to save a dollar or two. 

Over time, operating costs can add up—and they can add up quickly. Staying on top of overheads and making reductions stops them from eating away at profit margins.

As inflation continues to increase prices for a wide range of goods and services, many businesses are spending more and more on their overheads. To be specific, 41% of businesses have recently seen rises in their overhead costs. Reducing these payments is an effective (and obvious) way to do something about it.

So, how can you cut overheads while still guaranteeing your business runs smoothly and maintains a high standard of quality? 

In this practical guide, we’ll explore seven impactful strategies that will help your business achieve this while increasing your bottom line to boot. 

7 Strategies to Cut Overheads and Increase Your Bottom Line

The impact of overhead costs will depend on your industry. For example, your profit margins will probably be tight if you’re in retail or travel. Regardless of these circumstances, every organisation can benefit from cutting overheads.

After all, spending less on operating payments can keep your business out of the red in a time of rising prices, free up capital to invest elsewhere, and make sure that your business can grow sustainably. 

With that in mind, here are our top strategies for cutting overheads.

1. Track and Analyse Your Expenses

If you want to trim back on your overhead expenses, you need to start by having a comprehensive understanding of those expenses. You should be tracking these at all times so that you can see where your payments are going.

Once you have accurate data, break down expenses into different categories. This will let you see whether you’re spending larger proportions on utilities, wages, or leases, for instance.

You might think you pay the least for office supplies or training courses. Breaking down the costs shows you if these areas could be cut. If you identify that something like this causes costs to be higher than expected, you’ll soon know which cuts to prioritise.

This overhead cost analysis should evaluate the overall effectiveness of your current overhead expenditures. It should also try to determine the return on investment for each of your major cost drivers, allowing you to explore alternatives and identify cost reduction opportunities.

2. Optimise Your Workspace

The two biggest overhead expenses in a business are usually rent and utilities. As a lot of money is invested in your workspace, you should get the most out of it. Optimising your workspace means that you can spend less on rent and utilities in the future.

An innovative way to reduce the floor space you need to rent is to embrace flexible and hybrid working. Over the last few years, more businesses have encouraged working from home, helping to boost employee satisfaction. Crucially, this can cut overheads by allowing you to downsize your office space.

It’s also helpful to maximise the efficiency of your workspace, planning in a way that uses all of the space in your office each working day. You might want to use desk booking software, as this allows you to monitor and manage in-person work at your company and boost the ROI on your rent costs.

Increasing remote work and making the most of the physical space that you have available also helps reduce utility costs. Look for cheaper utility contracts that reflect your new working environment, as you should now be in a position to spend less on overheads such as electricity bills.

3. Implement Technology and Automation

In addition to rent and utilities, salaries are another significant overhead cost for most businesses. 

Of course, if you want to grow your organisation, then cost-cutting via workforce cuts isn’t the best solution. Instead, make the most of technology and automation to get more out of your existing workforce, supporting your growth goals without increasing wage expenses.

Automating routine tasks is a great starting point. Entrepreneurs, freelancers, and sole traders could use self-employed accounting software to reduce the time it takes to manually complete accounting paperwork. As a digital tool, it also gives you better visibility into money coming into and going out of your business, helping you identify more ways to cut costs. 

For larger organisations, automation still offers a great way to decrease your overheads. In retail, inventory management software automates much of the stock-taking process. This allows you to reallocate staff, improving the ROI that you get from their salaries.

You should also consider the impact of other forms of technology. Migrating to cloud computing can reduce the maintenance costs that come with traditional data storage systems. Virtual meeting software can also make your meetings more cost-effective, as people won’t have to travel to attend.

4. Outsource Non-core Activities

It might feel counterintuitive but moving certain business operations to external service providers can reduce overheads.

A classic example of this is IT support. Putting together an in-house IT team incurs costs in wages and recruitment. Spend a smaller amount on working with an external IT company supported by a support ticketing software and you’ll reduce costs while also providing a high-quality service.

Other non-core activities that can be outsourced to reduce overheads include: 

• Human resources 
• Customer service 
• Logistics and supply chain management
• Digital marketing
• Financial services

Of course, you’ll have to complete in-depth research on the organisations you choose before you outsource these activities. But it’s a great way to manage your overhead costs.

5. Negotiate and Reduce Fixed Costs

With utility payments, rents, and labour costs taking up a large part of an organisation’s expenses, negotiating and reducing these fixed costs is an effective way to reduce overheads and improve key cost drivers.

Begin by analysing existing contracts in detail. For example, you might find that your lease has a clause that can release you from the contract, allowing you to renegotiate a more favourable deal with the landlord. 

It’s also helpful to analyse the ROI that you get from utilities and subscription payments—there might be cheaper tiers that you can use to the same effect.

6. Implement Efficient Financial Practices

Staying on top of overhead costs requires professional and efficient financial processes. You must be able to allocate overhead costs effectively so you can measure the true cost and ROI of these in the future.

Outdated financial practices aren’t only inefficient, they can incur needless overhead costs. It’s why more businesses are adopting online invoicing software to guarantee they’re on top of financial management. 

These solutions give you real-time access to finances and automate processes that used to be done manually. Not only does this reduce operating costs in payment processing, it also speeds up processing so you’re paid on time.

Efficient financial management means having a more accurate image of your business expenses. This is key to successfully analysing overheads and knowing which areas you can cut down on.

7. Continuously Educate Yourself

Finally, you need to consider that managing overhead costs effectively requires you to have an up-to-date and in-depth understanding of the business landscape in which you operate. After all, some of the steps that we’ve explored in this article, such as using automation software and moving to remote work, are recent developments that are continuing to evolve.

There’s no way to know what methods will allow you to reduce overhead costs in the future. But continuous learning is the best way to stay on top of the most effective business practices and reduce overheads in the long term.

It’s also important to stay educated about the state of the overheads in your business. Regularly track and monitor your balance sheets and analyse the impact of every cost driver. This will allow you to recognise the weak points in your expenses and create targets for improvement.

Key Takeaways

Reducing costs is entirely possible. With the right strategy and careful management, you can cut overheads and improve your bottom line, making your business financially sustainable and supporting your growth goals.

In this article, we’ve shared strategies for reducing overhead costs. But rather than making drastic changes and implementing all seven at once, start by exploring a few that you feel are most relevant and achievable for your business. Monitor the impact and make adjustments where needed. Before you know it, you’ll be improving your profit margins!