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Don’t let the ‘overhead costs’ bring you down

DON’T LET THE ‘OVERHEAD COSTS’ BRING YOU DOWN

Overhead costs something that hangs literally over entrepreneurs heads, you cannot ignore them but you most definitely can reduce them.

What exactly are these costs? Remember those fancy color printouts that cost Rs. 1000 for that conference meeting? Or those reimbursements for phone bills, or even that hefty rent you paid for that fancy meeting room? Seems insignificant, but is NOT! Overhead costs are those costs associated with running a business and can’t be linked to creating or producing a product or service. These expenses are incurred to stay in business, regardless of its success level.

Different companies have different overhead costs depending on the nature of their business But the most common costs include:

  • Rent
  • Utilities
  • Insurance
  • Salaries that aren’t a job- or product-specific
  • Office equipment such as computers or telephones
  • Office supplies

Why are these important? Because they make or break your profits to some level. When business is running slow, cutting overhead costs is probably the easiest way to reduce losses and bring your business to profitability. Its simple logic: Raw materials and things necessary for the production of a product or service bring revenue so they cannot be cut down that’s why the additional costs need to be trimmed.

Here’s how you can reduce overheads (explained in numbers) :

17%: According to a report by Towers Watson — 2015 Asia Pacific Benefit Trends —17 percent is the number of Indian companies, which participated in the survey that have failed to evaluate how much they spend on employee benefits. The report also suggested that 30 percent of Indian companies spend over 20 percent of their payroll on benefits.

90%: This is the amount by which costs allocated to the management of employee tax benefits can be cut down if the process is digitized. From the few companies giving out employee benefits most of them still do everything manually right from paperwork to verification and this causes the delay in calculations, lost documents etc. Had they only digitized all this, it would reduce time, resources and COSTS significantly. Moral of the story become best friends with tech & internet. From phone calls to paperwork, there is nothing tech and the internet can’t handle. Example: For small businesses can use video chat and file sharing platforms to reduce their overhead costs Nagarro, a Delhi-based organization, recently moved its employee tax benefits to a digital platform. Earlier they would spend 15-20 hours a month on compilation and distribution of paper-based meal vouchers, but now they can manage all this within seconds, digitally.

200 minutes per employee per month: This is the average time spend just on expense management. And not to forget the resources hired for this are all just additional overhead costs.

For most SME’s handling expense management is a task. Their sales and marketing departments have a lot of business travels and on-field tasks that need to be reimbursed. At such times manually managing and tracking physical bills is a problem. Losing these bills and lack of transparency and accountability in verification is another challenge. Sometimes expense management frauds also occur and lead to company losses. An easy way to prevent frauds and expense management problems is the use of a cloud-based expense management solution which is slowly catching on in India according to this Firstpost article.

0: This will be your cost of storage and logistics if you automate payments and billing. SME’s can benefit greatly with this technique. With automation problems such as expensive integrations can be handled with great speed, scalability, and accuracy. Here are the advantages:

  • Resources will be used efficiently
  • There will be 0 costs of storage and logistics,
  • More transparency records and data
  • 0 pilferage

Although these seemed like some non-traditional ways to cut overhead costs, the more traditional ways would be consolidating processes, reducing paperwork, hiring an accountant to help you out, reviewing costs etc.


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