Managing Your Business Overhead Cost

Written by NaijaEcash

Topics: Entrepreneur, small business

How To Cut Down Your Business Overhead Cost

Managing business overhead cost can be critical for the continued growth or survival of your business. Of recent, I observed that many large corporations and even small scale businesses are struggling to reduce their overall operating cost or overhead by laying off staff en-mass. To me that is not the right way to go. Using your employee as the sacrificial lamb to combat the present economic depression may actually get you into more trouble. When you lay off employees because you want to reduce business overhead expenses, you are actually sending a wrong signal to the rest of the workers and possibly your clients. There are better ways to reduce business overhead cost and avoid wastage. I’ll share some tips with you.

Get Your Employee Involved in Managing Overhead

The very first step I recommend is that of convening a meeting with your key employees in attendance. Explain to them what you want to achieve and how critical it is to the survival of the business and the well-being of the entire workforce. You will be surprised at the kind of suggestion such brainstorming session will produce. People will be eager to make suggestions and may even volunteer to take some sacrificial steps which they would have resisted if suggested by you. Find below some suggestions I got from such a session.

Cut Communication Cost

I was surprised when a staff analysed the unnecessary waste been made in the name of communication. He explained that often times, it is cheaper and more effective sending a message via SMS instead of making an official call. Have you taking time to analyse how much you spend on communication and see if it is justified. Nigerians are known for wasting money on communication due to our culture that demands that you show courtesy by exchanging greeting or pleasantries before stating the matter that warranted the call. SMS helps in reducing such waste.

If you have a message that needs to be detailed and is quite long, then use e-mail. It is cheap and more effective than verbal conversation when passing technical information. If you need to get feedback as you communicate, then you can employ the use of instant messenger e.g. Yahoo Messenger. This is very cheap and as effective a phone call. If you are not comfortable typing, you can make a PC to PC call using SKPE or a similar online facility.

Cut Energy Costs

How much do you spend on energy (electricity)? With the epileptic power supply in Nigeria, the cost of running petrol or diesel generator is a major headache to many entrepreneurs. Even though this cost cannot be totally eliminated, the truth is that it is a major avenue for waste. The fuel bill is killing several small businesses as they are operating at a loss. You should take time to check your cost in this area and look for ways of reducing the cost. Also look for ways of plugging loopholes for fraudulent practices by dishonest staff and fuel suppliers. From experience, I have discovered that often time, staff in charge of generators connives with fuel suppliers to defraud businessmen. Put measure in place to ensure that you get the quantity you paid for and it is not being stolen after delivery.

Better Inventory Management

Carrying large inventory can place undue burden on your business as you are forced to pay for space and security of such. On the other hand, not having sufficient inventory to meet client’s request can send potential business to your competitors. So, there is need to get creative and balance the act of inventory management such that you don’t incur unnecessary cost as you overstock or lose business deals because you run out of stock.

Cut Down on Office Stationery Expenses

Office Stationery cost  can be a silent waster for your business. The tradition of making photocopies of every document tagged “important” for distribution to different department has to be stopped. Instead of making photocopies and sending a physical memo, it is cheaper and neater making scanned copy of such documents and sending it via email to the various people. This will cut down considerably the fund being wasted on Photocopying papers, box files, filing cabinets etc. E-paper is a good cure for stationery wastage.

Watch Your CashFlow – Borrowed Fund Is Expensive

Your cashflow is crucial at this period. Gone are the days that poor cashflow management can easily be covered up by taking overdraft from your banker. Since the financial institutions are having the searchlight on them, they have become very shrewd and cautious in lending these days. A banker told me of recent that her bank cannot give out any credit facility until further notice. So, if you mismanage your cashflow and get fund tied down unnecessarily, you will be forced to borrow at a high interest rate in other to conduct your day to day business transactions. That will negatively impact on your business as you will be loosing much of your profit to your banker via interest payment.

Review Your Marketing Expenses

Having large budget for traditional means of advertisement may make you look big for a while, but it can also send you out of business. Believe it or not, the internet have a greater coverage and is cheaper for advertising your business even at the local level. Gone are the days when people spend hours listening to radio or watching local Television. So many spend hours working or getting entertained online. So it is time you start considering changing your marketing approach.

Manage your tax using a professional

After doing all the above, you will still loose much if you don’t get good tax advice. So many Nigerian entrepreneurs who have been ignoring tax are now waking up to the rude shock that they are heavily indebted to the Federal or State governments. Gone are the days when government doesn’t bother to check if small scale businesses are paying their taxes or not. With the present economic crisis, state governments are employing the services of TAX consultants to ensure effective tax collection. A look at the Nigerian tax laws shows that a businessperson who is not properly advised can loose much of his/her income to double taxation. So, it is advisable that you get a professional tax consultant or accountant to give you advice and help prepare your tax returns. Don’t wait until FIRS or the state tax man comes after you. It can be disastrous.

Well that’s my little advice for you. Instead of using your employees as the sacrificial lamb, get them involved in reducing your business overhead cost. That way it will be a win-win situation and your business will be better off. See you at the top. Cheers.

7 Comments Comments For This Post I'd Love to Hear Yours!

  1. Daniel says:

    I agree totally…..very revealing. January’s edition of Harvard Business Review noted that traditional expense model’s are divided into Capital Expenditure(CAPEX) and Operational Expenditure(OPEX). They suggested that instead of cutting down on Staff, Training, Research and Development, concerted effort should me made by all stake holders in cutting waste. They mentioned that Staff, Training, Research and Development were crucial expenditure for the long term strategic and sustainable growth of the business. They called the expenditure relating to these Staff,Training, R&D ; Strategic Expenditure(STRATEX).
    The losses associated with downsizing is much more than we have even analyzed in the past. Consider the money, Time and corporate resources that was spent in training existing staff. All that goes when downsizing. Consider how much money, time and resources that must be spent in the future to recruit and train fresh hands. The time, cash and wastes that would come while fresh hands are trying to get acquainted with you company. Downsizing could result in dissatisfied staff sabotaging existing systems. Downsizing changes the team dynamics of your organization and could result as you mentioned earlier in the company being worse of than it was before.

  2. Paul says:

    Hey Naija enterpreneur,

    its been a while, am just only going to say merry christmas and happy new year to you and other readers on this forum.

    Hope to be back next year to make more comments on this blog.

    Happy yuletide celebration

  3. gilbert says:

    Yes, I agree. There are a lot of ways to earn substantial
    passive income but as you’ve said, it takes hard work and I believe – time.

  4. Some businesses don’t need to have their generators running all day. I advice scheduling or making a list of things to do that require electricity and then only turn on the generator when you’re REALLY ready to accomplish those tasks. That way you spend less on diesel.

    As you rightly say, business men get conned by staff in charge of generators. Trust my mum to cut your salary or better still send you packing when she catches you red-handed in the act of lying or committing the act itself.

    My uncle lost millions of naira in a fire recently and instead of laying off workers, he simply made it known to them that the business was facing hard times and all hands were needed on deck. One misbehaviour and you’re OUT! Now that’s a better way of letting go of employees instead of mass retrenchment.

    So far so good, First Bank of Nigeria seems to be the only bank giving out loans @ the moment. So I hear through the grapevine.

    P.S: Hope you had a lovely Xmas. Happy New Year in advance.

  5. Chukwu Wisdom says:

    The article is quit educative.
    Let us remember not to employ staff not needed. We might consider contract or adhoc staff for any project, while we maintain the few necessary core staff for daily business transaction.

    Make sure that diesel is consumed for something worthwhile. To take care of fraudulent staff, we should know the relationship between volume of diesel and time for consumption.

    Thank you.

    • NaijaEcash says:

      @Chukwu
      Thanks for your contribution. Really, it is little costs that are not paid attention to that causes great wastage in many small businesses. The best way to start managing overhead is in ensuring that the loopholes for wastage are carefully blocked.

  6. Bcmfranchise says:

    Hey
    Nice Points. At the time when you are facing hard time in your business small savings can help a lot. Smart way of doing way business is always looking for any resource being misused or being wasted.

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