Scroll Top

4 Common Overhead Cost Management Mistakes – Steps to Avoid Them

Most companies struggle with managing their overhead/general and administrative costs each year. As a business owner you make every effort to keep your overhead expenses low. However, there are a number of mistakes that small business owners make when managing overhead costs. Let’s take a look at what these are and how they can be avoided in the future:

#1 Excessively focusing on finance spend

Finance teams often emphasise too much on their own expenses, despite the fact that finance accounts only for 14 percent of an average company’s general and administrative costs.

Avoid this mistake

Make an effort to take a broader view. While it’s important to lead by example, your finance team should be focusing more on what they are able to for the business at large. For instance, it might be worthwhile to spend a little extra in finance to enable them to analyse the G&A cost of your company. This will help you identify which areas require greater efficiency and which ones may require additional budget.

#2 Looking for cheaper solutions

There are times when businesses focus too much on their cost rather than the work that’s being funded. While conventional cost reduction options can seem attractive, cheap doesn’t always mean best. If you focus only on the cost, you may end up compromising value creation.

Avoid this mistake

It’s important that you always keep the benefit aspect of any cost benefit analysis in view at all time. Make it a point to focus on the quality as well as the volume of work that are performed by different functions. If the value to your business is worth it, it can be a good move to spend a little more. Something that seems like a major expense in the current situation can prove to be extremely beneficial to your business in the long term and that’s what you should be aiming for.

#3 Limiting shared services to your back office

It’s a proven fact that a number of back office processes such as travel expenses and accounts payable can benefit significantly from shared services. However, there are a number of other processes including financial reporting and general ledger reporting that are being shifted to shared services as well.

Avoid this mistake

It’s never a good idea to limit the manner in which centralisation is used. When you are managing your business’ performance and functional cost, using shared services offers significant benefits in quality as well as cost. At times, certain front office activities (where internal customer interactions occur), can benefit from this type of shared services approach.

#4 Relying excessively on outsourcing

Many businesses now rely on outsourced services to improve performance and reduce costs. However there is some data which indicates there is no connection between outsourcing functions and better performance or lower costs.

Avoid this mistake

It’s important that you be selective. When you are trying to address a performance or cost problem in your business, it’s important that you don’t solely rely on outsourcing. Be a little prudent and cautious and plan well; outsource only certain segments of the process rather than the entire process.

When you are looking to reduce overhead costs in your business, the best approach is to take a long-term view rather than a short-term one. For effective and sustainable cost reduction strategies & efficiencies  that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.

Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777

Leave a comment