No matter which sector your business is in and what your revenue levels or profit status is, you would want to keep a handle on costs. If you are making a decent margin on your service or product, but not sufficient profit, your overhead costs might be the cause of this problem.
So cutting those overheads might sound like the most logical and straightforward solution to fix the issue, right? Well, not really. Unfortunately, the answer isn’t as simple as that and cutting overhead costs indiscriminately from the wrong places will only do your business more harm than good. But there are some ways in which you can cut business overheads safely, and here we look at what they are:
1. Get a Good Overview of Your Business Operations
Collaborate with your operations manager and get a concise picture of how your organisation runs. As the business owner, you know these aspects and what the key responsibilities of each of the departments are. But sometimes, in the working of a business, you may leave the intricacies to the individual managers, and they might have a different perspective of the situation, which can help you get into problem-solving mode. If you have an organisation chart, that’s what you should be using as a base-point.
2. Identify How Much Time People Are Spending On Various Tasks
You would need to meet each employee individually, and most small businesses don’t have too many employees, so it’s doable. In case of a larger business setup, where you have more employees filling similar roles, you can also meet with a reasonable sample group of those employees instead.
- During these meetings, ask your employees how they spend all their time at work.
- Have them lay out the task they do and exactly how they go about them.
- Ask how long it takes them to tackle each task and the frequency at which they perform the task.
- If their estimates seem unclear or ambiguous, dig deeper, ask penetrating questions & request to see their work products.
The aim is to make sure the estimates are as accurate as possible. In most cases, you will find that the overall sum of the time your employees are completing their tasks is significantly less than the total number of hours you pay them for.
3. Determine how many hours it should take to complete each task.
Once you have identified the time your staff says they spend handling each task, determine how much of time that particular work should take. You can do this by cross checking the estimates from other staff members that perform similar tasks. You might have to get these individuals together to resolve all significant differences. Call a meeting with the senior managers and supervisors to get their assessments and then find out how much time each task would take. You might just be shocked by the amount of time individual employees report spending on regular tasks.
4. Identify where you can reduce overhead
You will find there are generally three areas in which you can reduce overheads:
A. Tasks that don’t need to be tackled
You might find that some tasks just don’t need to be done or are redundant. If you eliminate these tasks, it will save your employees the time necessary to complete them. In many settings, it’s possible to centralise responsibilities, which helps to eliminate the possibility of redundant work which will also free up their time to dedicate to more crucial tasks.
B. Underutilised resources
Once you make the best estimates about how much time each task should take, and determine how much time it would take to complete the tasks with reference to the number of hours available, you would be able to identify which areas are underutilised and fix them accordingly.
C. Tasks that can be done by a cheaper resource
It’s common in many businesses that highly compensated employees spend significant amounts of time on tasks that less expensive resources can handle comfortably, with no compromise on quality. Sometimes combining a couple of senior jobs and delegating some tasks to the lower compensated resources can save you a considerable amount of money, while improving the efficiency of your staff.
D. Finalise the Steps You Need To Take
Once you have identified various possible savings opportunities, to capture those savings, you would have to reduce:
- The number of employees
- Money paid to any third parties
- Average compensation per staff member
At times, companies can achieve these by delaying new hiring even as their business grows and by not filling any vacancies that surfaces. But sometimes, you need to make difficult choices to become profitable. Following a mix-and-match of these strategies can help you break-even, move on from there and improve your profitability.
Overhead value analysis is a crucial tool for increasing profitability while reducing waste. Most often, capturing benefits requires tough decisions. If you look hard enough and are willing and able to make those tough decisions, you can generally find some ways to cut overheads without affecting efficiency. But you might need to work with a consultant to assist and guide you with the process.
For more information about how to reduce recruitment costs in our business, 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