Anyone running a business will tell you that there is no escaping the expenses your business will face. Expenses come in various forms; however, operating and non-operating expenses are the two most common categories.
In its simplest form, operating expenses are the costs a business acquires through its standard operations, such as payroll and rent. Non-operating expenses, like restructuring costs and inventory write-offs, are unrelated to a business’s daily operations. However, operating and non-operating expenses can affect a business’s financial health.
Higher operating expenses result in lower profits. This article examines the four common operating expenses that can often directly impact a business’s profitability and practical tips to reduce these costs and increase your organisation’s bottom line.
1. Lower Utility Costs
Overhead expenses are the costs of running your business that are not directly related to providing a product or service. These expenses can be fixed, such as paying for a fleet vehicle lease, or variable, like delivery costs or commissions. Any business’s highest variable overhead cost is its utility expense, including water, electricity, and heating consumption.
You can reduce water and electricity consumption and lower heating costs without disrupting your business operations and taking drastic measures that break the bank. Here’s how:
How to Reduce Electricity Consumption
- Switch Energy Suppliers: Switching energy suppliers and finding a better energy tariff can save your company money. Use a comparison website or energy broker like Business Energy Comparison to help find a supplier that suits your business needs and budget.
- Conduct an Energy Audit: Energy Audits are designed to help businesses see how much energy they consume and where they waste. An auditor will identify areas for improvement and recommend ways to reduce consumption.
- Upgrade to Energy-efficient Lighting: Switching to LED lighting can save your business up to 80 percent of their energy bills. LED lighting saves energy and lasts twice as long, reducing regular maintenance and replacement expenses.
- Unplug Equipment: Devices, equipment, and appliances plugged in at the wall socket continue draining energy even if switched off. Unplug devices or invest in smart plugs or power strips that cut off energy-draining machines when not in use.
How to Reduce Water Consumption
- Install Water-efficient fixtures: Replace old faucets with aerators or low-flow taps to reduce the water flow, and replacing toilets with dual-flush toilets saves thousands of litres of water a year, providing a large opportunity for saving money within your business whilst also being more sustainable.
- Check for leaks: Regularly check your plumbing for leaks. Small drips from a tap can add up to 20 gallons of water, resulting in a costly utility bill.
- Switch to water-efficient appliances: Replacing outdated appliances like a dishwasher with a water-efficient one can save a commercial restaurant up to 3000 litres per day. Newer water-efficient appliances are also energy-efficient, which reduces water and energy consumption, saving your business money.
- Install a smart water meter: A smart meter lets you track how much water your business consumes, showing if you leak the property, giving you control over how much you use and spend.
2. Automate the Payroll Process
Payroll is one of the biggest business challenges for many, and one mistake could impact an organisation’s trust and reputation. Payroll expenses go beyond salaries and tax deductions. It also includes, amongst others, employee benefits, bonuses, and paid leave. Automating the process is one way to reduce costs.
Your business can easily avoid the hassle of manually managing payroll with spreadsheets simply by using an automated payroll system to pay employees accurately and on time. This leaves room for your payroll administrators or finance team to concentrate on other company areas, increasing productivity.
Using an automated payroll system saves your company money by reducing the need for employees. It also streamlines the entire payroll process, reduces the chances of human error, and simplifies taxes. It provides the opportunity to increase business profits and cut operating expenses. Companies that automate their payroll process can significantly reduce their operating costs.
3. Switch to The Cloud
Businesses can avoid investing in physical infrastructure using cloud computing, such as servers and data centres. You can use the infrastructure offered by cloud service providers instead, which lowers initial and ongoing costs. Infrastructure and hardware management are simplified by reducing initial capital costs and ongoing maintenance costs.
Pay-as-you-go pricing is a model that most cloud service providers offer. This can significantly reduce costs by only paying for the services you actually need and use. Without making long-term commitments, your business can change how you allocate resources based on usage. This ensures a reduction in your monthly overhead and operating expenses.
4. Renegotiate Communication Expenses
Every business needs effective communication tools to succeed. However, the costs associated with communication, such as those for fixed telephone lines, business telephone equipment, and internet access, can add up quickly.
Companies should review their contracts and negotiate with service providers for lower rates or look for discounted packages to reduce communication costs. To ensure you get the best value for your business, look for service providers willing to negotiate and align with your business needs.
Technology is moving at a rapid pace. Instead of investing in expensive traditional phone systems, companies might consider using Voice over Internet Protocol (VoIP) services. VoIP uses the internet to place calls, frequently less costly than conventional phone lines.
Reducing your business’s operating expenses is crucial but doable to boost profits. The only way to yield higher profit margins is to find areas where overhead can be reduced without sacrificing the company’s operations. For additional insight, news, and tips, visit https://www.noobpreneur.com/.