If you are looking to increase your company’s profits, a good place to start is to lower overhead costs. Since these are ongoing operating expenses that aren’t directly tied to sales, you may think that these costs are inevitable and needed to run a business. However, if you really dig deep, you may find that some corners can be cut and some crippling costs may be eliminated.
A major portion of your overhead costs are employees, so assessing your people is a great place to begin when cutting costs and ultimately improving your bottom line.
It’s easier to handle a bunch of different tasks with a big team of helpful employees, but having too many employees increases costs. If you are just starting up your new business, don’t underestimate how much wages can add up. That’s why many start ups require a low number of people who have skills in a variety of fields.
Employees are typically the largest expense to a company. Start with the minimum amount needed and work your way up as your business expands to help keep overhead costs as low as possible.
Assess Your People
Before you can decide where you need to make cuts in your staff, you must first assess all of your people to see how the company runs and the key responsibilities of each department. The goal is to understand how senior people think the company operates versus how it operates in reality.
Meet with every employee (or a reasonable sample of employees if you have a large staff) and identify how they spend their time. What tasks do they do? How long does it take them to complete their tasks? If their answers don’t add up to the hours they are actually working, you must dive deeper to see where you can make cuts.
Now that you know what your workers are doing and how much time it takes them, you must determine the amount of time it should take to complete certain tasks. **You can then compare the estimates to see where employees are lacking efficiency. Once you’ve done all the research and analysis, you are ready to make tough calls.
Take Advantage of Reduction Opportunities
After assessing your employees’ duties and completion time, you may find some tasks that are redundant or unnecessary. You can simply eliminate these tasks to allow workers to focus on higher priorities. You can also outsource mundane or remedial tasks that are completed by highly paid employees so their skills can be used elsewhere. You will not only have increased efficiency within your company, but also you will save money in the long term.
And if you find that you are in fact overstaffed, it’s time to trim the fat. You’re not in business to make friends, and chances are there are members on your team that are under-performing. As painful as it is to fire someone, it is probably best for the company’s growth—think about it, it’s better to fire one or two employees and have the company remain solvent than fire everyone because it’s no longer a profitable endeavor.
Whether you decide to delay hiring or cut back on the number of employees, starting with people is the best way to make a big impact on overhead costs and create a profitable company. Just remember, if you’re going to let people go, do so in a way that isn’t detrimental to the morale of your company.
Jason Galaif, aka The CPA Exam Guy, is an accounting all-star who saw more of the exam than any prodigy would ever want to—he failed several sections and had a couple of passed exams expire. He now uses his extensive experience and knowledge to help would-be CPAs pass with in depth cpa prep course reviews and study tips.