High overhead costs decrese profits
Overhead costs are the costs of running a business that are not directly related to the sales of the company’s product or service. Examples of overhead costs are: rent, phone bills, utilities, buying stationary, maintenance and repair of IT and office equipment, administrative staff salaries, etc.
Sometimes, the overhead costs can surpass the comapny’s turnover. Very high overhead costs can cripple your company’s cash flow.
Overheads are harder to change because they are usually fixed payments. These costs will continue to affect your cash-flow ’till the day action is taken.
Luckily, there is a solution to the problem, but it requires constant monitoring and if necessary. immediate action-taking.
It is easier to monitor overheads, once the company has a confirmed budget. The budget indicates the company’s desired turnover with its costs, and the profit. It’s important to be careful not to make too sharp budget cuts as this approach could have an adverse effect.
In reality, each company should review its costs on a regular basus to ensure that costs are under control and within acceptable limits. At the beginning of each month, make it a new habit to review the company’s previous month’s sales results and the related costs. If the spending (especially overhead costs) have started to increase, you can take immediate action and make necessary changes. Never forget that each small cost mounts and can therefore a threat to your enterprise.
If you felt this topic sparked your interest and might be helpful to you and could use help with regular cost control in your company, then please take a closer look at SISIFLOW tool, which will easily help you to create a budget and control your costs. Should you need further help with financial arrangements, consider working with SISI Finance’s financiers and/or our other financial professionals to help you identify the problems you might have and how to best solve them.