Managing a small business means struggling constantly to keep costs down. That might mean working from home, barely drawing a salary, or minimizing what office supplies you buy. For more consistent budget management, though, your business needs to find ways to cut overhead costs. But before you can make any cuts, you’ll need to identify your primary forms of overhead.

Small businesses spend the majority of their budgets on these 3 expenses. Understanding how these costs are distributed will help you make the most of your limited funds.

Employee Costs

Employees cost money – that much is obvious. But when you hire staff, even at an hourly rate, they actually cost much more than that base value. That’s because in addition to their pay, when you have employees you’re also covering vacation and sick time, hiring and turnover costs, and training and staff development. 

Obviously these costs aren’t optional; people won’t come to work for your business if you don’t offer basic benefits, and hiring will always cost money. However, many businesses have found that by working largely with contractors and drafting broad job descriptions to start, they can at least minimize how many employees they need to operate.

Insurance Policies

No matter what kind of business you operate, you’re going to need insurance, but how much and what kinds depends on what you do. For example, you’ll need general liability insurance and property insurance if you operate any kind of office. More established companies may also want to invest in business interruption insurance, but that comes further down the road.

The good news is that you may be able to reduce staffing and insurance costs in one motion by contracting with other operations, as noted above. For example, if your business demands heavy physical labor like freight handling, you would ordinarily need workers’ compensation insurance. If you contract out to a freight handling company, those workers are covered by their employers’ insurance policies, rather than yours. You just play the flat cost for services rendered.

Office Space

How much space does your business really need? Do you need a single office? A storefront? Conference rooms? Until recently, accessing office space, especially larger meeting areas could be pricey – and then you needed to equip it with desks, computers, copy machines, and the like. Because of recent changes to work arrangements, though, your business should carefully evaluate your office space use, cut back where possible, and consider opting for coworking space instead. Giving employees the option to work remotely can also help reduce office space costs.

You can get a clearer sense of your business’s overhead costs by reviewing monthly budgets and seeing what the largest recurring expenses are. Overhead costs are persistent and consistent, but with careful budgeting, you can keep them to a minimum until your business is more prosperous.

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