Being a business owner, I’m pretty sure that you are constantly looking for ways to cut overhead costs. After all, it’s not like everyday is a good day for business. You have to save for the rainy days so you’ve got to keep every extra penny. This is how real entrepreneurs think.
But hey, what are overhead costs anyway?
Defining Overhead Costs
Overhead costs, which we will be referring to as OC going forward, are expenses incurred to operate a company. More often than not, these expenditures cannot be directly associated with any unit which means that they are either shared or hard to quantify (read more).
What are examples of these expenses, you ask?
Well, for one, we have utilities. While there are certain ways to allocate utility expense, say, dividing the total cost to the total number of departments with respective offices in your company, it’s still a cost that’s unavoidable. Not to mention, there’s no telling which departments take up the most use of the utilities; plus there’s also the general areas to consider like hallways, the pantry and lounge (if any).
Another reason why utility expenses like electricity, plumbing, and even maintenance work are considered overhead costs is because they do not necessarily generate income. To be more precise, the rate of utility expense cannot be measured against income generated. For example, your electricity bill is more or less the same as the last months in spite of a plummet in sales. After all, your company needs to use power regardless of the influx of work or customers.
The same goes with employees’ salaries. Amount of work does not necessarily equal amount of pay. There can be little to no productivity observed and yet, you still have to pay the agreed amount as per contracts. Unless, you decide to outsource work on a per project basis of course.
Anyway, overhead costs are usually the cause of ruin for many establishments. And it can be a threat to your business too, if you’re not careful.
So given than OCs are expenses you can’t get out of no matter what, payables that you have to spend on at least to some extent, the only solution you must seek is to bring the total costs down to its minimum. You can achieve this through thorough planning and a little innovation. Visit https://www.dummies.com/business/operations-management/how-to-plan-fixed-overhead-costs-in-cost-accounting/ and other websites to learn more.
You can start with one of the most basic and overlooked cost in your place of business: Lighting equipment.
It’s Just Lights, How Expensive Can It Be?
If you’re still using incandescent bulbs, you’re wasting a good ton of money. You probably don’t notice it, however, because it’s such a small a thing. But a small increase in your electricity bill can accumulate overtime. Not to mention, there’s replacements to worry about.
In order to get a better understanding of this, you have to think of the bigger picture. Take a look at the long-term impact of a single bulb.
An Incandescent bulb’s lifespan generally lasts up to 1000 hours. This is assuming that you’ve got the cream of the crop; the best of the best. Now, each incandescent bulb would cost you around $1. Extremely cheap, I know! But say you use the same type of bulb for the next 10 years, you will need a total of 88 bulbs to cover that amount of time. That means spending a total of $88, inflation aside.
If you use LED lighting, like what E-Conolight LED lights offers for example, a single bulb may cost as low as $8 promotional price (Yes, a few years ago, the price of a single one is around $100 but see how affordable it is now!). Its lifespan reaches up to 25,000 hours. In a span of 10 years, you would only need to change the bulb 3-4 times which costs a good 24 -32 dollars. Again, this is assuming inflation fails to do its handiwork. This means that you roughly spend just 30% of the total amount you paid for the incandescent bulbs.
Now, how many bulbs are you using in your company again? I trust that you can do the math from here on out.
Also, this is just calculating the immediate savings you can get when you upgrade to LED lighting. I haven’t even told you about the electricity savings you can get since LED consumes far less electricity than other cheap bulb! But then again, let’s talk about it another day.
Simple innovations and upgrades like these can really go a long way in limiting your overhead costs. Be sure to give it some thought!
