Top Three Overheads in Business

So we know we are living in “interesting times” some businesses are having a disastrous time some on the other hand, are doing quite nicely. What makes the difference can be difficult to tell. What is clear is that all too often owner managers don’t appreciate the impact of overhead on a business.

Ask yourself the question: “what are the top three overheads in my business? “ and “ what can I do to cut them to help us through?” In national terms the top three are usually staff, premises and IT - not always in that order and not always (but usually) those three.

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1. Staff Overhead

Any business that employs people will, in the last six or twelve months have looked at staffing levels; asked “Are we getting value from our staff?” “Can we trim our head count?” Cutting a percentage of your staff will have an impact on overhead but at what cost to the business?

2. IT Overhead

Cost savings can be simply by putting off planned upgrades or cutting maintenance agreements but again, if you need computing, you need it. It is vital to most businesses.

3. Premises Overhead

Premises a Fixed Cost?

Finally, premises – the assumption all too often is that premises costs are fixed costs and of course in one sense they are. But actually closer inspection may reveal just as much opportunity to save cost as with the other two overheads and perhaps not with the same detriment to the business.

Ensuring that the business buys the cheapest utilities is a basic cost saving measure.

A conversation I had with a business this week the comment was that the landlord was taking more profit out of the business than the owner/director. That situation has to change.

Lease re-negotiation - Sharing the pain of recession with the landlord

In just the same way as with staff, it is vital that the premises are “working for the business” that they give value for money. If that is not the case then some reorganisation is needed. Of course the business is constrained by the lease that was negotiated at the outset and that negotiation may not have foreseen these dire times. At the same time though, (thinking of the comment about the landlord getting all the profit) he may be conscious of not killing the goose that lays the golden egg or letting the ship sink for a ha’p’th of tar.

If you can construct a well argued and convincing case, a landlord would be foolish to refuse to collaborate in enabling a business to continue and instead presiding over its failure due to an inability to meet all its commitments. In other words, the landlord should be prepared to share the pain of recession with its tenants in order that more of them survive and continue to be able to pay the rent in the longer term.

Importance of getting your lease agreement right

The simplest thing is to have rent payments monthly not quarterly. This is basic and is already being talked about. It is important to read and understand the opportunities the lease offers; understand the motivations of a landlord; and produce a realistic argument. Going off half cock or misunderstanding the lease can have undesirable consequences. But get it right and there is much to be gained.