Keeping overheads under control

by | Apr 20, 2017 | Accounting, Bookkeeping, Small business, Start ups, Uncategorised

Balloons overheadHere at Finance Department we like to be on hand to help with all aspects of expert financial advisory. We recognise that cost management may not be regarded as the most glamorous aspect of the business by most.  Which is why we are here to look after matters for you: we understand that you’d sooner be implementing a road map to help grow the business, or spend the time marketing in order to secure more leads and opportunities for expansion.  However, keeping a sharp eye on costs, and redressing discrepancies as needed, can help you free up your cashflow for control and expense of the more exciting aspects.

Regimenting receipts, dashing after debts and recovering bank statements can only mean one thing: the end of the financial year is nigh! We daresay your accountants are asking all manner of questions which leave you tearing your hair out.

By achieving a better understanding of how your overheads affect your business, you can break down these expenses and analyse them critically. This helps you to identify ways to combat potential issues and stabilise your cashflow.

In business, there are some recurring costs, which are core essentials, but we often find it amazing how others creep in over time, sometimes until they pervade the overall performance and cashflow.

It can be a real eye opener to focus your attention on distinguishing between what a sale costs and what it costs just to keep your doors open.  This can be broken down further and overheads can be segmented in a variety of different ways, dependent on the nature of your business.  Once you have established what your overheads are, and if your business is divided into different departments, you can allocate overheads more accurately to the different departments; you can look at ways to keep these maintained at a low level.

For example, an engineering business might look at overheads as split between manufacturing and administrative overheads.  Overheads in the manufacturing category are general costs associated with the efficient running of the factory to make the engineering goods.  As such, they’re costs associated with production, but aren’t usually attributable to a more specific product line. In this category the devaluation of factory equipment, the quality control, rent and maintenance, plus utilities specifically associated with factory operation are all included.  Conversely the administrative costs are essentially linked to the provision or improvement of goods or services. These can include front office administration and sales, marketing, procurement of office supplies and the power and utility bills.

Each of these sections can be broken down further so you can understand exactly what is being spent where, and negotiate ways to keep these costs down.

Redefining and segmenting these systems for tracking and analysing costs put you in a better position for forecasting your budget, and identifying and predicting problems as they arise, helping you decided if you need to adjust prices or try to expand your profit margins.