Anyone who runs a business will tell you that you cannot get away from the expenses your business faces. Expenses come in many forms. However, the two most common categories are operating expenses and non-operating expenses.
In its simplest form, operating expenses are costs that a business incurs through standard operations, such as salaries and rent. Non-operating expenses such as restructuring costs and inventory depreciation are irrelevant to a company’s day-to-day operations. However, operating and non-operating expenses can affect a company’s financial health.
An increase in operating expenses translates into a decrease in profit. This article describes four common operating expenses that often have a direct impact on a company’s profitability, along with practical tips for reducing these costs and improving your organization’s bottom line.
1. Reduce utility costs
Overheads are the costs of running a business that are not directly related to providing products or services. These costs can be fixed, such as fleet vehicle lease payments, or variable, such as shipping and handling costs. The highest variable overhead cost for any business is utility costs, which include consumption of water, electricity and heating.
You can reduce your water and electricity consumption and cut your heating bills without disrupting your business operations or taking costly drastic measures. Here’s how:
How to reduce power consumption
- Switch Energy Supplier: Switching energy providers and finding better energy rates can save your company money. Use a comparison website or energy broker like Business energy comparison We help you find suppliers that fit your business needs and budget.
- Conduct an energy audit. Energy audits are designed to help businesses see how much energy they are consuming and where they are wasting it. Auditors identify areas for improvement and recommend ways to reduce consumption.
- Upgrade to energy efficient lighting: Switching to LED lighting can save businesses up to 80% on their utility bills. LED lighting saves energy and doubles lifespan, reducing regular maintenance and replacement costs.
- Unplug equipment: Devices, appliances, and appliances that are plugged into wall outlets continue to consume energy even when they are switched off. Unplug devices or invest in smart plugs and power strips that shut off energy-consuming machines when not in use.
to reduce water consumption
- Install water-saving equipment. Replacing old faucets with aerators or low-flow faucets to reduce water flow, and replacing toilets with dual-flush toilets can save thousands of liters of water annually, offering a huge opportunity for cost savings within your business while being more sustainable.
- Check for leaks. Regularly check the piping for leaks. A small drop from your faucet can produce up to 20 gallons of water, resulting in high utility bills.
- Switch to water-saving appliances: Replacing obsolete appliances such as dishwashers with water-saving appliances can save commercial restaurants up to 3,000 liters of water per day. New water efficient equipment is also energy efficient, reducing water and energy consumption and saving money for your business.
- Install a smart water meter. Smart meters allow you to track the amount of water your business uses and see if it’s leaking, so you can manage your usage and spending.
2. Automate the payroll process
Payroll is one of the biggest business challenges for many, and one mistake can affect an organization’s credibility and reputation. Labor costs exceed salaries and tax deductions. It also includes benefits, bonuses, paid vacation, etc. Process automation is one way to reduce costs.
Businesses can easily avoid the hassle of manually managing salaries using spreadsheets by simply paying employees accurately and on time with an automated payroll system. This increases productivity by freeing up payroll administrators and finance teams to focus on other areas of the company.
Using an automated payroll system reduces the need for employees and saves costs for the company. It also streamlines the entire payroll process, reduces the potential for human error, and simplifies taxes. It provides an opportunity to increase business profit and reduce operating expenses. Companies that automate their payroll processes can significantly reduce operating costs.
3. Switch to the cloud
By using cloud computing, businesses can avoid investing in physical infrastructure such as servers and data centers. Lower initial and ongoing costs by using infrastructure provided by cloud service providers instead. It simplifies infrastructure and hardware management by reducing initial capital costs and ongoing maintenance costs.
Pay-as-you-go pricing is the model offered by most cloud service providers. This saves you a lot of money by only paying for the services you actually need and use. Businesses can change how resources are allocated based on usage without making long-term commitments. This will definitely reduce your monthly overhead and operating expenses.
4. Renegotiation of communication charges
Every business needs effective communication tools to be successful. However, the costs associated with telecommunications such as landline telephone lines, business telephone equipment, and Internet access can quickly become prohibitive.
Businesses should review their contracts, negotiate lower rates with service providers, or look for discount packages to reduce telecom costs. Look for a service provider who will negotiate and match your business needs to ensure you get the best value for your business.
Technology is advancing rapidly. Companies may consider using Voice over Internet Protocol (VoIP) services instead of investing in expensive traditional telephone systems. Because VoIP uses the Internet to make phone calls, it’s often less expensive than traditional phone lines.
Reducing your business’s operating expenses is very important, but it is doable to increase your profits. The only way to generate higher profit margins is to find areas where overheads can be reduced without sacrificing company operations. For more insights, news and tips, visit https://www.noobpreneur.com/.