How to Reduce Small Business Operating Costs

When starting a small business, many entrepreneurs focus heavily on how they can drive profits through increasing sales. Of course, this is an excellent way to improve your performance, but it’s not the only way that you can improve your profitability ratios. Another strategy is to focus on reducing your business operating costs.

This can seem a little overwhelming for new business owners, as many different questions come up, such as “what are business operating costs?” and “how can I reduce business operating costs?”. There are a number of different ways that you can approach this. Keep reading to find out more about how to reduce your small business operating costs.

What are business operating costs?

Business operating costs can be simply defined as those expenses that are incurred in the everyday maintenance and administration of your business. You might also hear these referred to as overheads, a term that covers all the essential costs of running your business.

A business operating cost list generally includes:

• The cost of paying your employees, also known as labor costs, as well as any contributions you may make to their health insurance, pension or any other benefits.

• Utilities bills required for the upkeep of your factory or office space, such as electricity and water.

• Workspace rental or mortgage repayments.

• Depreciation of your assets.

• Maintenance costs, such as repairing machinery or upkeep of the premises.

If you regularly analyze where you are spending this money through a business operating cost list like above, you can cut down on overheads and ensure a more profitable and successful business.

Focus on utilities costs

Utilities are an essential part of running almost any business, but they are also a top contributor to small business operating costs. To reduce these, you can either try to reduce your usage or look around for a lower cost provider. When looking for a new provider, be sure to have a clear picture of your usage so that you can get more accurate price estimates.

There are plenty of small steps you can take to reduce your energy usage in the office. For example, you should aim to turn off equipment when it is not in use, and switch to energy efficient lightbulbs wherever possible. Insulating your offices well will also reduce heating costs throughout the winter.

Automate as much as possible

You can cut down on your labor costs by automating the various processes of your business. For example, if you choose to use an accounting system rather than doing everything manually, then you can reduce labor hours and save yourself both time and money.

Payment processing software such as GoCardless can also streamline your business. GoCardless automatically collects payments on the due date, improving your cash flow and removing the need to chase up late payments.

Hire freelancers

There are some tasks that your business needs that won’t necessarily require a full-time employee for. For example, perhaps you want a great looking website, but it doesn’t require regular updates. In this case, you might consider hiring a freelance web designer who can come in several times a year, rather than hiring a salaried employee to do this.

Reduce your office space, or forget it completely.

One of the best ways to reduce your business operating costs is by reconsidering your office space. With more and more employees looking for flexible work and even completely remote work, you can consider switching to a smaller office space and introducing a hot desking system.

If there’s no need for your employees to be physically present, you might even consider giving up your office space completely. This removes many of your overheads, including rent payments and utilities.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.