3 Big Overhead Costs Most Small Businesses Can Live Without

By QuickBooks

3 min read

It’s understandable that you may want to hit the ground running and make your small business grow fast. In your quest to establish your business’ presence, however, don’t sink yourself with unnecessary overhead costs. Many well-intentioned small business owners mistakenly believe they need certain things for their business that simply aren’t necessary.

If you’re trying to keep the margins tight and a vigilant eye on your bottom line, there are ways you can reduce or eliminate certain expensive overhead costs.

Here are three big overhead costs most small businesses don’t need or can minimize.

1. Essential Staff Members vs. Freelancers

Hiring freelancers over employees, even when your freelancers cost more on a per-project or per-hour basis, will still save you money. Hiring employees comes with a much bigger halo of expenses than salary alone. You’ll need to pay employer-provided benefits and you’ll need to provide them with office space, parking, equipment and supplies. There area also required employer payments and contributions for your employees, including:

  • Your mandatory contribution to employee Social Security and Medicare taxes.
  • Your monthly and quarterly state required unemployment compensation insurance payments on behalf of employees.
  • Workers compensation insurance payments on behalf of your employees.

These expenses can raise the actual cost of an employee anywhere from 20 to 30%, depending on your tax jurisdictions. If employees are so expensive, you might be asking, “Why have them at all?” Freelancers are great for on-demand project needs, but employees can be valuable long-term additions to your team. Their commitment to your business’ success will be well worth the investment.

Many employees are worth their weight in gold. For nonessential roles, consider the financial benefits that hiring a freelancer can offer.

2. Eliminate Nonessential Agency Contracts

In his advice to startups, Mark Cuban famously said, “never hire a public relations (PR) company.” That advice is as true for small businesses as it is for startups. There are certain nonessential agencies you should keep off your books to help reduce your monthly overhead costs.

Consider the types of contracts that are essential: external agencies that provide services like accounts payable, receivable or accounting, or any HR or payroll agencies you require. These are mission-critical functions which, depending on the nature of your small business, may have to be outsourced.

External agencies that handle social media and PR, however, may not offer any value proportionate to what you’re paying. Could you hire a freelancer to do these services for less or better than a large agency, especially where you’re a small fish in a big pond? What are the monthly deliverables agencies are required to provide for their retainer and how are they providing them? Ensure you’re really getting value out of any agencies or consider cutting them back to event-driven expenses vs. ongoing expenses.

3. Reevaluate Office Space

Is office space really necessary for your business operation? For many small businesses, that answer may be yes. So, instead, what you need to ask is, “If office space is essential, then how much space do I really need?”

Salesforce offers a few suggestions for small businesses looking to reduce their overhead costs, starting with office space. Consider, “negotiating with your current or future landlord by offering long-term tenant stability in exchange for a more reasonable rate,” which is a great place to start trying to cut costs. Another obvious but often overlooked suggestion is to get only the space you need. If you don’t anticipate a massive staff expansion in the next 12 to 24 months, get the space you need now, not the space you might need in several years.

Finally, you may want to consider buying your own office space and leasing to other tenants to offset your office costs. It might be a bigger responsibility than you’re currently ready for, but owning the building your business is in can offer some great opportunities for supplemental income. Before you buy, however, the National Federation of Independent Businesses cautions that owners should “think about cash flow, future expenses and management costs.” Thinking creatively about your small business’ approach to office space can save you some major overhead costs in the long run.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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