Operating costs are the day-to-day expenses of running a business, categorized as fixed or variable. To increase profits, business experts recommend budgeting and reducing operating costs by reevaluating spending, evaluating business methods, and using frugality. Steps to reduce operating costs include reviewing expenses, evaluating commercial space, reducing utility expenses, reducing office supply expenses, and evaluating commercial banking.
Operating costs, also known as operating expenses, recurring expenses, overhead, or operating margins, are the day-to-day costs of running a business. Another term for these expenses is operating margin, since it is the difference between a company’s operating costs and its gross income that constitutes its profit. Operating expenses are categorized as either fixed or variable, and the higher the number of fixed expenses, the easier it is to establish a monthly business budget. Especially at times when economic reports and consumer discretionary spending are less favourable, business specialists recommend budgeting and interventions to reduce operating costs in order to increase profits. Reexamining spending, evaluating business methods, and good old-fashioned frugality are among the recommendations to reduce operating costs.
The first step in reducing operating costs is to review your operating expenses one by one and determine if there are less expensive options available. Commercial space leased for the business under review should be evaluated to determine if smaller quarters can be utilized or a less expensive rental amount negotiated when the current lease ends. Depending on the type of business, less space may be required if less inventory is kept on site. Setting up a shipping agreement with a delivery company to deliver supplies as needed can reduce operating costs by reducing the space required and man hours previously spent accounting for this inventory.
Business experts also recommend evaluating utility expenses to reduce operating costs. Reviewing the company’s phone service against that of competitors could locate less expensive calling or phone plans. Most electric companies offer an average monthly cost that allows a business to count its electric bill as a fixed expense. Energy-saving tips, such as turning off unused lights, installing less expensive fluorescent lighting, changing the thermostat a few degrees, or eliminating unnecessary appliances or machines, are more ways to reduce operating costs.
Reducing office supply expenses and paper use are other steps to take to reduce operating costs. Documents previously stored in filing cabinets can now be electronically scanned and saved for later retrieval online or from a DVD. Many customer and vendor invoices and invoices are now accepted via email, as are many types of customer correspondence. All these interventions save time, space, shipping costs, supply costs and man hours.
Another method used to reduce operating costs is to evaluate the use of commercial banking. Depending on the specific business and its financial needs, considering other banking options can reduce operating costs, particularly if the bank charges a monthly fee for the business account. Competing banks and particularly credit unions often offer commercial banking services at no cost. Using online bill pay can also save operating costs by eliminating check fees and shipping charges.
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