The overheads of any business must be identified, examined and controlled at all times. As we all know Income minus Overheads equals Profit. Obviously if you were to reduce your overheads you would increase your profit without increasing your income. So if you reduce overheads and increase your income you will boost your profits even further. This is what all efficient businesses must strive to do.

Each business, regardless of the sphere of operations has overheads of one kind or another. It is vital to identify all items of expenditure, particularly recurring overheads. Obviously if you are buying a new piece of equipment that will be used for years, such as a new vehicle, that is not an overhead but a Capital Expense item which is depreciated annually against tax. The cost of running that vehicle or maintaining that piece of equipment is an overhead. Specify carefully your overhead costs, particularly the ones that you are able to control. You can then monitor them, and where possible reduce them and make savings.

There are some overheads that you will have no control over such as Taxes, Rates, Rents, Employment costs and several other costs. That is one of the reasons why you need to identify the total cost of your overheads that you can control, and therefore wherever possible, make savings.

Savings can be made in most areas that are under your control and the need for constant monitoring and examination is obvious. With the high cost of operating a business today, it is negligent not to strive to reduce overheads in whatever areas possible.

Each business will have differing overheads, but if the business is efficient opportunities will arise where cost savings can be made. We are unable to go into detail of cost savings to be made in your business but we do know that savings can be made in all businesses. Think of the huge cost savings that of some of the largest companies have made in recent times and consequently the considerable increase in their profits. We are not suggesting that you follow the lead of the multinationals, just examine regularly, in the same way they have, how to make cost savings.

Expenses that can be addressed and very often bring savings are the costs involved in the use of outside service providers, so shop around and try to get reductions or rebates. Things such as gas, electricity, telephones, fuel providers, cleaning services, courier services, postal charges and many other service suppliers used in business today.

Labour and employment costs are a source of considerable expense and should be constantly monitored. See if it is possible to amalgamate two jobs into one, make some jobs part time, use temporary contract labour, outsourcing to specialists, consider if some other choice of labour cost saving is available. As we have said, labour and employment costs are very high and considerable savings can be made by using your employees in the most effective, efficient and cost conscious way. It has been proved recently that a significant saving can be made in many businesses by outsourcing rather than doing the same work in-house.

Other cost savings can be made by increasing efficiency with the use of computers, the internet, text messaging and the use of all the technical advances that have been made over recent years. If you are interested in these developments but are not sure how to put them to use ask for advice. There are many companies that are willing to help and a quick search on the Internet will provide all the information you require.

Lastly it is important to accept that overheads are part of running a business but can be controlled. Everything from cleaning materials to the cost of vehicle operation , machine maintenance, consumable materials and staff employment costs can, and must be kept as low as possible.

The more you reduce your overhead the greater your profit will be!

Michael Russell Your Independent guide to Small Business