Rising Overhead Costs? 16 Financial Factors To Keep An Eye On

Business expenses can’t always be perfectly predicted, especially when it comes to overhead costs. If leaders see that overhead expenses are increasing, they need to take preventative steps to protect the business’ financial assets. Often, this means tough decisions need to be made on what to cut out of the budget.

Whether it’s unused subscriptions, a pattern of over-hiring or another cost center, it’s important to carefully review several financial factors to ensure excessive or unnecessary expenses are identified and addressed. Below, a group of Forbes Finance Council members shares some essential factors a leadership team must consider and track to avoid financial loss in the face of rising overhead costs.

1. Monthly Fees

A key way to keep track of rising overhead costs and associated financial loss is by monitoring all your monthly fees. Monthly software, storage or payment processing fees can quickly add up, and a company may be paying more than they need to for a product or service. Always be on the lookout for ways to trim unnecessary monthly costs. – Austin Mac Nab, VizyPay

2. Spending On ‘Appearances’

Leadership teams should avoid over-hiring or spending money on unnecessary office spaces for the sake of appearing more established. Minimizing these costs can drastically reduce a company’s budget and allow them to prioritize research, development and innovation and resist the urge to market a product before it is ready. – Anthony Georgiades, Pastel Network

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3. Leasing Expenses

Leadership teams must work together to tackle rising expenses within the business. A lot of companies are overpaying on leases, one of the larger overhead expenses. Finding a way to lower this liability could help the bottom line. Subleases are one option; renegotiating contracts with the landlord based on cash flow is another. This is where your CFO should be showing their worth in protecting the business. – Greg Cucino, Bridgepoint Consulting

4. Arbitrary Management Positions

A major contributor to rising overhead costs is management layers. Often, companies create management positions to aid employee career-pathing, which leads to bloated organizations. Companies need policies that outline when a management position is needed based on team size and scope coupled with more creative ways to reward and grow talent. – Sindy Wilson, Lyft

5. Margins

First, make sure you’re not “flying blind.” Identify the inherent gross margin of the business or product lines, and then ensure that adequate financial reporting is in place for frequently monitoring margin levels. With this financial infrastructure in place, company executives can focus on major revenue and expense components and work aggressively to mitigate their negative effects. – Bruce Roberts, Carofin LLC

6. Company Culture

Leadership needs to ensure everyone is marching in the same direction and has the same goals, and this will occur regardless of the costs. If you have a weak company culture or people are not aligned, you cannot recoup the wasted money, time and resources that could be directed to other areas. – Kaylin Leland, Fourlane

7. Dynamic Budgeting

Implementing dynamic budgeting that exposes pressure points and creates an opportunity for businesses to optimize for cash is crucial. It can be difficult to see through the weeds until it’s too late, and without a budget, you won’t see until the end of the year that you’re getting off track on some expenses. A budget sets parameters, so if you’re off track in a few areas, you can address it as soon as possible. – David Whyte, Irwin

8. Vendor Contracts

Negotiating contracts and deals with your vendors is key to success when looking at the bottom line. Business owners should be able to rely on their vendors when needed and use them as a resource to fuel business growth. Don’t be afraid to ask for a discount, and make sure to approach your vendors for deals during the end of the year or quarter and during sale periods. – Joseph Lustberg, Upwise Capital

9. Value And Return Of Overhead Spending

Make sure you consistently evaluate the value and return of your overhead spend. If costs continually rise, make sure you are getting the value you need. If that is not happening, it’s a trigger to start looking elsewhere for a replacement or a process revamp. Odds are all costs are rising, so finding a cheaper solution is less likely; thus, value and return need to be the focus. – Aaron Spool, Eventus Advisory Group, LLC

10. Inflation

Businesses need to address the many-headed hydra of inflation. Inflation is pervasive, and who says it has to go down? A business needs a robust plan to address shrinking profit margins under pressure from increasing overhead costs. Every business is different, but most can start with a review of software and subscription costs. – Dr. Philip Fischer, eBooleant Consulting LLC

11. Team Communication

Teams need really good, transparent communication that begins to tell the story before it hits paychecks. This doesn’t happen in one month. Building a story to share with the team about what’s happening, what the consequences are and how to mitigate them where possible is essential. Those difficult decisions are always hard, but they’re easier for a company to withstand when its people have had time to understand the reality. – Anthony Williams, Mosaic Financial Associates

12. Internal And External Investments

The long-term financial health of a business is heavily dependent on its ability to make the right investments. Internally, leaders should consider cutting unnecessary products or services that can cause financial strain. Externally, leaders must adjust the pricing of their product or service to align with rising overhead costs, all while delivering real and truly quantifiable value. – Michael Sindicich, TripActions

13. Incentive Programs

Make sure your business has a strong incentive program to motivate and encourage your personnel to manage costs and stay with the company. Employee turnover is costly because it takes time and money to train new employees, ultimately adding to overhead costs. Instead, invest some money in rewarding them for their hard work and devotion, and their loyalty will pay dividends in the long term. – Peter Goldstein, Exchange Listing LLC

14. Outgoing Funds

Going through finances with a fine-toothed comb is crucial to safeguard a business from financial loss due to rising overhead costs. Many companies are wasting money on goods or services they either don’t use or don’t need, so critically analyzing outgoing funds is crucial to protecting a company from financial loss due to rising overhead costs. – Jared Weitz, United Capital Source Inc.

15. Real-Time Payments

Business leaders need to adopt real-time payments. Leveraging real-time payments means businesses can hold on to cash longer and receive payments faster. With rising overhead costs, the extra wiggle room can mean either opening or closing the doors for many businesses. – Nick Chandi, ForwardAI

16. Cash Reserves

Maintaining and controlling a strong cash reserve is an essential factor when it comes to safeguarding a business. Many profitable businesses that run out of cash close down, while businesses that are losing money but have cash reserves survive. – EJ Paul, Eagle Commercial Funding Solutions, LLC


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