As a business manager, you can improve Net Profit of your business by decreasing Indirect Costs (Overheads).
1. DECREASE EXPENSES
- Lower rent. Either negotiate for cheaper rent charges with the landlord, or simply rent smaller premises. Very often businesses have extra space that is unused and redundant, but must be paid for on monthly basis.Â
- Relocate. Another way to lower rent costs is to relocate the business outside the city center where the cost of land is much lower. Although relocation might not prove feasible when the business is already well-established in its current place.
- Lower salaries for managers. Similarly, to lowering wages for production workers, the business can either decrease salaries for its managers or reduce the number of managers who work in the business. Alternatively, hiring cheaper managers is also an option, but this approach may have negative impact on how properly the business is being managed. One more method could be delayering.Â
- Lower interest on a bank loan. Very often banks are willing to renegotiate interest on bank loans issued to the business when interest rates change in the economy. Another option is to change the lender as interest rates on bank loans vary between banks. The business can also pay off the bank loan earlier, if possible, in order to completely reduce interest payments to 0. But, check with your bank first to see, if there is a penalty for paying off your business loan early.
- Lower administrative costs. Limiting extravagant company expenses such as flying economy class instead of business class, hiring cheaper security firm, renegotiating all sorts of insurance, etc. can effectively lower the administrative Overheads without actually negatively impacting the quality of products. Administration costs could also be examined by combining jobs or employing fewer people to carry out such tasks. Lots of possibilities in this area.
- Lower utility bills. Energy consumption such as heating and lighting could be adjusted, e.g. turn down the heating temperature during warmer days in winter, using less AC in the summer and turning off lights when not required.Â
To summarize, in order for the business to improve Net Profit it should decrease Expenses which are Indirect Costs (Overheads).
