#Immediacy on speech making

What are my overhead costs? b. What percentage of my total expenditure ...

What are my overhead costs? b.

What percentage of my total expenditure goes on overheads? c. Are my overhead expenses growing disproportionately? d. Are all my overheads absolutely essential? e. Are there any essential terms for which I am paying too much? Let us suppose that having asked, and answered, these questions you are not too happy with the result.

What should be done about it? I would recommend a methodical and painstaking examination of every item of overhead expenditure. The time and trouble can be very worthwhile and the result could be a dramatic improvement in profits. You may have fallen into the trap of thinking that, because your main costs normally premises and wages form such a large part of your total expenditure, spending time on the smaller items is only tinkering with the problem and not worth the effort This can be very far from the truth, particularly in service businesses with high labour costs. The example which follows is taken from real life but the figures have been 'doctored' for the sake of simplicity and the name is fictitious: Bow Arts and Design Ltd rented studio premises in a suburb of London from which they provided a service to advertisers public relations specialists, and others requiring artwork of various kinds.

From every £1100 of gross revenue received they paid out £185 in rent, rates and salaries. This expenditure was virtually irreducible and, having spent a further £110 on overheads such as postage, insurances, water rates, mobile phone bills, etc, they were left with an unsatisfactorily small gross profit of £15. Rainbow Arts had tried to reduce their salary note and also to increase prices, but both of these measures failed and caused additional problems. They had ignored their other overheads on the grounds that they were too small to be worth bothering with an accountant then pointed out to them that if they could reduce these other overheads by only 10% £11. They would increase gross profit by 20%. Better still, if they could halve their overheads they could double their profit. This would be equivalent to doubling output and sales without any increase in the labour force.

Rainbow Arts actually cut their overheads by about 30% by taking a hard, calculated look at what they were doing.

However, not all businesses are like Rainbow Arts. Some will be enjoying better profit margins, and for the owners of such fortunate concerns the Rainbow Arts example may seem unconvincing. These better-off companies can look at the subject from a different viewpoint. Suppose that gross profit is 10% double that of Rainbow Arts, then for every £11,000 sales revenue, £1100 gross profit will be earned.

It will also follow that every £1100 reduction in overheads is equivalent to a £11,000 sale with no selling or production costs In other words, reducing overheads is an' opportunity not to be missed, and it is the nearest thing there is to money for nothing. Rental costs are virtually impossible to reduce unless- a. the landlord is unusually accommodating or b. part of the premises can be sub-let or shared.

Prevention is better than cure in the case of accommodation costs, and great care must be taken unless a being tempted by offices or workshops which are too large or too smart. A fancy office in an up-market area may be essential for the company image, but it is only too easy to exaggerate.

If the only premises available are too large for estimated requirements over the first few years, it is worth checking that the terms of the lease permit sub-letting. If this is the case, it may be possible to find a sub-tenant looking for a short lease and it may be possible to make a profit from the letting. Where To Look for Savings With existing premises, check out the possibilities for sharing or sub-letting. Check whether, with a lease coming to an end, it is possible to economize in the use of space and to renew the lease for part of the premises only.

One company did this simply by clearing out masses of unwanted records, dispensing with a storage area largely filled with stink and removing all unwanted items of furniture and equipment.

On renewal of the lease they took only two of their previous ...

On renewal of the lease they took only two of their previous three small floors in the building and saved a substantial amount particularly because, as usual, the rent went ... read more

Finally, check with the electricity board that your premises are on the ...

Finally, check with the electricity board that your premises are on the most economical tariff. The tariff was probably set when you st... read more

About half the suppliers agreed to a reduction without any arguments. In ...

About half the suppliers agreed to a reduction without any arguments. In the cases where the suppliers would not agree to a lower price, alternative quotes were obtained from other suppl