In bookkeeping, a business needs to record the direct cost, and at the same time, it is also essential to have a record of indirect cost. Overhead costs are additional costs not directly attributable to the primary production, not included in the salaries of key personnel and the cost of raw materials. For a business, such costs are as essential to include in bookkeeping as direct costs, since it allows the entire company to operate.
Unlike direct costs, overhead costs consist of the expenses of raw materials, components and materials, salaries of the staff and insurance premiums, training cost, travel expenses, depreciation expense, and so on. However, it is fundamental for a business to lower the overhead costs to keep the overall cost lower. Therefore, the following are the ways through which a company can reduce its overhead costs to ensure the efficient practice of bookkeeping:
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Management of stocks or inventory
For business, it is essential to manage its inventory properly. It is not advisable for production to be stored for a long time. This means that the company has the capital that has been immobilized in production. This also generates storage costs. The higher the turnover rate of stocks or inventory, the greater the surplus obtained by the activity. We must not forget the defective stocks; they represent an irrecoverable cost for the company, so we must reduce to a minimum the rate of faulty products.
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Management of collections and payments
Usually, businesses are afraid to sell numerous products/services immediately without considering the situation in which they sell their products/services. It leads to severe liquidity concerns since the suppliers had to be paid when the customers had not yet been charged. The ideal situation would be to collect the products sold as soon as possible and delay payment to the maximum, with the temporary difference that is believed to “put money to work” and get some profit.
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Optimization of the logistic cycle
It is understood as such, the time and processes that take place since the company receives the raw materials until the customer buys the final product. It is necessary to eliminate downtime, as it causes efficiency losses, delays in the delivery of the product. Besides, if the breakage of a machine produces the products/services, they entail repair or replacement costs for the device. Personnel errors can also cause additional costs. The problem is that they are difficult to control, but they can be minimized by encouraging and raising awareness among workers.
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Take advantage of social networks
With the use of social networks, in addition to customer loyalty, you can supply a series of activities that would involve a cost for the business. Depending on the service you want to offer, you can use a social network. For example, a company can enable customer service through Twitter, Facebook, or consultation forums. With these means, you can save time and cost when solving incidents. Similarly, through any social network, you can create small opinion surveys to know the opinion of consumers about the products offered.
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Lower financial expenses
Conceivably, this aspect is the most complicated to attain for a business as it requires bargaining power with the banks and those that do get it to do so under conditions that, in many cases are unacceptable and end up causing the “death” of the company. The help of a professional adviser can be vital to fighting the rates that have established the banks, and that, in principle, is negotiable.
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Save on Telecommunication
This is another area of activity that involves more expenses within the structure of a company i.e., misuse of technologies such as fixed and mobile telephony, hardware, software, wireless networks, printing and digitalization of documents, and so on significantly increases expenses. Therefore, by controlling specific costs, the overall overhead cost can be reduced.
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Focus on profitable products/services
One of the ways to start reducing overhead costs is to review the profitability of the products/services offered. Here, a company should determine which products/services provide maximum benefits. Then, focus on giving efforts on the most profitable products/services and cut those that do not offer a return to your business.
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Spending tracking
If you do not know where your business earnings are going, then you should know where you can cut down or stop spending. Be sure to keep track of all business costs. Regardless of using papers for bookkeeping, you can use a laptop to write all the expenses or use accounting software, and review each area where the overhead cost can be reduced.
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