How to Keep Your Overheads Low When You Start Your Business

Keeping your overheads low is super important when you start your business.

Because when you start your funds are often limited… plus there can be more money flowing out than flowing in.

So how do you keep your overheads low? Start by following these 3 steps:

1) Work out what your overheads are

The first thing you want to work out is what your overheads are. There are 4 key areas to consider:

1) Tools of the trade
This includes things like your tools and your van or ute. All the things you need to buy to do your trade or profession. To keep these low, you want to ask yourself: What do I actually need versus what is nice to have? Only buy what you need when you first start. Also be smart about how you acquire them. Could you borrow some? Could you get some second hand? Can you make do with what you already have while you are starting? Remember you can always get some more when you have a few more runs on the board and money is flowing into the business.

2) Marketing

This is an area where a lot of money can be wasted. To put your marketing dollars to best use you want to be clear on the type of work and the type of customer you are after. That way you can be focused and direct your marketing dollar. And spend where it’s going to have the most impact. In fact, your marketing should be an investment. Be sure when you are spending money that you are measuring your results. That way you can put money into areas that are producing a return. Good marketing should generate you more money than you spend. So it’s an investment – not an overhead.

3) Administration
These are some of the other overheads like rent, insurance, software to run your business etc. The key question to ask here is ‘Is this going to help me either get a customer or keep a customer? And if not, then it might not be the right time to spend it… particularly when you’re first starting your business.

4) Wages
This is an interesting one. What should you be paying yourself when you start your business? Too often, we see when someone starts a business, they go ‘I’ll take what I can get’. ‘I’ll pull out money when I can get it’. This is not a good habit to get into! You want to teach your business to be paying you right from the start.

Start by paying yourself a minimum base wage. Then make sure that your business is making enough money to cover that wage. You may also want to link increases in your wage to increases in your business. For example, a percentage of sales so that as sales go up your wage goes up. That way, you are teaching your business to pay you. You are keeping costs low at the start and you can share in the upside as you grow.

2) Set a budget for each area of your overheads

So you are clear on the overheads you have. Next you want to set a budget for each area. Talk to different suppliers and also others in your industry about what each area will cost.

The important thing is you are writing down some numbers. You will be surprised at how the different costs can add up. That is why it is important to have a handle on them.

Once you have worked out your overheads, you’ll be able to work out how many sales you will need to cover them… plus make some profit! From there you can also work out how many jobs you will need just to cover the overheads of the business.

3) Proactively manage your overheads

The final part is managing your costs as you go. It is one thing to work out what your costs are. How do you make sure you only spend within your budget?

There are a couple of ways you can do this. One is you can set up different accounts where you set money aside for different purposes. Check out our video on the 3 types of bank accounts you should set up in your business. These accounts help you put money aside as you go hives you the ability to reinvest when you need to. For example, if you need to buy more tools or equipment down the track.

The other way is to track your numbers in a spreadsheet or accounting package. Now here’s the thing about numbers… If you only look at them once a year, you’ve only got once a year to improve, change or fix them. If you look at them once a month, then you have 12 times a year when you can adjust if you are off course. Similarly, if you review your numbers weekly, you’ll have 50 times a year to correct. Start by putting weekly controls in place. Set time aside each week to review your budget versus what you spent. That way you will keep things on track.

So to recap, the three steps to keep your overheads low when you start your business are:
1) Work out what your overheads are;
2) Set a budget for each area;
3) Proactively manage your overheads.

That way you’ll establish good financial habits right from the start… and keep your overheads low as you build your business.