Reducing or cutting administrative expenses is one of the best ways a company can maximize its profits. This, however, is not easy. You have to know which expenses to eliminate without compromising the workforce and the quality of your business.
In this case, the optimal way to identify savings opportunities inside the enterprise is through the internal assessment. Moreover, it is crucial to make the most appropriate strategies in the endeavor to achieve this objective.
Here, you will learn how to recognize administrative expenses that could be reduced or cut and discover how to make adjustments in a smooth and efficient manner. Check it out!
What are administrative expenses?
To learn how to reduce or cut your company’s administrative expenses, you must know how to identify them first. That will be a good starting point in your review, using the concept first, and then reviewing some of the most common types of expenses in business.
Administrative expenses are those business expenses that have no relation to the main activity of an organization. In simple words, they are not related directly to any product or service offered to a customer.
These costs may either be fixed or variable. For example, in fixed costs, the price cannot change much, or at least does not vary at all- such as rents. This makes them more hard to reduce, or remove completely from your firm.
Variable costs are those whose value changes more frequently. An example of such is electricity. This type of expense can be reduced more easily by adopting good practices, which allows for more savings.
What are the main administrative expenses of a company?
To better understand what administrative expenses are, it is worth looking at examples of this type of expense. In the case of smaller businesses, the main ones tend to be:
- consultancies;
- cleaning material;
- insurance and benefits;
- depreciation in general;
- office supplies;
- attorney’s fees;
- employee training;
- rental of commercial space or property;
- pro-labore or remuneration of partners;
- hiring and firing employees;
- payroll of administrative staff;
- consumption bills — water, electricity, for example;
- taxes — such as Urban Property and Land Tax (IPTU).
What can be done to reduce administrative expenses?
Now that you understand the concept of administrative expenses and have seen some examples, it is time to learn what to do to reduce or cut this type of expense. The first step is to develop a strategic plan to contain expenses with the administrative and financial departments.
This tool allows managers or entrepreneurs to set savings goals and easily identify waste and opportunities to save. This makes it possible to make informed decisions, avoiding compromising the quality of employees’ work or even the product or service offered.
To do this, you need to establish the amount you want to save. Next, it is important to list all of your company’s administrative expenses and classify them as fixed or variable. This way, you can have a broader view of where to start reducing or cutting expenses.
How to reduce your company’s administrative expenses in practice?
After putting together your plan with actions to strategically reduce or cut your company’s administrative expenses, you need to know how to make the savings, right?
So, follow these practical tips to reduce administrative expenses in your business and increase your chances of making bigger profits!
Tax burden
Taxes represent a large part of companies’ budgets. Therefore, finding ways to reduce them can allow for significant savings. In this sense, there are several legal measures to reduce the tax burden on your business.
One way is to adjust the legal framework so that the tax to be paid can be reduced. To do this, it is worth having the support of an accountant to find the ideal tax regime. Another solution is to be aware of tax benefits that offer tax discounts.
Payroll
Payroll is another administrative expense that has a major impact on a company’s finances. Therefore, it is worth paying attention to this expense as well. One strategy for reducing it is to reduce the number of overtime hours paid by creating a time bank .
This is because overtime pay is higher than normal working hours. Therefore, by replacing this expense with time off or vacation, you can make significant savings. You can also set limits on how many hours you work overtime to control this expense.
Hiring and firing
High employee turnover can be costly for companies. After all, both hiring and firing involve expenses that can impact the budget. This is the case with the recruitment and selection process, training and termination.
To reduce these costs, the hiring process must be improved. For instance, if you find people who share the same values as the organization, you increase the chances of the new employee staying longer at the company, reducing hiring and firing costs.
Consumption accounts
Small utility bills, when added together, can affect your business finances . For this reason, don’t underestimate them. It’s worth thinking about ways to reduce them and even cut them, if possible.
For instance, some changes in behavior or reducing a package contracted can save much in electricity, water, telephone, and internet bills.
In the case of energy, you can stimulate the conscious consumption of this resource and change the old equipment and appliances for the more energy-saving ones. With regard to the telephone, you should renegotiate the contract with the operator and try to minimize the cost of the plan in case it would be economically justifiable for your business.
Bank fees
Another administrative expense that you can reduce or cut is bank fees. To do this, you first need to understand your business needs and then analyze whether your banking package meets your interests.
Otherwise, you can contact the manager to negotiate a reduction in the fees charged. Another solution that may be more advantageous is to migrate from traditional banks to digital banks . They usually offer free services, which can meet the needs of the business.
Now you know how to reduce or cut your company’s administrative expenses using simple measures — saving money and increasing profits over time. However, remember to plan ahead to identify strategies that can bring results to your business without harming the company’s future!