With tax season solidly in the rearview mirror, it can be understandably very tempting to disengage from all the stress and go on autopilot for a while. However, the period directly following tax season is actually an ideal time to start outlining your game plan for the upcoming financial year. While it should go without saying that all businesses, small business accountant Charlotte NC, and large, are interested in maximizing their profits, many of them aren’t sure where to begin or how to follow through. Fortunately, by implementing the following creative strategies into your business model, you can potentially yield some pretty lucrative results, all by making a few tweaks and changes to your procedures and operations.
All About Overhead and How to Make It Work for Your Business
Sometimes the circumstances surrounding overhead can be tricky to evaluate, but its definition is actually quite concise. In the world of business, overhead is simply any ongoing expenses that are not easily attributed to a specific activity, like creating a product or service. All businesses must strike an important balance between investing in products and/or services offered and determining how to price them for their consumer base. In order to stay in the green zone, a business must ultimately make more in revenue than they invest in products or services rendered. However, overhead costs are ones that are not directly related to a specific product or service. Confused? Don’t worry, understanding overhead can be a bit tricky at first.
Here’s a specific example we’ll use to help illustrate overhead. Let’s say you run a service-based business, like a home cleaning company specializing in move-out cleanings for those leaving their apartment or home. Let’s also say that because you have multiple employees, you’ve decided to invest in an office space where you can store supplies, hold meetings, and provide a space for your employees to return to in between jobs or during breaks. While your cleaning supplies would be categorized as a direct cost of your business, your overhead costs might look like the rent you pay for the office space and its electricity/other utility costs.
Overhead consists of a few different types including fixed, variable, and semi-fixed. Fixed overhead is an expense that does not fluctuate with business activity, like rent. Whereas a variable expense is one that fluctuates depending on business activity, like overseeing a marketing campaign. Finally, semi-fixed is basically a combination of the two, like the cost of utilities. You pay for utilities regardless of your business activity; however, you might rack up a larger bill depending on how much time you spend at the office.
By itself, overhead is a concept that we could continue to explore far more in-depth. But for the purposes of this blog post, keep in mind that overhead costs are a good place to turn to when you’re looking to maximize your profits. For instance, in the case of the cleaning company, you can reduce your overhead costs by finding an office space with lower rent or cutting back on the number of places you’re currently running advertisements. Oftentimes times when evaluating their overhead costs, people can easily determine specific places to make meaningful budget cutbacks.
How to Use Delayed Payments to Your Advantage
The term delayed payments is not often used in association with cash flow. However, don’t let the potentially negative connotation fool you, delayed payments don’t necessarily have to spell out danger. A lot of businesses, especially smaller ones, have an overwhelming amount of costs in their formative years. These costs often stem from the price of doing business, which begins with a number of pricy start-up fees. It’s easy to jump the gun by trying to pay off all of your expenses right away. However, just because you have the means to do so now, doesn’t necessarily mean you will in the future. Opening a business, even one that is slated to perform very well, is always somewhat of a gamble, even if the risk factor is nearly nonexistent. Therefore, it’s advisable not to put all of your eggs into one basket and overwhelm yourself with fees upfront. Especially before you can accurately determine what a normal year of revenue might look like.
Many companies or agencies that you work with within a business capacity will offer payment plans or opportunities for delayed payments, designed to be paid over an extended period of time rather than in one lump sum. This can help prevent you from losing large sums of money upfront, without having extensive knowledge of your overall revenue or bottom line. A lot of businesses set themselves up for failure, without realizing that they’re doing so. While delaying payments can feel a bit counterintuitive, in the long run, it can definitely help you to maximize revenue.
Re-Evaluating Products and Services
A lot of businesses make the mistake of overextending their reach. Just because you can do something, doesn’t necessarily mean you should do it. In many cases, it’s better to offer one, or a select few, solid service(s) that you do better than anyone else, versus offering many different services that you execute decently.
Let’s refer back to the example of the cleaning company. In this scenario, the main service you offer is move-out cleaning for those vacating spaces. Let’s say that on top of move-out cleaning, you also offer special events and move-in cleanings. On top of all that, last year you decided to start offering recurring cleaning services after multiple requests from clients. While you’ve managed to build a solid customer base for recurring cleaning services, you’re starting to notice that it’s become the most time-consuming service you offer, despite the fact that you only have a select number of customers who require the service. On top of that, you find yourself having to replace supplies much more frequently,
During the process of reviewing your finances post-tax season, you’ve realized that you are no longer making as much revenue as you did in the preceding years. After further examination, you’ve determined this dip in revenue occurred after you started extending your services. While the impact isn’t massive, you’ve decided to ultimately conclude the routine cleaning service because it is costing you valuable time, money, and even labor. Routine assessments of your services and products are really important because they can give you direct insight into the heart of your sales. If you’re not married to certain products and services, those areas are a great place to reevaluate in an attempt to maximize profits.
At McGrant Tax And Bookkeeping, we are here to help answer all your questions as your primary bookkeeper in Charlotte NC. Visit our other business location for trustworthy bookkeeping Charlotte NCservices. Please feel free to contact us today at any of our two locations or visit our website https://mcgranttax.com and book an online or physical appointment.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. McGrant Tax and Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.
