For APAC entrepreneurs, agility is key for business growth. Even businesses with a smaller operating budget can implement measures to maximise their spending power and retain on-hand capital to drive internal investments.

Evenso, the transition from being a one man operation to a staffed enterprise can oftentimes feel like crossing a wide gulf, with many questions surrounding business growth investments, like “do I really need an office?”, or “what’s the most cost-effective project management software out there for me?”.

In these cases, entrepreneurs can greatly benefit from weighing out their overhead costs and daily operating expenses to see where they can trim the fat. Today, we’ll be exploring in-depth the key differences between these two business expense categories and how you can keep them in harmony as you scale up your APAC enterprise.

What are overhead costs?

Overhead costs refer to any indirect business expenses (i.e. any expenses that aren’t directly related to your products or services). In the simplest terms, overhead costs are the costs associated with supporting your staff and internal operations.

Some examples of overhead costs include your rent, utility bills, and administrative and management salaries. Insurance also falls under the umbrella of overhead costs, so if your enterprise is looking to buy property, both the cost of the property asset and your commercial property insurance should be factored in when assessing your total overhead costs.

What are operating expenses?

Contrastingly, operating expenses refer to any of the day-to-day costs of managing your business and company operations that are directly related to your products and services.

This can include the costs of any machinery or equipment required for your products or services (i.e. capital expenditures), as well as production materials, office supplies, maintenance and repair costs, depreciation of company assets, and costs of labour (i.e. wages for production and non-production staff).

Overhead costs vs. operating expenses

The main difference between overhead costs and operating expenses relates to their scope. Overhead costs are often recurring (i.e. annual or quarterly), whereas operating expenses are more ad-hoc and on a day-to-day basis.

Accountants often work across these two different spending categories for businesses, running profitability analyses to determine any areas for cost reduction. Expense statements outlining cost expenditures on a monthly basis can help business owners pinpoint any overspending or even gauge the impact of unexpected operating expenses (i.e. emergency repairs).

For overhead expenses, however, the best place to assess these figures is in your company books. This allows for a holistic view of the impact of your overheads, supporting business owners in determining the strongest avenues for optimising big costs like commercial rents, mortgages, and utilities. These are often costs that you may forget to account for as they don’t appear in your daily or weekly budget reports, but rather in your quarterly and annual ledgers.

Cost Reduction Strategies for Entrepreneurs

There are cost reduction strategies that can be made to lower both overhead and operating costs. Let’s take a look at a few simple methods for balancing both of these spending categories and sustainably reducing your overall company expenditures to strengthen your capability to retain greater on-hand capital.

Optimising Overhead Costs

Switch to remote or hybrid work models

Rental costs for commercial office spaces are oftentimes the largest business expense for most APAC startups and small to medium-sized enterprises. With the rise of remote working SaaS solutions, however, your team may be able to deliver the same or even an improved output by switching to a hybrid or remote work model.

Alongside providing staff with opportunities to take greater control over their work/life balance, hybrid and remote work models also support business owners in cutting down on overhead costs like rent, mortgage repayments, and utilities. Fewer office days means fewer days with all the lights on, so you can expect your quarterly bills to be significantly lower.

Shop around for insurance

If you haven’t evaluated your business insurance costs, consider securing quotes from alternative providers to see whether they can offer cost savings for your enterprise. If you do happen to find a better deal with competitors, you can either shift to a new provider or alert your existing provider to see if they can match the deal.

Practice strategic outsourcing and automation

Considering your overhead costs also includes wages for administrative personnel, consider what cost benefits you may gain from outsourcing your administrative processes or even using AI-powered business automation methodologies to carry out these processes autonomously. By finding digital solutions for managing administrative tasks, the man hours for administrative personnel can instead be put towards more essential foci.

Optimising Operational Expenses

Assess equipment and software investments

Not all your company software and equipment may be being used on a daily basis. If you’ve found that some of your business investments aren’t delivering a strong enough return, defund these investments and utilise your funds elsewhere.

Streamline your inventory management

For product manufacturers and distributors, conduct a stocktake to evaluate your inventory trends and determine whether you may be overpurchasing or purchasing at inopportune periods during the year. By doing so, you can optimise your stock costs and position your business to retain more on-hand capital.

Partner with local suppliers

If you suspect you’re overspending on materials or office supplies, shop around to see what rates are provided by other suppliers. You may find that establishing partnerships with local suppliers and wholesalers can help you save big on your costs per unit.

Optimise your Business Expenses with these Spending Strategies

Whilst this is by no means an exhaustive list of cost reduction strategies, these preliminary measures can help your enterprise stay agile without cutting costs all the way down to the nub. Remember that it’s all about strategic spending rather than cutting costs to the point where they inhibit your company’s quality of output. Cut down on what you don’t need so you can invest more where it matters the most.