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How small business owners can control their overhead

By December 27, 2023No Comments

(This column originally appeared in The Inquirer)


Many small businesses in the Philadelphia area are struggling, with many saying that next year could be “make or break.” But it’s not just a local issue.

This month, the National Federation of Independent Businesses reported that optimism among small businesses decreased for the 23rd consecutive month, with 22% of those surveyed saying that inflation was the single most important problem in operating their business. The next year will be challenging, which is why it’s critical to look hard at our overhead costs and make sure expenses are managed as efficiently as possible. Here is some advice.

Keep a close eye on your numbers.

During any slow period, it’s critical to watch your numbers. As a certified public accountant, I always recommend that clients get reports of key financial information — like cash, receivables, orders, hours worked — at least a few times a week and keep an eye out for any unusual fluctuations from prior amounts. I also recommend clients to take an hour and read their general ledger — where every accounting transaction is recorded — monthly to spot any inconsistencies. I’ve learned that the devil is in the details.

Brendon McCoy, a financial adviser based in Philadelphia, agrees.

Use multiple shippers.

For many business owners, freight is a big overhead expense and one that’s very tough to control, given fluctuating energy costs.

“For us, shipping can be a killer to our margins,” says Kimberly Davis, who owns Anima, a natural pet food products store in Old City. Davis says that while she doesn’t threaten her vendors, she does let them know that she is always considering alternatives. “I will work with vendors who are providing free shipping or other promotions and just say to the others that I’d love to keep working with you, but you’ve got to help us too.”

Watch inventory and vendors.

Davis also closely watches her inventory levels and cuts back on nonmoving items.

“We have let some categories in our inventory get a little lower, and oftentimes move them to a ‘special order’ status,” she said. “This is usually not a problem because our valuable customers who want to support small businesses are usually OK to wait an extra day, rather than going to Amazon.”

Davis also keeps a very close eye on every supplier invoice she receives because she says that as many as 75% have had some type of billing mistake. Her biggest headache is vendors that automatically charge her for products before she officially orders them.

“I have some suppliers that just wipe my card even when I don’t need their product that week,” she said. “I have to call them multiple times to tell them I don’t want the order and not to charge me, but they still do.” To combat this issue, she’s learned a little trick.

“I just locked the debit card for three days and they have to call me,” she said. “And then I pay them when I’m ready.”

Revisit utilities and insurance annually.

To keep utility costs low, Davis watches her thermostat and constantly reminds her employees to turn off lights. To keep her insurance costs reasonable, she reviews her premiums each year with her agent and oftentimes changes coverages where it makes sense.


Another effective way to keep overhead low is to subcontract work where possible. That’s what Charrita Jones, the owner of Senoj, a clothing store in Philadelphia, does.

“As small business owners, we wear many different hats, so it’s important for me to understand what my strengths and weaknesses are,” she said. “Using subcontractors instead of hiring employees, especially for social media, marketing and payroll has been really helpful.”

McCoy agrees and points out that labor costs are oftentimes the biggest part of a company’s overhead.

“I do see some companies that are overstaffed,” he said. “Outsourcing, along with better time management and staffing practices can do a lot to control your overhead.”

Reduce interest expense, maximize interest income.

Jones also relies on her accountant to help her maximize her cash. High interest rates can mean extra money for smart business owners who do this the right way. Money market accounts and certificates of deposit can return anywhere from 3% to 5%. As long as you don’t need the cash right away and can afford to invest it for the longer term, it’s a great strategy for offsetting rising overhead.

But although a higher interest rate can generate more income, it also increases some costs, particularly for financing. With rates at their current high levels, McCoy says it’s important to make sure you’re not carrying too much debt, particularly on your credit cards.

“I have some clients paying hundreds or even thousand of dollars a month in credit card interest when they have the cash in the bank to pay off their credit card,” he said. “If you don’t need to pay interest, then don’t.”

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