It is the start of a new year, the budgets are in place, the plans to boost sales have been devised and strategies to keep the core costs in check are finalized.    However, one area of hidden profits that exists in most companies are the overhead costs, also known as non-core cost.  These are the everyday expenses that are incurred in running the business and they often offer opportunities to unlock hidden profits through expense reduction efforts.

For many companies the only measure of success or failure when it comes to evaluating your overhead costs is whether or not you have come in on budget.  If you are on budget, then all is well and you carry on without further investigation.  If you are over budget then many companies will either find ways to buy less or figure that the budget is no longer adequate and increase the budget for next year.  Unfortunately, this strategy often can mask a shift in the markets for these products and services.  For example, if a supplier imports their products from the U.S. the appreciation of the Canadian dollar over the past couple of years has made it less expensive to import their products.  Now I may be a little jaded but I am willing to guess that not too many suppliers have called up their customers to offer a reduction in their prices.  Therefore, the annual 2% or 3% increase in your budget which initially seems reasonable suddenly doesn’t measure up to what should be a 10% to 15% price reduction.

Most businesses pride themselves on tracking their core costs to ensure that the budgets reflect a reasonable price for their supplies.  This is where they invest their limited resources since this is obviously where they will get the most payback.  However, all of those non-core costs will usually add up to a significant amount and are certainly worthy of closer attention.  Is it time to perform a reality check on some of those non-core costs?  Here are two things to keep in mind when evaluating your costs:

1. View overhead cost budgets as a general guideline.  Every cost should be looked at to see if the market for this product has changed since the last review to see if the vendor’s input costs have fallen and determine if there are savings that should be passed through.
2. If you have had certain cost categories on your list to review for more than six months it is time to admit that you are not going to get to them anytime soon and to consider bringing in an expert that has the benchmark data available and can analyze and implement savings in a matter of weeks instead of waiting several more months before you can get around to it (assuming that you ever will).

Often when budgets are set they are based on last years numbers and a best guess at this years numbers.  This makes it easy for potential savings opportunities to slip through the cracks when all budget items are not challenged on a regular basis.  The key is up-to-date knowledge of your suppliers input costs to help you insure that your costs are a low as they can go.