High Overhead - challenges and solutions

When you have high overhead, there is a burden on company finances that can easily put a business upside down - loosing money instead of making it. This adverse effect on business finance is second only to a poor economy or a major perturbation in the marketplace.

Let's look at the challenges of overhead that is high, and then let's start looking at ways to address the problem. Like most problems, if you look up from where you first see the symptoms, you'll likely find who is to blame.

With high indirect business expenses, the following can happen:

  • Company profit is consumed by increased expenses.
  • Business loans become difficult to pay back.
  • Investment in the business isn't possible unless additional funding is obtained.
  • Loans are difficult to obtain because the prospect for profitability is made bleak by high overhead costs.
  • Payroll becomes difficult to meet.
  • Productive workers can be pressured into increasing already high levels of production efficiency.
  • The company goes into an "austerity mode" and cost cutting measures are invoked.

With high indirect costs, a company generally must seek large contracts to help feed the overhead beast. With large contracts, the sheer size of the contract amount can easily hide the high overhead costs. When the need for large jobs no longer exists in the marketplace, the overhead burden sinks the company into debt and it must take decisive measures to stay afloat.

High overhead also affects company morale because it's usually the "fat cats" at the top who are responsible for creating the situation, simply because they are the decision-makers in the company. To add insult to injury, those same "fat cats" are usually on overhead all the time, so employees engaged in production are effectively carrying those overhead employees on their backs.

Any self-respecting employee worth having won't be around for long if they see themselves as a pack animal for the "overhead crowd" who continue to spend money, but don't contribute directly and in a positive way to the company bottom line.

In a serious organization, I can't see anyone being happy about having other members of the organization that "coast." Being on overhead and contributing little to company success can easily be seen as coasting. The big problem with this is that it can lead to feelings of relative deprivation, a common and unsettling factor that is pervasive in the workplace.

Anytime you wonder who is responsible for the high cost of running a company, or any other problem for that matter, you simply have to look up from where you first see the symptoms to see who to blame. Keep looking up and eventually you'll find the source of the problem.

Done with High Overhead, take me back to Small Business Finance



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