Managing Financial Overheads Effectively

able to get enough number of technically competent people who are in tune with
the technological changes.

Manpower has become a huge cost today not only because it is
difficult to get the right kind of people but also because organizations are
unable to ensure that their growth matches with their skill sets. It is indeed a
very expensive proposition to get, train, retain people because a lot of
organizations while trying to do that have had to increase salaries to such a
large extent, that it becomes an overhead for the company.

If somehow a way is evolved by which professional consultants
could help motivate employees to continue in the organization and ensure their
growth, a lot of overheads can be reduced. Although it may not be very practical
to ensure that the person grows in an organization professionally as well as
give him the expected salaries, if organizations could at least do so for the
key people in the company, lot of overheads could be reduced.

This is handy for many or most small and medium organizations
that may not have many avoidable or variable overheads since they are very
tightly managed. In that sense they may not have any avoidable overheads built
into their system at all.

Avoidable overheads

Other possible overheads that could cut into a company's costs would be
material management. That would include managing stocks, planning the material
costs and also checking out what products need to be carried forward.

Sometimes when certain product models are phased out and new
models have come in their place, the organizations would have to sell the old
models at a lower price, which would then contribute to loss of money for them.
So it is important that the businessman plans his products and keeps tab of what
is new in the market to help him sell well.

Another overhead that companies incur when it comes to
products is excess stock or alternately less stock. If the company has some
excess stock of a product that has been phased out, then it spells trouble and
would mean extra costs. On the other hand, if he has less stock and the customer
wants more products, it should lead him to lose customers if he does not deliver
on time.

So organizations have to really strike a go between to ensure
that they have the right kind of stock at the right time. This would help to
minimize overheads to a great extent.

Reducing interest rates

As far as other overheads that can be avoided or minimized, one key aspect
is bank interest. When one deals with a bank, his relationship with the bankers
becomes very critical. Depending on this, one can actually negotiate on the
interest rates and also make them flexible to suit his organizational needs.
This would help to cut costs to a considerable extent.

In order that he gets what he wants form the banker, the
businessman needs to also make a good presentation of his proposal to the bank.
He should also present his financial and other statements so that it looks like
a very healthy proposition to the banker. Most importantly he need to equip
himself with all relevant information as regards the financial aspects that
would help him get the bankers confidence.

Since banks levy a lot of incidental charges, which appear
small individually, one must remember that they can contribute substantially
into the company's cost when put together. The businessman has to therefore
keeps negotiate with the bank over these charges to reduce overheads.

Infrastructure management

Other overheads that an organization needs to effectively manage are office
infrastructure facilities - like space, buildings, etc - whose cost is time
dependent and would thus cut into the company's money. These may not be
controllable but can be managed effectively.

For an organization to determine which overheads are variable
and which are not, one way is to go by theory, which would probably indicate
which overheads are avoidable and can be done away with. But more practically,
as the business grows, one gets to understand what overheads are avoidable,
variable and which ones are fixed.

It is important therefore that the entrepreneur has an eye to
understand his growing business needs in terms of finance. Although it is
believed that most technocrats cannot manage finance, if one actually bothers to
keep an eye, he could himself understand and determine the critical overheads he
incurs in business. Besides as business grows, these learning will continue and
help in better management.

As to what is the yardstick of finding out the overheads and
removing them from the business dossier so that he can run a leaner but more
productive company; one possible way is to employ an external mind in addition
to his own. That means employ an external auditor or consultant to tell the
businessman more on the manageable overheads and how to minimize them. This way,
the external consultant would be able to get a detail of the company operations
and then suggests the best financial outlook to ensure that costs are cut.

In addition entrepreneurs need to be open to learn. They can
take up short-term course like the Management development program for
entrepreneurs run by the IIM- Bangalore. These courses would help then to get a
complete idea of fund generation, management etc and help

the technocrat to mange both his business sand finances well.

Harish Shetty is Proprietor of Binary Systems, Bangalore