Jun 02, 2016

Ways to Manage Commercial Operating Expenses

By Don Catalano



For any business, finding ways to decrease costs and eliminating unnecessary expenditures is important for improving the overall bottom line. Companies that own their own buildings or have triple net leases can exercise control over operating costs to reduce expenses and increase profitability. Following these tips can help you better manage operating costs:


1. Establish a budget and review expenditures often

Most businesses have funds allocated for operating costs in their general budgets, but if your company doesn't, you need to start by creating one. Each month, review actual costs to your budgeted amount. This will help you quickly see when you're spending is no longer in line with projected amounts, so that you can identify the cause of the variance and respond to it with cost reduction measures.


2. Rethink your policies to promote conservation

Utilities make up a large portion of operating costs, and while some of the cost is beyond your control, there are ways that you can keep expenditures to a minimum. Take the time to evaluate energy use in your facility. Are there areas where energy is being wasted? Draft policies that encourage energy conservation. For example, you can make turning off the lights in unused rooms a mandatory part of the daily routine in your workplace.


3. Assess the health of your space

As buildings age, they can become inefficient, leading to increases in utility costs. Have your plumbing and heating and cooling system checked out by professionals to ensure that everything is still in good working order. Also, inspect doors and windows for any gaps, cracks or other signs of wear and tear that could be creating drafts and overtaxing your HVAC system. If problems are found, having them repaired or contact the landlord about making repairs to reduce operating costs over time.


4. Invest in upgrades

It may seem counter intuitive, but spending money on upgrades to your facilities and equipment can often lower operating costs going forward. You might install LED lighting, which consumes a fraction of the energy as other types of commercial lighting, add solar cells to your roof or invest in energy-saving computers and appliances. If you're leasing your space, you'll need to consult your lease agreement to see what types of upgrades you can make on your own. In the event that your lease doesn't give you the right to upgrade, consider renegotiating early if you plan to stay in your current space when your lease expires.


5. Make it everyone's job

Ultimately, reducing operating costs can't be left to just one person or one department. To keep costs to a minimum, it takes everyone working together. Foster a culture where employees are encouraged to reduce energy and water wastage and let your team know that their feedback about operating cost reduction is always appreciated. Employees in various positions can provide unique insights into how to reduce costs that you may overlook, but they need to be empowered to share their ideas. When you make managing operating costs a part of everyone's job description, you'll be in the best position to succeed with your efforts.


Other great CRE articles to check out:

3 Tips for Reducing Rent Escalation Expenses

Are Your Operating Expenses Assets or Liabilities?

Achieve Million Dollar Savings on Your Next Commercial Lease


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Don Catalano

Don Catalano