* Reduce overhead by implementing the "80/20 rule"
* Monitor monthly expenses with a spreadsheet
* Pinpoint troublesome expenses

With revenue potentially decreasing due to a sluggish economy, businesses must control expenses. Overhead is a good place to start, says Pat Dugas, 56, of Winter Haven, Fla.-based Patrick J. Dugas CPA (www.dugascpa.com). The 29-year business veteran believes overhead costs are among the top three reasons a business will succeed or fail. "A lot of times the overhead can creep out of control without (business owners) even realizing that its out of control, (but) its one of the easiest things to control," Dugas says

Reduce overhead costs by implementing the "80/20 rule," he says. That means identifying the 20% of your expenses that represent the bulk of your overhead costs--usually nearly 80%--and analyzing things such as, the description of the expense, alternatives to the expense, excessive cost and the original reason for using the item. "If your conclusion is, 'that's the way we've always done it,' then go back and start over," he says. "The alternatives may not be obvious until you look at each question several times."

After an "80/20" analysis, make a spreadsheet each month to monitor expenses, Dugas says. This allows you to compare each expense item over a number of months and detect irregularities that may be overlooked when skimming financial statements. "For example, if you noticed that your typical telephone expense ranges from $1,900 to $2,000 per month, and suddenly it jumps to $2800, you might not notice by relying solely on the financial statements," he says. "But it will stand out on the spreadsheet. This way you will be able to identify potential trouble spots before they get too far out of hand."

In addition, Dugas recommends that business owners pinpoint the most troublesome overhead expenses. For instance, if your business regularly extends credit to customers, you could evaluate bad debt expenses. He says the trick lies not in completely eliminating bad debt, but in determining your company's ideal level of bad debt costs as a percentage of account receivables, not sales. "Many companies make the erroneous conclusion that zero is the desired level of bad debt expense," explains Dugas. "Therefore [they] don't extend credit at all or adopt such severe credit policies that they drive away many potential customers that would otherwise have been good paying business."

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