Analyzing Your Small Business Overhead Costs

Small businesses can take almost as many shapes as the products and services they sell. The variety within startups presents a problem when it comes to determining what the future may hold. Financial items such as how much day-to-day operations will cost in a month or a year from now are almost immeasurable. From rent to marketing, it can be tough to predict monthly business costs.
Luckily, there are some tips and tools that can help you prepare for the year ahead. See our top tips for analyzing small business and ecommerce overhead costs below:

What are overhead costs?

In business, overhead costs are any expenses included in keeping your business open for a set period of time. It can be calculated daily, monthly, or yearly. You can determine whether or not an expense is considered to be overhead if it is an expense that must be paid whether your business is in a profit or loss situation. For example, rent, utilities, employee salary, etc don’t change according to whether you sell more or less product – they are consistent month after month.
Overhead does not include the cost of supplies to create additional products. For example, if you create jewelry, you cannot count the cost of beads as a monthly expense. Overhead is typically a monthly or in some cases annual, expense when considering expenses like a hired tax accountant.
Depending on your recent profit, you may be looking to decrease your overhead as much as possible. Others may be looking to expand their current operations and therefore calculate the additional overhead costs associated with the expansion.

How to calculate small business overhead:

You can calculate your overhead by paying close attention to your expenses. As you go through each month’s bills, mark the costs that you believe to be overhead. Don’t forget to include expenses like insurance, some freelancers, and even repairs to your building or technical equipment. Purchases like office supplies, purified water, and janitorial fees are also included in overhead costs.
When your list of overhead expenses is complete, determine whether or not each cost is recurring. Separate the recurring expenses from the (hopefully) one-time costs, like plumbers or a new printer. Add the recurring expenses together to estimate your monthly overhead, but hold on to the one-time costs.
After a year of expenses, you will want to add your one-time fees together and divide by twelve. Add the amount to your monthly overhead for a more accurate depiction of the one-offs that sneak up on small business owners.    

Ways to cut small business overhead costs:

Cutting overhead costs is always a great way to increase profits. Below we’ve gathered some quick tips on how to shrink your monthly expenses to instead focus on your growing business:

Renegotiate anything and everything.

The business world teaches us that there is always room for negotiation. From your lease to your bookkeeping, try to save a few dollars whenever you can.

Downsize your space.

If your lease is munching up your budget, you may want to consider ways to downsize. If you like your current location, perhaps renting out office space or even sharing your open plan might help cut costs.

Keep staffing costs low.

As you hire new employees, try to find individuals who are okay with variable hours. Try to avoid full-time unless you know your budget can handle it. You may need to be more flexible as employees will often have multiple jobs, but it’s an easy way to keep salaries manageable.

Be creative in marketing campaigns.

Until you have a larger budget, you will have to think outside the box with marketing campaigns. Focus on word-of-mouth, social media, loyalty cards, and other inexpensive ways to market your business.

Always look for cheaper insurance.

Business insurance is often up to 20% of small business budgets. Always keep an eye out for a better deal – even $10 a month can add up long term. It may take some leg work, but it’ll be worth it in the end.

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