How to calculate and track overhead costs for your business 2021 | Start your business - read the full article about Business Services 2021, Business Services and Consulting & Business support from QuickBooks on Qualified.One
There are a lot of different business costs to keep up with.
Fixed, variable, operating, product, period, sunk, out-of-pocket, indirect— thankfully youre a smart willful small business owner so no cost goes over your head.
Well, except for one.
Thats right, today were talking about overhead costs.
If you want the full lowdown on overhead costs, check out the article below and dont forget to hit like and subscribe for more videos from our series, "Ready, Set, Goals." Before we calculate your overhead costs, we have to figure out what they are.
There are two factors that can help us determine if a cost falls in the overhead category.
One, its a fixed cost.
And two, it doesnt directly result in sales.
Overhead costs are the constant expenses that always have to get paid regardless of how much revenue youre pulling in.
Its those costs that just come with running a business.
So lets play a game called, "Is That Overhead?" Youll see some common expenses show up on the screen and well decide if theyre overhead or not.
Rent and utilities: If your business has an office space, you have to pay the rent and utilities that come along with it.
This is a constant cost that you know will pop up every month and that makes it overhead.
How about insurance? You know youll be paying it.
It protects your business from different risks like natural disasters, theft, and damage.
Definitely an overhead cost.
Repairs and maintenance, overhead cost.
If your business uses a lot of machinery, youll need to factor in the maintenance costs.
Most machines need a checkup once a month to make sure theyre running smoothly.
Is your machine running? Well, you better go catch— nevermind.
Did someone say office supplies? Your printer, computers, refrigerators.
Okay, these arent exactly recurring fixed costs, but they dont result in sales.
Thats an overhead cost! Accounting.
Whether its an accountant or accounting software, fixed accounting costs dont directly result in sales.
Taxes: most common property taxes are fixed costs.
They dont change and dont result in sales, overhead.
Spoiler alert! This next one is not an overhead cost.
Whether you have one employee, ten employees, or its literally just you, direct labor is not considered an overhead cost.
Why? Because your employees help in the production of goods or services.
The same goes for outsourced work directly related to producing the goods so theyre operating expenses.
Now that were familiar with some common overhead costs, lets do some math.
Youll want to figure out your businesss overhead percentage as a percentage of sales.
To do that, use this formula.
Take your monthly overhead costs, divide by monthly sales, and multiply by a hundred.
That will give you your overhead costs as a percentage of sales for each month.
Now, if youre in over your head in overhead costs, here are some ways to reduce them.
Cut unnecessary expenses.
Maybe youre spending too much on office supplies.
Consider buying in bulk or switching up to a less expensive ink.
Trust me, it adds up.
If your rent is eating at your profits, consider looking for a less expensive place or consider going remote.
No office space, no rent.
Review and negotiate contracts with suppliers.
Think of this as a cleanse for your company; go through all of your contracts and pricing.
Cancel the contracts you dont need and negotiate outdated ones.
This is a big way to reduce overhead costs.
That about does it.
You can now identify, calculate, and cut overhead costs to keep your business running.
So, you better go catch it.
QuickBooks: How to calculate and track overhead costs for your business 2021 | Start your business - Business Services