Operating a business can be quite exciting and profitable. In order for your business to run smoothly and in the black, certain factors must be tracked and accounted for. One of these comes under the heading of business overhead costs.
What Is Overhead
Overhead refers to the day-to-day costs required for business operation. They include:
- Wages and salaries paid by the business
- Rent and utilities
- Cost of insurance premiums
- Maintenance and repairs
Overhead is sometimes referred to as a “fixed cost”. As such, it is relatively constant, whether you make large or small profits.
Overhead differs from operating expense, which refers to the actual costs that are directly related to the production of the business’s goods or services. Operating expenses can include the cost of raw materials, parts, and equipment.
Tracking Overhead Costs
Successful businesses keep track of and continually evaluate their overhead costs. Doing so enables them to know their break-even profitability and helps with setting the optimum prices for their goods or services. Many businesses like to divide up their overhead costs into two broad categories: Administrative costs and operational or manufacturing costs.
In addition, keeping good records is indispensable at tax time. The business tax code allows for a plethora of different deductions and credits, some of which your business may qualify for.
No Business Can Ignore Overhead
A simple way to think of business overhead costs is that they are simply the cost of “doing business”. Keeping track of these costs gives your a real look into your cash flow situation so that you can optimize your profitability.
You may find that your business needs an infusion of capital after you scrutinize your overhead costs. If so, the folks at Scarlan Capital Group can tailor-make a solution specific to your business needs.