What Is Overhead? What Small Businesses Need to Know

In the business context, overhead refers to the ongoing expenses that a company incurs to operate its business on a day-to-day basis, which are not directly related to the production of goods or services. These expenses include rent, utilities, salaries and wages of support staff, office supplies, insurance, and other similar costs.

Small businesses need to be aware of overhead costs, as they can have a significant impact on the company’s profitability. It is essential to carefully monitor these expenses and try to keep them as low as possible while still maintaining a high level of operational efficiency.

One way to manage overhead costs is to identify the areas where savings can be made. For example, a small business can consider moving to a less expensive office space or finding ways to reduce utility bills. They may also opt to outsource certain functions to avoid hiring additional staff, thereby saving on salaries and benefits costs.

Another way to manage overhead costs is to use technology to streamline business processes and automate repetitive tasks. This can help to reduce the time and resources required to complete these tasks and thereby reduce overhead costs.

Overall, managing overhead costs is an important aspect of running a successful small business. By carefully monitoring these expenses and finding ways to reduce them, small business owners can improve their profitability and achieve long-term success.