Running a business always has chances of incurring costs that are not directly linked to the product or service offered by the business. However, these costs are essential to the running and operation of an organisation. These are known as overhead costs. Keeping account of them is vital to correct budgeting and financing.Calculating them well in advance can increase the profit in the long run.
Image : shutterstock
For better understanding, let’s group them into four sections:
Office space and supplies
A space to call your company’s own is the biggest overhead cost every business has to pay for. Besides the space itself, what’s put in it to make work life comfortable — from things as obvious as furniture to overlooked essentials likecomputer systems, coffee machine, microwave, and printers to smaller items like stationery and office supplies —together make for the maximum amount of overhead cost.
You may have already calculated the larger costs in relation to your employees such as salaries, benefits, etc. What many people fail to notice is the hidden costs such as paid vacation leave, sick leave, office perks, team trips, or frequent dinners. Some of these may seem like expenses that can be avoided, but small team bonding activities and a clean and comfortable environment to work in can go a long way in ensuring productivity and loyalty.
Whether your business is small or large, there is a need for differentiation between functions; hence, departments are created. Each department will have its own specific costs. For example, a shipping department will have shipping, packing, training, and supplies costs that an HR team probably will not have.
With the needs of each one being different, the amount you allocate to them must justify the size of the team, their requirements, and their benefits.
Travel, utilities, automation, and a variety of other factors are essential to the administration of a business. These are some costs that are overlooked by many as they are deemed to be seasonal or minimal. Make a list and audit them very carefully as you may come to see that they are a huge chunk of your expenses. Keep most of your business in-house and outsource what you can, to keep expenses low.
These are just a few of the overhead costs incurred by a business on a daily basis. Besides the above, there will always be costs associated with an operation that are unique to every kind of organisation. A quick and regular look at these expenses can help keep them minimal and increase overall profits for your business. Determine which costs are legitimate and which are the ones that waste your resources. If you manage this differentiation successfully, you can keep your business running and all your stakeholders happy.