Glossary · Finance
What is Overhead?
Definition
Overhead refers to the ongoing costs of running a business that are not directly tied to producing a specific product or service, such as rent, insurance, software, and utilities.
Why it matters
Overhead has to be paid whether you sell one item or one thousand, which is why it is closely tied to your break-even point. Keeping it low is one of the biggest advantages of a small business.
A one-person bookkeeping service might have overhead of $85 for accounting software, $40 for a phone plan, $60 for liability insurance, $25 for a domain and email, and $150 for a coworking desk, totaling $360 a month. If each client pays $300 a month, you need just two clients to cover overhead before any profit.
Review overhead every few months and cancel anything you no longer use.
Common mistakes
- !Signing a long lease or annual contracts before sales are consistent.
- !Overlooking small subscriptions that renew automatically.
Frequently asked questions
What is Overhead?
Overhead refers to the ongoing costs of running a business that are not directly tied to producing a specific product or service, such as rent, insurance, software, and utilities.
What mistakes do beginners make with Overhead?
Signing a long lease or annual contracts before sales are consistent. Overlooking small subscriptions that renew automatically.
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