The Biggest Sources of Overhead in Business

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The Biggest Sources of Overhead in Business

Businesses, small and large, have a variety of expenses that are ubiquitous to business. Some costs are one-time startup costs, such as buying equipment or designing a website or printing business cards.

Some costs are monthly and ongoing—those expenses are called overhead. They are the bills and costs associated with doing business, and they will never go away. Overhead are the most extensive and expensive costs. The biggest sources of overhead in business are usually the same across all industries.

Employee Payroll and Human Resources

Unless you are a one-man operation, then there are going to be employees, and they don’t work for free. Paying employees will always be the largest chunk of overhead for any business. That’s not just in wages or base salary; there are bonuses, commissions, and profit-sharing to consider. To attract the top talent and retain employees, compensation must meet or exceed the industry standards.

Business Supplies

Buying inventory and supplies is a significant expense as well. Inventory can mean finished products that you sell, or it could be raw materials used to manufacture products. Supplies can mean anything from toilet paper, pens, copy machines, coffee, forklifts, and computers. To do business, there are certain tools that you will need. What supplies are needed are specific to the industry and business, but they are a continuing part of the business.

Inventory and Operating Expenses

Inventory and operating expenses make up a big source of overhead in business. Inventory comes in and it must be stored somewhere. Warehouse space leads to rent and utilities. Operating expenses means anything that is needed as a part of the day to day operations. That could be shipping costs, paying third-party logistics companies, repairs on machinery, etc.

Taxes and Insurance

The axiom “The only things you can count on are death and taxes” applies to business too—especially business. The taxman comes for businesses in the form of sales tax, property tax, and whatever other State and Local Taxes (SALT) apply. Those are there and always will be. Companies have to carry a certain amount of insurance as well. Insurance is needed to protect the property, inventory, employees, and against liability claims.