how to cover overhead costs

How to Cover Overhead Costs for Your Small Business

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Everywhere you look, it seems many companies – large and small – are going out of business.

Take Toys ‘R Us as an example. The company recently filed for bankruptcy due to a staggering $5 billion in liabilities.

Your business probably can’t compare in size or scale to a retail giant like Toys ‘R Us. Still, even a small business can rack up considerable overhead expenses.

If you need to bring another manager onboard or purchase new equipment, you may wonder how you will manage financially.

In this post, we will discuss some common overhead costs and how you can best manage the money flow in your small business to address these expenditures.

What Are Overhead Costs?

First, what do we mean by the term “overhead costs?”

These refer to ongoing costs you must regularly pay regardless of how much income your business is generating. These might include:

  • Rent
  • Utilities
  • Maintenance and Repairs
  • Insurance
  • Supplies
  • Taxes
  • Advertising and Marketing
  • Staff Salaries

Many of these costs are not directly related to creating the product or service that your company offers. For your business to turn a profit, you must track and manage these costs so that you can budget your resources correctly.

Determining Overhead Costs

Let’s say you run a small business that produces yoga pants and workout attire. It is easy enough to track production costs for material and labor.

What about the cost of leasing the factory that produces the clothing? How about heating and cooling bills? While these costs aren’t directly connected to the attire you produce, they still need to be factored into the product’s final price.

By calculating the total cost of running your company, you can price your products to cover both the production costs and your overhead costs.

While this may sound tricky, the good news is that it is possible to automate your overhead allocation. Most accounting software packages offer the ability to calculate, track, and allocate overhead expenses.

Save Where Possible

If you are having a tough time covering your overhead costs, you may look for ways to cut back.

Have you been in your current location for a while? Do you plan to stay there long-term? Talk to your landlord about the possibility of renegotiating your lease.

If you run a restaurant or another business with workspace, you might consider sub-letting that space to another business. For example, someone who runs a food truck could use your restaurant’s kitchen early in the morning for prep work.

Other ideas to promote your business without incurring extra expenses include:

  • Social media marketing
  • Hosting free events
  • Offering giveaways or freebies
  • Building (and responding to) online reviews

You might also consider switching to energy-efficient lighting and buying used equipment to help reduce your overhead expenses.

Help with Overhead Costs

Of course, there is only so much you can realistically cut back on for your business expenses. Some overhead costs are what they are and need to be paid.

What should you do if you find yourself in a position where you are struggling to cover the necessary bills?

We can help. At Formula Funding, we offer small businesses the working capital necessary to thrive.

Click here to learn more about our working capital loans for small businesses.

We also invite you to contact us with any questions or concerns.

Combining a high level of personalized service with a cutting-edge lending platform, Formula Funding delivers an unparalleled banking alternative. We offer a fast and efficient option to get your business the critical funding it needs without the red tape. We work with all credit grades, tax liens, judgments, and charge-offs – something unheard of at a traditional bank. Since 2010 over 15,000 small business owners have used our funding sources to grow and expand.